If I were a high school teacher … If I were a high school teacher, what would I tell my pupils on the subject of the global debates on corporate governance? First of all, I would say that the doctrinaire attitudes have had their day, even those inspired by Nobel prizewinners. Not only the theory of "management power" but also that of "only the interest of shareholders is legitimate" have failed because the main winner is once again the "auri sacra fames" (Virgil), the terrible thirst for gold. In order for an investment to be sufficiently attractive, shareholders used to call for returns by way of 15%, which was unsustainable in the long term and prevented the other company elements to be taken into consideration: personnel, suppliers, and the social and material environment. Managers, for their part, seriously failed in their task, sometimes behaving as if the company that they were to manage belonged to them from a to z, with a sovereign disdain for the interests and rights of the others. Hence the scandals and the bankruptcies, for which the workers and the shareholders have had to pay, while the managers were able to protect themselves and continue to make sometimes indecent takings. This presentation might seem to you over simplistic, over schematised and, as such, unfair. And you are quite right - but don't forget I am speaking to school children.
The above considerations are not aimed at converting anyone to the theses defended by Galbraith or Friedman (see Michel Albert's explanations in this column on 11 April), but to give a warning about the hidden stakes behind the doctrines. Given the thundering and passionate stance taken in favour of total market liberalisation and against any restrictive regulation, one can immediately understand what category the author belongs to. But reality can be far less demonstrative. The scandals that have caused so much injury to the stock markets, ruined millions of small investors and largely demolished the public's trust in stock exchanges were due to a large number of factors. And there are many complex elements to be clarified and regulated in one way or another: financial connections between rating agencies and the companies they are monitoring; real autonomy of analysts, the question of "independent" administrators, accounting norms and their application … Each provision has an economic and financial impact, and these are the effects that must be understood.
Between shareholders and management. Let me take the example of public takeover bids, because it is the most spectacular and aleady has a long "European" history. The first text on this subject was the only case of a major project rejected by the European Parliament against the opinion of the Commission and a large majority of the Council. The heated debates still in progress on the second text prove that the essential obstacle to an agreement is still that on which the first had failed. It could be summarised in one question: in the case of a hostile bid, can the management of the company under attack itself take defensive measures, or should any action of this kind be explicitly authorised by the General Shareholders' Assembly? At first sight, this is a technical question. But this is what I would tell my hypothetical pupils: - A takeover bid consists in a bid for the purchase of a company's shares under attractive conditions. Often shareholders do not have any direct links with the company. It could be an American pension fund that has chosen the investment because dividends seemed promising. Shareholders may not therefore have any relation - either sentimental or concrete - with the place where the company is located, and its history may not mean anything to them. They would therefore be quite indifferent if the company were relocated, thus depriving the region concerned of a heritage of traditions or a centre from which everything else radiates (as well, of course, of a source of jobs and livelihood). Under such conditions, if the operation were lucrative, there is no reason why the average shareholder should be opposed to the takeover bid.
Should it be left, therefore, up to the management to take defensive measures, a management which lives the life of the company and knows its history and significance? Let us take things slowly: the counter argument is just as valid. The management may be responsible for the downfall of the company and it knows that, if the company changes hands, it will be replaced. The management's motives for organising its defence may therefore be based on selfish reasons, as the new owner could bring fresh dynamism, fresh capital, new ideas and technologies to the region. Furthermore, the defence measures could be extremely harmful for the company itself, for example if they mean selling off some of the assets. Too many managers have shown they consider their own personal interests take primacy over the interests of the shareholders, those of the personnel and the place of location - so that we cannot necessarily put our confidence in them. This is why there is still so much controversy over the takeover regulation and any decision must be taken in full knowledge of the facts.
The next lesson for my pupils will be devoted to services of general interest.
(F.R.)