April 22, 2002
Time Atlantic
With reporting by Joe Perry
A tale of two companies--appropriately enough, one in London and the other in Paris. Orange, the wireless telephone operator, looks very much like a British firm. Launched in the U.K. in 1994 by subjects of the Queen (a Canadian backed with Hong Kong money), it has become one of the country's best-known brands and its most popular mobile network, with more than 12 million active subscribers in Britain. Its current CEO lives in Kensington and goes to work in W1. But Jean-Francois Pontal is also a Frenchman who was sent to Orange by France Telecom, the partly state-owned utility that bought the firm in 2000 and still holds 85% of its shares. Orange, in turn, now runs its parent's old mobile network in France from London. "The language of Orange is English, everywhere," says Pontal, who avoids West End theater because his own English isn't quite sharp enough. "So Orange is not really a typical French company."
Or maybe it's a lot more typical than most French would like to admit. To see what we mean, just hop the Eurostar to Paris, and look up the head office of Suez, in a refurbished hotel particulier a short walk from the Elysee Palace. Here is a deeply French enterprise, whose complicated history is intertwined with the nation's. In the 19th century, when France was still a world superpower, one of its corporate ancestors built and operated the Suez Canal. After World War II, another branch of the family, Lyonnaise des Eaux, lost its gas and electricity businesses to the state. And in 1982, Socialist President Francois Mitterrand, as part of a massive public takeover of the French economy, nationalized Suez (which by then was mostly a bank) outright.
But that company is barely recognizable in today's Suez. After CEO Gerard Mestrallet took over the reprivatized company in 1995, he began unraveling Suez's vast collection of businesses, and got out of banking. "I realized it wouldn't be possible in the international financial market for us to be a diversified holding company any more," he says, explaining that investors on Wall Street and in London pay more for so-called pure plays. Mestrallet has focused Suez on its global water, energy and waste management businesses. Result: the majority of Suez's revenues come from outside France, and about half its shares are foreign-held.
Suez and Orange are just two examples of what Philip Gordon, senior fellow at the Brookings Institution, calls France's "globalization by stealth." Look at how the rest of the CAC 40, France's leading share index, does business these days. Half of automaker Renault's profits in 2001 came from its partnership with Japan's once-ailing Nissan Motor, which Renault is helping to revamp. Cement maker Lafarge, even though it's in a naturally local business (cement being costly to ship), gets over 85% of its sales from outside France. Meanwhile, oil producer TotalFinaElf, Jean-Marie Messier's Vivendi Universal and financial services giant Axa are all mostly owned by non-French investors. In all about 40% of French shares are in the hands of foreigners. That's more than in Germany or even in that free-trade bastion Britain. "You are starting to get to the point where these are not even French companies," says Gordon. "If foreigners own them, and they sell their stuff to foreigners, they're global companies with headquarters in France."
So much for l'exception francaise. The French as much as foreigners cherish the stereotype of a proud but often insular nation that still plays by its own economic rules. Yet on the home turf of Jose Bove--where a Marks & Spencer going-out-of-business sale is regarded as a crime scene, and politicians of all stripes must be seen defending the monopoly of the state-owned Electricite de France--France's corporations have proved to be not the victims of globalization but among its most effective agents. And French managers say, with little regret, that they are more exposed to the rigors of Anglo-Saxon shareholder capitalism than their counterparts in the rest of Continental Europe. Perhaps instead of vandalizing McDonald's, the kids in balaclavas would do as well to smash up a few Renaults.
How did France get here? As a rich but medium-sized economy, it has always had much to offer the rest of the world, particularly in industries that require serious know-how. Take the water business, which is dominated worldwide by Suez and its French competitor Vivendi Environnement, formerly Generale des Eaux. Both firms specialize in concessions, or deals to invest in and run a city's waterworks over a long contract of, say, 30 years, without actually owning the assets. Contrary to France's image as a strictly state-led economy, Mestrallet says, "We French invented the concept of private management for public services." Once the two rivals had split much of the domestic market between them, foreign markets were the logical next step. Cities including Buenos Aires and Casablanca now get their water from Suez. (Selling water for profit in poor countries has, incidentally, made Suez a natural target for globalization foes outside France.) "Suez had to catch the growth where it was, and it was on the international market only," says Mestrallet.
