Q&A with Claude Bébéar: A Talk with "The Godfather of French Capitalism" (extended)
Claude Bébéar, the 66-year-old founder and chairman of French insurance giant Axa (AXA ), is the most influential financier in the country--so much so that the French press calls him the "godfather of French capitalism." His key role in the recent palace coup against Vivendi Universal CEO Jean-Marie Messier is a reminder of just how powerful Bébéar remains. That power could now increase: Bébéar clearly has the ear of France's new center-right government. And he has set up the Institut Montaigne, an informal group of top executives and academics who are developing free-market solutions for France's problems. In mid-July, BusinessWeek's John Rossant and Carol Matlack dropped by Bébéar's luxurious Paris office near the Presidential Palace for a chat.
Q: How concerned are you about the current turmoil in the financial markets? A:
Q: How concerned are you about the current turmoil in the financial markets?
A:It's very worrying. It's totally irrational. The American economy and the European economies are generally doing well. Yet there is a total loss of confidence in the financial markets. There is no justification for this extraordinary crash.
It's comparable to the Internet bubble, which was totally irrational also, and to the 19th century, when there was a bubble connected to the railroads. This time, you have an irrational bubble going in the other direction.
I think there are two reasons. First, there has been a loss of confidence in corporate accounting. But this is irrational, too, because a relatively small number of companies have serious problems with their accounting. There is no reason to call into question the accounts of all corporations or the U.S. GAAP [generally accepted accounting principles].
We need an intervention by the central banks. They must decisively show their confidence in the economy. And we need concerted action to limit the capacity of hedge funds to borrow. They create a volatility that's irrational -- even immoral.
Q: So where are we heading? A:
Q: So where are we heading?
A:We will get out of this crisis. Today, there is a lot of money sitting on the sidelines. People are not investing because they're waiting for the market to recover. But there are already positive signs. Warren Buffett is saying that he is investing -- and he's someone with very good instincts. Banks and financial institutions are creating new investment vehicles, taking shares that have been massacred in the market and creating portfolios of these shares.
Q: Isn't poor corporate governance to blame, too? A:
Q: Isn't poor corporate governance to blame, too?
A:Incontestably, the companies that are in trouble generally are those where the board has not done its job. The board is there to define the strategy, to name top management, and to verify the execution of the strategy -- and, if the strategy is not executed, to replace the management. Too often, boards's audit committees review the accounts with auditors who are part of the corporate hierarchy. We need to have independent auditors, hired not by the hierarchy but by the audit committee.
Another element of corporate governance is the role of independent board members. I am personally opposed to having management serve on the board. The board should oversee the management. It's also essential that independent board members be competent and that they have no links with the company. Too often, boards include bankers who do business with the company. That's a conflict of interest. And we see too much of this.
Q: What should be done to improve corporate governance? A:
Q: What should be done to improve corporate governance?
A:I distrust government regulation. It always backfires. There are other, more efficient and flexible means. For example, ratings agencies can evaluate corporate governance. In fact, they're already starting to do this.
Q: Why did you get involved in the Vivendi Universal controversy? A:
Q: Why did you get involved in the Vivendi Universal controversy?
A:I didn't choose to get involved. It started when I had a private conversation with three people about the strategy of Vivendi and the personal strategy of Messier. It was leaked to Le Monde, [which] presented it as a conspiracy, which was absolutely false. We denied it. We pointed out that I was not a shareholder, not a member of the board. I was not campaigning against Messier. All the same, from then on I was identified by all the newspapers as plotting against him.
Don't forget also that [Vivendi board member Marc] Viénot described Messier's strategy as "childish," and that the Americans [on the board] were saying that he should be fired. Also there was an article in Le Monde saying that Vivendi had almost run out of cash at the end of last year.
As the pressure on Messier began to mount, everyone began to contact me. The Americans asked me to take Messier's place, but I said no. Leaders in the French financial community also talked to me and said something had to be done.
