Gran Tierra Energy Inc. experienced a sharp decline in its share price Wednesday after four directors resigned from the company’s board, citing disputes over the handling of an ongoing Audit Committee investigation.
According to a company filing, Evan Hazell, Sondra Scott, David Smith, and Brad Virbitsky resigned effective March 11 and March 12. The departures reduced the board’s membership from nine directors to five.
Each of the four departing directors indicated their resignation stemmed from disagreement with the majority of the Audit Committee concerning the management of an independent probe into an anonymous complaint. Central to the dispute was the committee’s decision to end the engagement of independent legal counsel that had been retained to conduct the investigation.
In his resignation letter, David Smith - who had been serving as Chair of the Audit Committee - said he "strongly disagree[d] with the decision by a majority of the Audit Committee members to terminate the independent legal counsel," and described that action as "a fundamental error in corporate governance." In a related statement, Sondra Scott said she objected to ending the independent investigation "despite advice from outside council that the investigation should remain independent."
The company has characterized the anonymous complaint as not involving any allegations of fraudulent activity or misstatement in its financial statements. The Audit Committee has instructed management to pursue additional fact-gathering and to retain external legal counsel and other advisors as appropriate to carry the matter forward.
Before stepping down, the four directors held the following roles: Hazell chaired the Health, Safety & Environment Committee; Scott led the Nominating and Corporate Governance Committee; Smith chaired the Audit Committee; and Virbitsky served on multiple board committees.
Context and implications
The simultaneous departure of multiple directors and the dispute over whether an investigation should remain under independent counsel have created a period of governance uncertainty for the company. While the firm states the complaint does not allege fraud or accounting irregularities, the Audit Committee’s actions and the board’s reduced size may influence investor confidence and the company’s oversight capability while the matter is addressed.
The Audit Committee's direction to continue investigating and to engage outside advisors signals that the company intends to take further steps to resolve the issue, though the filing does not detail a timeline or scope for the additional work.