France's openness to foreign capital--if not to actual foreign takeovers--is more surprising. Ironically, it's a product of the French exception. The Socialist government of Lionel Jospin has privatized more assets than the six previous governments combined, but maintaining France's social safety net was part of the bargain. The French pay high taxes--some 45% of GDP in recent years--to support generous public health-care and pension benefits; they don't need to play the market to win a secure retirement. Though stock ownership is on the rise, less than 13% of the French hold shares, compared to 23% of Britons.
Those privatized companies had to go somewhere for capital, and they've largely turned to American and British fund managers. It has radically changed the job of the French executive. "These guys are from the civil service, and they were used to talking to ministers," says Elie Cohen, an economist at Paris' Institute of Political Studies. "Now they have to deal with some small guy from Wall Street."
The state still holds big chunks of some of France's key companies: just over 25% of Renault, 22% of Thomson Multimedia and 55.5% of France Telecom. But executives at most such firms insist the state is just another investor. "I have never received an order from the government as a shareholder," says Thomson CEO Thierry Breton, who was appointed by the government to revive the consumer electronics firm in 1997. "I propose, and then we discuss." Considering the Jospin government's track record, that's probably true. Renault, for one, has arguably been freer to cut jobs than Volkswagen, which counts the state government of Lower Saxony among its shareholders.
The influence of Wall Street and London can be a mixed blessing. Just look at France Telecom. The company's shares have lost half their value over the past year, largely as a result of its towering 60.7 billion[euro] debt pile, amassed during the telecom boom as boss Michel Bon invested in foreign businesses including Orange, cable operator NTL and MobilCom in Germany, and snapped up high-priced 3G licenses outside of France. Some financial analysts blame the state: they say France Telecom might have tended its balance sheet better if it didn't have one big, reliable shareholder backing it up. But the real problem is that Bon and company fell for the same market hysteria as the rest of the industry. "France Telecom doesn't make silly choices because it is state-owned," says economist Cohen, who used to sit on France Telecom's board. "NTL and MobilCom are silly choices made by silly management."
Whoever holds the shares, French corporate life remains distinctive. Orange notwithstanding, French corporations have been slower than their Germanic rivals to adopt English as their lingua franca. "The difficult thing," says Michel de Virville, general secretary in charge of human resources at Renault, "is to make sure that our guy in Hungary, who speaks only English and Magyar, can call and the telephone will be answered in English." But French managers may have one advantage over the Anglophones when they do business abroad: they aren't as arrogant. "We French disagree on so many things among ourselves that we are accustomed to not thinking there is one single way," says Bertrand Collomb, CEO of Lafarge, which has operations from Poland to Korea.
France could even teach some of its economic rivals a thing or two about open markets. Consider the case of Electricite de France. In spite of President Jacques Chirac's stand in March against opening up the residential electricity market to competition, France's industrial energy market--the one EDF competitors like Mestrallet are really interested in--will be wide open by 2004. Mestrallet compares that situation to the U.S., where 50 separate states can say yes or no to deregulation. "The U.S. started deregulating energy 20 years ago," he says. "Today I would say we are catching up. We are moving faster and in a more continuous way."
An American might be surprised to hear all this, but then again so would many French. The globalization debate in France flares up over emotionally charged, one-off stories, such as last year's layoffs at Danone or Jean-Marie Messier's move to New York. But overall, corporate France's own active role in globalization has been a low-profile affair, perhaps because neither left nor right want to talk about it. The politicians "haven't really got the French to buy into globalization," says Brookings' Gordon. "In fact they've often done the opposite, with endless speeches about the need to tame it and contain it." This is fine as long as the economy keeps growing, but in leaner times the public could be far less willing just to let France's increasingly foreign-held companies follow the market's lead. Even if globalization is a done deal in France, the debate over it is far from settled.
