What Really Brought Messier Down

Vivendi Universal was supposed to be an emblem for a new kind of French capitalism, freed from the heavy hand of the state and ready to compete in global markets, come what may. Building on its base as a mundane private water utility, CEO Jean-Marie Messier molded Vivendi (V ) into a U.S.-style entertainment-Internet-media conglomerate that was a global competitor. Along the way, Messier often seemed more American than French, moving his family to New York and taking his kids to Knicks basketball games. He jabbed at France's political and cultural elite by talking about open markets and challenging the cherished French system of subsidizing the film industry.

Messier had a lot of help with Vivendi. Members of France's clubby political and business Establishment helped him build and protect his empire. But even though Vivendi is performing at least as well, if not better, than its American model, AOL Time Warner Inc., Messier lost the trust of France's elite. When he became an embarrassment to them, they tightened the screws relentlessly to bring him down.

Messier himself is a product of the Establishment, having traveled the classic path from elite schools to a government ministry to the executive suite. The French bankers and CEOs on Vivendi's board, happy to take part in creating a national champion, went along as he shelled out more than $50 billion on media and communications acquisitions. They stuck with Messier even after it became clear by last spring that the company was in trouble and the board's American minority wanted him out. Rocking the boat, the French feared, could lead to a breakup in which French holdings such as the Vivendi Environnement utilities business or Canal+ movie and cable business could fall into foreign hands. Indeed, one reason Vivendi got into so much trouble was that Messier needed to sell off French assets to help pay down the company's swelling debt but was opposed by the French Establishment. The powers that be in France made it known to Messier that he risked losing valuable broadcast licenses and municipal-utility contracts if he sold these assets to non-French investors. That, of course, slowed down these asset sales and put the company further in jeopardy.

When the Establishment finally decided to move against him, it acted quietly but decisively. Two board members with close ties to President Jacques Chirac met privately with Messier to urge him to step down. When he demurred, the heads of French banks Société Générale and BNP Paribas, both of which are represented on the board, personally informed Messier that they would extend no fresh credit to the company. Most remarkable, Jerome Monod, Chirac's longtime political adviser, consulted with board members and with other influential business leaders on choosing Messier's possible replacement. Imagine the furor in Washington if, say, Karl Rove took part in such discussions. Shareholders, of course, learned about all of this only after the humbled Messier quit.

In the aftermath of Enron, Tyco International, and WorldCom, U.S.-style capitalism is clearly no paragon of virtue. And Messier, as Vivendi's chief architect, bears most of the blame for the company's parlous state. But there's going to be a cloud hanging over corporate France until the country's political and business leaders stop treating publicly traded companies as if they, rather than shareholders, owned them.

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