Guillotine looms for French autocracy

Business chiefs in France wield immense power. The Alcatel Alsthom scandal could change all that, writes Jonathan Fenby

SIX TOP businessmen, including the heads of two of France's biggest banks, will be grappling over the next two months with the delicate task of finding a new boss for France's biggest conglomerate.

Only when they have made their selection, which they are due to do by the end of June, will there be an end to a saga which has enthralled the French business world all this year, with allegations ranging from misuse of company funds to telephone tapping and secret political funding through Panama.

Getting rid of a powerful boss of a big international company is never easy, and the problem is particularly acute in France, where corporate chiefs enjoy the authority of medieval barons. The head of a big French company is a PDG (prsident directeur gnral, or chairman and chief executive). Any executive unfortunate enough to be just a directeur gnral is a poor second best.

Nobody fitted the autocratic PDG role better than Pierre Suard, head of the Alcatel Alsthom Group until last Tuesday. A reserved former technician with a distaste for the media, Suard headed a company with a Fr167bn (£21bn) turnover and 200,000 employees. The corporate empire's activities stretch from the core business of telecommunications, through trains (including the high-speed TGV and the Channel Tunnel Euro Shuttle) and on to naval equipment, nuclear power and magazines.

Head of Alcatel Alsthom since 1986, Suard made international development his priority,forging links with GEC in Britain and absorbing the telecommunications arm of the American technology giant ITT.

The reasoning behind his strategy was faultless: with increased competition at home, the group could no longer depend on France as its cash cow. The problem was that the world was a more difficult place in which to operate than the traditionally state-dominated domestic market. German telecommunications deregulation hit what had been a big source of revenue in Europe under cosy Franco-German agreements,while Third World orders looked more problematic than in the 1980s.

As a result, Alcatel Alsthom's profits fell last year to Fr3.6bn compared with Fr7bn the previous year.

The profits decline was not Suard's only worry. Disgruntled former employees alleged that the company had been over-billing France's national telecommunications group, France Tlcom by Fr775m.

Then the PDG was accused of using Fr3.4m of company funds to carry out improvements at his home, notably on the installation of a security system.

Suard was hauled in by an examining magistrate for a series of interrogations. Eventually he was placed under "judicial control" pending further investigation. Among other things, he was barred from entering his own office. Other allegations included a suggestion that company "commissions" had found their way through Belgium and a Panamanian firm's Luxembourg account to a French banker connected to a former minister who leads one of the coalition parties in the current French government. Newspapers claimed that Suard had personally paid a high-ranking police contact to bug the telephone of one of the company whistle-blowers in the France Tlcom affair.

Suard is not the only senior executive at Alcatel Alsthom to have had an awkward start to 1995. His close associate, Franoise Sampermans, is also accused of using company funds for home improvements, though her case has not gone as far legally as Suard's. Both she and Suard are fighting the allegations.

Sampermans runs Sir James Goldsmith's old company, Gnrale Occidentale, which is now Alcatel Alsthom's media subsidiary and publishes the news magazines L'Express and Le Point, as well as the Gault-Millau restaurant guides.

Despite the legal problems, the decline in profits, a falling share price and the growing concerns of shareholders, particularly those outside France, Suard remained immovable. Then it became known that prominent members of Alcatel Alsthom's board, including ITT chairman Rand Araskog, thought the PDG should stand aside.

By Tuesday, when a Paris court confirmed the judicial control order against him, the pressure had become too great. The board named one of France's leading bankers, Marc Vinot of the Socit Gnrale, as acting head of the group. Until then Suard will continue to draw his salary, but his days of power are over.

In the wake of the Suard affair, some heretical voices are suggesting that French boards should now play a tougher role in controlling their executive chairmen.

Traditions die hard in French business, but Alcatel Alsthom's recent experiences may provide ammunition for shareholders who think it is high time that the P and the DG were taken apart.

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