By Carol Matlack It's France's mystery du jour. On Apr. 28, French-American media giant Vivendi Universal announced that during a stormy annual meeting in Paris four days earlier, someone had tampered with the electronic system used for shareholder voting. The culprits -- most likely a small team of hackers with inside information about the voting system -- intercepted and altered some shareholder votes, Vivendi said. The company lodged a criminal complaint and says it may convene another shareholders' meeting to repeat the result, which saw the defeat of a controversial stock-option plan offered by Chief Executive Officer Jean-Marie Messier.
Authorities are still investigating, but the real mystery is that such an incident didn't happen sooner. In most parts of the world, corporate shareholder voting is still done with old-fashioned paper ballots. But since the '90s, Corporate France has embraced electronic voting with a passion. Most French blue chips use systems virtually identical to Vivendi's, with shareholders voting on handheld devices that transmit radio signals to a central receiver.
The problem, experts say, is that this method is surprisingly easy to crack. "It's quite possible to usurp the identity of a shareholder or block his vote, by using a pirated handheld device or a scrambler," says Phillipe July, who heads French software group PhJ. "This can be done without leaving any trace," he adds.
HO-HUM. If such systems are so vulnerable, why do so many French companies use them? Until recently, close votes at French shareholder meetings were unheard of. Shareholder activism is relatively new in France, and annual meetings were traditionally such cut-and-dried affairs that most companies hired outsiders to handle the administrative details.
French bank BNP Paribas, in fact, has a special unit that runs shareholder meetings for scores of France's biggest corporations. About five years ago, the bank helped set up a company, Multi Media Animation, to develop and market electronic voting systems. A rival bank, Société Générale, markets a similar system that is less widely used.
A BNP Paribas spokeswoman says the bank invested in MMA because it wanted to provide better service to clients. "We saw it as part of our technological development," she says, "and until now, there has never been a problem. We feel somewhat victimized." Officials of MMA have been unavailable for comment since the incident. Adding to the embarrassment, BNP Paribas and Société Générale are among the Vivendi shareholders whose votes appeared to have been tampered with.
DETAILED KNOWLEDGE. So, who hijacked the vote? Suspicion has focused on disgruntled employees at Vivendi's Canal+ pay-TV unit, whose popular founder, Pierre Lescure, was fired by CEO Messier the day before the shareholder meeting -- a dismissal that also prompted angry protests in the streets of Paris. Vivendi says whoever hacked the system would have needed "detailed knowledge of the procedures and technical protocols." After identifying 27 handsets used by major shareholders who said their votes were incorrectly recorded, Vivendi turned the equipment over to authorities for inspection.
The mystery may never be solved. Paris computer-security expert Michel Fermier says the risk of piracy and technical malfunctions increases exponentially with the number of handsets. The Vivendi meeting used about 4,000 of them.
With all those handsets operating on the same frequency, the airwaves get crowded, and it takes longer for the receiver to process the signal, Fermier says. "If you have 200 handsets, it's O.K.," he explains. "But with many more, the delay can be quite long." That creates an opening for pirates. Another possibility: The signals could have been fouled by unintended interference, perhaps created by equipment elsewhere in the building.
GRACEFUL EXIT? Fermier heads Inter Congrès, which has developed an interactive system that allows conference participants to use handsets for posing questions and registering opinions. He doesn't market it for shareholder meetings, however, because of possible legal implications if a vote were to be questioned.
Ironically, the vote snafu may provide Vivendi with a graceful exit from a messy problem. At the April meeting, shareholders appeared to defeat Messier's proposal to authorize nearly $2 billion in new stock options for Vivendi managers. Messier contends that the options are needed to attract top talent, but with Vivendi struggling under an $18 billion debt, and after posting a loss last year following a $13 billion asset writedown, the plan has met furious criticism in France, where stock options are still regarded with skepticism.
Nevertheless, it might have been approved if the votes had been counted accurately. Several of Vivendi's biggest shareholders, including French building-materials giant Saint-Gobain, BNP Paribas, and Société Générale, have said their "yes" votes were incorrectly recorded as abstentions.
SECOND LOOK. After getting approval in early May from French stock market authorities to convene another shareholder meeting, Vivendi appears to be backing away from the idea of a new vote. Now, the company says only that its board will "consider" the option.
Meanwhile, it's a good bet that Corporate France will be taking a second look at electronic voting. "These systems can work very well," says Fermier of Inter Congrès, "but you have to understand their limitations." Correspondent Matlack covers Europe from BusinessWeek's Paris bureau