Finally, a majority of board members understood that there was a serious problem. But while the Americans wanted to get rid of him right away, the French wanted to find a replacement first. They asked me if I wanted the job, and I said: No, but I can suggest someone -- Jean René Fourtou. [The former vice-chairman of drugmaker Aventis was named Vivendi's CEO on July 3.] There were two other possible candidates, but they chose Mr. Fourtou.
Q: And now you are on the board yourself. A:
Q: And now you are on the board yourself.
A:Yes, I'm on the board and am director of the finance committee. The person who is in charge is Fourtou, and I'm helping him. It's only a temporary position for me. I am not planning to have a second career after Axa.
Q: Axa is a shareholder in BNP Paribas, a bank that's a major lender to Vivendi. Did that influence your decision to get involved? A:
Q: Axa is a shareholder in BNP Paribas, a bank that's a major lender to Vivendi. Did that influence your decision to get involved?
A:We have only a 5% to 10% stake in BNP. And even though BNP is a major creditor, it's not the creditors but the shareholders who would suffer if Vivendi were liquidated. The banks would get their money back.
Q: How bad was the financial situation? A:
Q: How bad was the financial situation?
A:If the decision [to replace Messier] hadn't been made when it was, Vivendi would have run out of money within days. The banks were supposed to extend another $400 million in credit, but they decided not to. They would have pulled the rug out from under Vivendi. We made the decision on a Sunday [June 30]. Vivendi had just been downgraded by the ratings agencies. On Tuesday, the banks would have cut off credit.
The reason I agreed to join the board, and the reason Fourtou accepted, was that if Vivendi collapsed, there could have been a systemic effect, a loss of confidence in the French market. We had to prevent this. Now, we are taking the situation in hand. We have secured new lines of credit, and we are evaluating which holdings should be sold to reduce debt, which is at an unsustainable level.
Q: How did the board allow the situation to get this bad? A:
Q: How did the board allow the situation to get this bad?
A:You'll have to ask them. Mr. Messier was very convincing in explaining things to them. I wouldn't contradict you if you described this as a problem of corporate governance.
Q: What is the Institut Montaigne? A think tank? A:
Q: What is the Institut Montaigne? A think tank?
A:No, we call it a laboratory of ideas. We are a group of unpaid volunteers who get together to exchange ideas freely. We share a strong belief in decentralization and individual responsibility, which runs contrary to the centralization that in France is a legacy of our monarchist tradition.
We believe in a strong state that defines the rules and verifies that they are obeyed, but we believe that the state should leave people alone to do their work. And the state should no longer be responsible for providing services such as electricity and railroads. [In France, railroads and the national electric monopoly remain government-controlled.]
Q: Are you hopeful that France's new government will enact such free-market reforms as privatization and deregulation? A:
Q: Are you hopeful that France's new government will enact such free-market reforms as privatization and deregulation?
A:I'm optimistic. Chirac doesn't want to run again, and if he wants to assure his place in history, he has to reform now. Will the new government have the courage of Thatcher and Reagan? We'll see. The real test will come when they face the first conflict. A lot will depend on explaining what they want to do and doing things at the right time, not trying to do everything at once.
Everybody, even the unions, understands that things have to change. For example, it makes no sense that railroad workers can retire with pensions at age 50. It was reasonable years ago when the life expectancy of railroad workers was 57. But now it's something like 75.
Q: Is the new government reaching out to business? A:
Q: Is the new government reaching out to business?
A:Yes. In the last government, there were a few people who made such contacts, but there was such a strong ideology, especially with the Prime Minister [Lionel Jospin, a Socialist], who did not understand business, even detested it. That's not at all the case with the new government. They are widening their contacts with business leaders. They understand that you can't work in a closed room.
Q: Could the crisis in the market make it more difficult to pursue reforms, not only in France but the rest of Europe? A:
Q: Could the crisis in the market make it more difficult to pursue reforms, not only in France but the rest of Europe?
A:It could. But in Europe, unlike the U.S., people no longer remember the crash of 1929. That memory was erased by the war. So in our countries, you don't have as much fear.