France's biggest business district, La Defense, a Paris suburb
Over the past two decades, France has made major efforts to modernize its economy and change the attitudes of its workforce in order to make the nation more market-friendly and competitive in the age of globalization. But the one place where these changes to France Inc. have failed to take root is the boardrooms of the biggest companies, which in many ways remain the same smoke-filled old-boys clubs they were 50 years ago.
According to recent studies of French business, the power in the country's largest companies is still dominated by a relatively small number of men. A December review by Ernst & Young, for example, found that a mere 98 people control 43% of the voting power on the boards of the 40 companies comprising France's leading CAC 40 stock index. Not only that, but this dominant corporate core is nearly 80% French — a lopsided percentage, given that nearly 40% of the capital in those businesses is owned by foreign investors. And suggesting that the glass ceiling is still very much intact, the number of seats held by women on the CAC 40 boards is less than 10% of the total.
Indeed, the profile of the average French board member painted by the Ernst & Young report seems frozen in time: the person is typically a 59-year-old male from one of France's élite graduate schools. He probably serves on more than one board. (French law permits people to hold seats on up to five companies' boards at the same time.) French boardrooms are far less diverse than those in other nations; a survey last month by the independent Politico-Economic Observatory of Capitalistic Structures (PEOCS) indicates that the concentration of business power is greater in France than in most other Western countries — especially the U.S. and Britain.
"This is a clear and unabashed oligarchy situation in which 150 people, max, run French business in a collusive but entirely legal manner," says Eric Grémont, a co-founder of PEOCS and a co-author of its upcoming book A la Découvert des Grands Patrons (Fleshing Out the Big Bosses). "You hear and read a lot about dynamic new companies and rising CEOs, but those are the tiny exceptions to the wider rule: French business is controlled by a small élite of very powerful men free to decide things as they wish — so long as they don't screw up."
Though the leading companies in France have historically been run by a relatively small and delineated class of industrialists, analysts say that circle has, ironically, grown even tighter with the rise of globalization — and is now dominated by financiers. Analyses show that a disproportionate number of people sitting on the boards of the CAC 40 companies come from the country's largest and most influential corporations — mainly banks and financial firms — giving them considerable influence over the operations of the other companies. Four executives from the French bank BNP Paribas, for example, sit on the boards of 12 other CAC 40 companies, including the environmental-services group Veolia, the oil giant Total and the aerospace consortium EADS.
This cross-pollination of executives among CAC 40 firms in France has created a tight-knit milieu where business and personal interests are intertwined in what might raise conflict-of-interest concerns elsewhere. But because of the historical coziness of corporate France — and the current conservative government's pro-business philosophies — the private sector has largely been left to police its own boardroom policies. And this has brought forth little change. When France's main employers' groups, the Movement of the French Enterprises and the Association of French Private Enterprises, drew up corporate-representation guidelines in 2000 to try to diversify French boards, they were virtually ignored. Legislation was recently introduced to require companies to reserve at least 40% of their board seats for women by 2016, but critics note similar parity laws have been ineffective.
It's not surprising that virtually all of the country's top executives were educated in the same institutions as those who have long dominated French politics: France's exclusive grandes écoles. These polytechnic, administrative and business graduate schools not only hone the intellectual mettle of the students they accept but also help them create the networks they'll need to rise to the highest circles of power. The problem is that the seats at these schools tend to go to the children of the élite, ensuring that power stays in the upper class — even in the same families — from generation to generation.
"It's hardly a secret in France that in order to become an executive in a top French company, be asked to serve on a board or be tapped for a high civil-service post, you've got to have the right background, the right education, and have the powerful network of allies to help you get there," says Marc Touati, deputy director of the Paris-based financial-services group Global Equities. "Most are well-trained and talented people, but there are lots of people like that who have no chance at those top spots. Like it or not, France is run by a caste."
Touati notes that this system has gone largely unaltered for 40 years, despite other changes that have taken place in the economy: nationalization, socialization, privatization and pro-market reforms. Grémont says that such enduring élitism is difficult to challenge in normal economic times, which is the main reason some French executives continue to fear that the current global recession could morph into something more serious: a 1930s-style meltdown capable of shaking the entire economic structure to its foundations. Were that to happen, chain-reaction bankruptcies of companies could force the French state to step in and nationalize industries, dismantling the boardroom power structure.
But there's another way change could come to the top of France's economic pyramid: the foreigners who hold 40% of the CAC 40 companies' capital could increase that amount and then demand the kinds of shareholders' rights and powers they enjoy in the U.S. and Britain — and stage a mini-coup of the France Inc. boardrooms.