Commentary: En Garde, French Shareholders

Les Anglo-Saxons is a loaded term in Paris these days, somehow suggestive of stop-at-nothing free marketeers looking to pull a fast one over the guileless French. Yet even diehard Gaullists probably recognize that if French capitalism has matured in recent years--and it has--a large measure of credit must go to the British and the Americans. Thanks to privatizations of state companies, share ownership has increased tremendously. French managers are starting to reveal their take-home pay--a big step toward global transparency standards. And the French are debating adopting other features of the U.S. model, from stock options to lower taxes. All this reflects lessons learned across the English Channel and the Atlantic Ocean.

But there's one feature of U.S. corporate life the French should block at the dock: the use, or rather abuse, of the poison pills many U.S. corporations concocted to fend off unwelcome takeovers in the 1980s. Some big French companies are making ominous moves to impose restrictions on shareholders' rights. But moving away from the principle of one share, one vote by making some shareholders more powerful than others is not the way to go if France is to take the place it deserves in the global economy.

FEAR FACTOR. Taking advantage of French legislation that gives companies the power to limit voting rights, some of France's top corporate chiefs are moving to iron-plate their managements from outside threats as fast as they can. On Apr. 18, Societe Generale, the big French bank, passed resolutions stipulating that a shareholder can only vote 15% of his votes, no matter how big a stake he holds. Similar restrictions are already in place at blue chips such as food giant Danone, drinks group Pernod Ricard, and telecom-equipment maker Alcatel.

It's getting worse. Over at Vivendi, the $40 billion-a-year water company turned media powerhouse, Chairman and CEO Jean-Marie Messier has tabled limitations even more draconian than Soc Gen's: He wants severe limits on the voting rights of any shareholder owning more than 2% of the company. Adding insult to injury, the only big shareholders whose voting power would not be diluted would be those who tender their voting rights to Messier. Undemocratic? Mais oui. Illegal? Non.

Not surprisingly, groups promoting shareholder rights in France are aghast--especially as other European countries, notably Germany, are abolishing their restrictions on voting rights. "The rules of the game have to be free," says activist Colette Neuville, head of the Association for the Defense of Minority Shareholders, which is trying to mount a legal challenge to Vivendi.

It's not difficult to see what's motivating managers such as Vivendi's Messier and Societe Generale Chief Executive Daniel Bouton. It's fear. With the unwinding of traditional cross-shareholdings in France over the past decade or so, the heads of many big public companies can no longer rely on the support of a small, hard core of stable French shareholders.

And the French are learning a lesson from the $175 billion takeover of Dusseldorf-based Mannesmann by Britain's Vodafone AirTouch PLC last February: Just as German shareholders threw their weight behind that cross-border deal, companies such as Vivendi can no longer count on local investors to vote for French management.

LEARNING CURVE. Neither is the timing of these recent moves any surprise. Across Corporate France, the influence of non-French shareholders is growing greater by the day. U.S. and British pension funds are allocating more and more of their portfolios to foreign blue chips, and they're making their voices heard in clear English: Perform or perish. More than 40% of the capital represented in the Paris Bourse's CAC 40 index--the creme de la creme of the French economy--is controlled by these faraway funds.

It's a tough world out there, as French managers are learning. They not only have to battle relentless competition but also need to keep a constant eye on cash-rich predators stalking across the European landscape. But there's no better way to stay in fighting trim than the reality check provided by empowered shareholders. It's time the French tightened company law to ensure that one share equals one vote. And it's time for French companies to listen to their owners.

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