Shady Acres

Matthew McClearn
Canadian Business
August 16, 2004

Richard Bentley, the 18th-century English scholar, once observed that “no man was ever written out of reputation but by himself.” It is so, too, with corporations. A striking demonstration of this is Acres International.

Convicted of bribery in Lesotho, this company is a case study in how not to handle a crisis of reputation Richard Bentley, the 18th-century English scholar, once observed that “no man was ever written out of reputation but by himself.” It is so, too, with corporations. A striking demonstration of this is Acres International, which recently became the first large multinational to be banned from participating in World Bank projects. It’s a case study in how not to handle a crisis of reputation.

Acres is an Oakville, Ont.-based engineering consulting firm brought low by graft. In the late 1980s and early 1990s, it won several contracts (worth US$20 million) on a massive hydroelectric and water project in the tiny African nation of Lesotho. Acres paid an agent handsomely to help clinch these contracts–an agent who, it was revealed, used 60% of Acres’ payments to bribe a senior government official. Acres was indicted along with a slew of other multinationals in Lesotho’s High Court shortly after the scandal broke in 1999.

The company maintained that the agent was acting on his own. That position became increasingly untenable as Swiss banking records and other evidence mounted. Management further endeared themselves to Lesotho by declaring that the country’s judiciary lacked sufficient experience to handle a case of such complexity. Their testimony provoked the judge to declare they lacked integrity. “The prosecution of Acres left a bad taste,” prosecutor Guido Penzhorn said in a speech earlier this year.

Lesotho’s High Court found the company guilty. Acres indignantly appealed, and lost. Acres “will live in the shadow of the taint of the corruption,” opined the Appeals Court. According to officials in Lesotho, the company has now defaulted on paying the fine of 15 million maloti, or about $3.2 million. (Acres denies this and says it will pay its final instalment soon.)

Meanwhile, investigators at the World Bank, which provided US$70 million of the water project’s financing, also concluded that Acres knew about the bribery or, at the very least, turned a blind eye. The bank’s sanctions committee, which reviews allegations of corruption, initially cleared the company in 2002 for lack of evidence. But when confronted with new evidence from the trial, the bank reopened proceedings earlier this year. In July, World Bank president James Wolfensohn debarred Acres from participating in bank-financed projects for three years.

In a terse statement, Acres says it is “deeply disappointed” with the debarment. “The events in Lesotho occurred 10-15 years ago and the five-year period over which Acres has responded to these allegations has been very trying for our employees,” it reads. Acres seems oblivious to how trying corruption can be for a Third World country; for one thing, it diverts aid money from its intended purpose. What’s more, Acres seems to have missed the central lesson in all this: that companies can be held responsible for the actions of their agents.

Contrast that with other recent corporate crises. In August, WestJet CEO Clive Beddoe accepted responsibility for acts of corporate espionage allegedly conducted by recently dismissed vice-president Mark Hill. Royal Dutch/Shell agreed to pay US$150 million in fines to settle allegations of impropriety regarding downward revisions to its oil reserve estimates. While damaging in the short run, coming clean has at least allowed these companies to start rebuilding their reputations today.

But Acres is unrepentant. On its website, one can find a list of engineering awards the company has won, but its search engine cannot locate a single mention of the words “bribery,” “corruption” or even “Lesotho.” Its only concession has been to introduce a “business integrity management system.” Patricia Adams of Probe International, an aid and trade watchdog, has reviewed the model on which Acres’ system is styled. “As far as we can see, it’s all internal,” she says. “I can’t see what good it would do. Acres had internal procedures in place before.”

During the past year or so, Acres has shrunk by about 300 employees, to 800. In June, its shareholders–comprised largely of hundreds of current and retired employees–sold the company to Hatch Ltd., a larger engineering firm based in Mississauga, Ont. In giving the deal his blessing, Acres president Tony Hylton said, “Acres has now gained enormous strength and opportunity for growth, with a company that shares similar values and vision to our own.” For the sake of both Hatch and the Third World, let’s hope not.

Categories: Africa, Odious Debts

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