Photographer: Philippe Huguen/AFP via Getty Images

These France Inc. CEOs Brace for Change Under a New President

  • State owns stock in listed companies including Orange, EDF
  • Stakes give next president sway over governance, strategy

Top executives at some of France’s most powerful companies have a lot riding on the upcoming presidential elections: Depending on who wins, they might get fired.

The French state owns stakes in more than a dozen publicly traded companies that it deems strategic, including Electricite de France SA, airport operator ADP and phone company Orange SA, a leftover from the days when the government controlled key industries. It means that anyone hoping to run one of those businesses needs the support of the president -- whose identity is about to change since Francois Hollande isn’t running again. Orange and chipmaker STMicroelectronics NV are among the companies where CEO changes may come the fastest.

He and his predecessor, Nicolas Sarkozy, didn’t hesitate to steer executive nominations and strategic decisions, a policy that runs the risk of putting political considerations ahead of what’s best for a company and its shareholders. The new contenders are no different: Former Economy Minister Emmanuel Macron, who’s jockeying for first place in the polls, in his old job played a role in the appointment of two CEOs -- Air France-KLM’s Jean-Marc Janaillac and EDF’s Jean-Bernard Levy.

“France’s problem is to get rid of the old habits of every new president interfering in decisions about leadership change in business,” said Ludo Van der Heyden, a professor of corporate governance at INSEAD business school in France. Despite Macron’s role in Hollande’s government, the former investment banker may improve corporate governance at state-run companies, Van der Heyden said.

Classic Path

Similarly, Francois Fillon, the center-right Republicans candidate, served as prime minister under Sarkozy when the government replaced the head of Areva SA, the financially troubled builder of nuclear reactors. Marine Le Pen of the anti-immigrant National Front wants to nationalize airports and highway operators, make banks lend more to the private sector and withdraw EDF from a project to build a nuclear plant in the U.K. She’s also a front-runner, though France’s two-round system makes a victory unlikely.

The classic path for the CEO of a French state-owned company is a well-trodden one, typically running from the Ecole Nationale d’Administration or another of the nation’s elite universities, through a senior government job, often in the Finance Ministry, and finally to the executive suite. Examples include Stephane Richard from Orange, whose contract ends next year, and Augustin de Romanet of ADP.

Business Support

Both Macron and Fillon have plenty of allies who would fit that profile and make for likely CEOs. The same isn’t true of Le Pen, who polls show would lose the May 7 runoff to either Macron or Fillon. She and her party have long been shunned by business leaders, and her pledges to pull France out of the euro currency bloc and introduce protectionist measures aren’t winning her any new friends. Business lobbies excluded her and far-left populist Jean-Luc Melenchon from a candidates’ policy debate in February.

Macron and Fillon enjoy the most support from business executives, with Macron generally winning backing from younger managers and older ones leaning towards Fillon, said one CEO of a listed company who asked not to be identified because he does business with the government.

The state’s shareholdings in strategic companies typically are accompanied by seats on the boards of directors via the State Shareholding Agency, known as APE, which is a part of the Finance Ministry. Martin Vial, the agency’s head, sits on the board of power company EDF, which is 83 percent state-owned, as well as carmaker Renault SA and defense company Thales SA. His deputy, Lucie Muniesa, is a director at aircraft-engine maker Safran SA and natural-gas utility Engie.

Ski Resorts

The French agency’s portfolio means the state owns a broader slice of the stock market than do other western European countries such as Germany, Italy, Spain, Belgium and the Netherlands. But that’s just a portion of the state’s investments. Separately, state-owned lender Caisse des Depots et Consignations owns shares in insurer CNP Assurances SA, ski-resort and theme-park operator Cie. des Alpes and commercial real estate company Icade. State investment bank Bpifrance provides financing and investment for French businesses, giving it stakes in dozens of listed companies.

To be sure, the state doesn’t hold a majority of the board seats at its investees, so it generally can’t unilaterally impose a CEO, as it did in past decades. And it probably would struggle to force its will on some of its listed companies, according to Herve Joly, a historian at research institute CNRS in Lyon who specializes in corporate governance.

“In the ’80s and even the ’90s, a new president or government made dozens of nominations in key companies in the six months that followed a vote,” Joly said. “Today, the state often has minority holdings and cannot provoke any change by itself. It’s hard to think about a government changing Renault’s CEO.”

Arm Twisting

Still, behind-the-scenes arm-twisting and politicking often works. The next test case to occur may be Orange. Nicolas Dufourcq’s term as head of Bpifrance expires in March 2018, and he joined the board of Orange in January. He’s a potential successor for Richard as CEO, according to a person with knowledge of the matter. Bpifrance declined to comment.

Other possible candidates to replace Richard if his job becomes available are Groupe Fnac SA CEO Alexandre Bompard, who also sits on the board, and Orange Chief Financial Officer Ramon Fernandez, a former head of the treasury for the Finance Ministry, said the person, who asked not to be identified because the matter is private. A spokesman for Orange declined to comment.

The new government will face a logjam at chipmaker STMicro, where Dufourcq also serves on the board. France and Italy each own about 14 percent of STMicro’s stock via a holding company. The company has struggled to name a successor to CEO Carlo Bozotti, whose contract expires in May, because the state shareholders have failed to agree on someone from either country.

— With assistance by Alexandre Boksenbaum-Granier, Helene Fouquet, and Francois De Beaupuy

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