Reforming French Corporate Governance: A Return to the Two-Tier Board?

There is no one perfect governance model, just as there is no one perfect financial structure. The ultimate aim of governance structure must be that it is continually re-evaluated so that governance structure itself can adapt to changing times and needs.1 I. INTRODUCTION France is often associated with its long history of political revolution, typically marked by marches to Versailles and uprisings in streets of Paris. Today a different type of revolution, sparked by recent allegations of corruption against French executives, is taking place in boardrooms of France's most powerful companies.2 In response to these allegations French business community has started to rethink traditional managerial roles in an effort to reform governance. The term corporate governance, or le gouvernement d'entreprise, has a range of meanings depending on how one uses it. Some authors, such as Andrei Shleifer and Robert Vishny, define governance from an economic perspective as the ways in which suppliers of finance to corporations assure themselves of getting a return on their investment.3 Other authors, such as Robert A.G. Monks and Nell Minow, take a more political approach, defining governance as connection of directors, managers, employees, shareholders, customers, creditors and suppliers . . . to corporation and to one another.4 For purposes of this article, governance basically involves relationship between directors and shareholders. Reformers of governance generally seek a governance structure under which directors are responsible agents acting on behalf of their shareholders and making decisions based on best interests of these shareholders, not their own best interests.5 In addition to encouraging directors to represent shareholder interests more actively, reformers seek a structure that ensures a more equal balance of power between executive and non-executive directors.6 By designing ways to curb executive power and to increase shareholder voice in management, reformers seek to increase shareholder value. The effort to reform governance began in United States in 1970s7 as a challenge to self-interested directors who regularly neglected minority shareholder interests.8 This effort resulted in a string of hostile takeovers, dismissal of many directors,9 and emergence of such publications as Principles of Corporate Governance by American Law Institute10 to instruct directors on proper management techniques. The trend spread to Great Britain where, on heels of scandals involving such companies as Poly Peck, BCCI, and Maxwell, Sir Adrian Cadbury established a committee that published The Code of Best Practice, a nineteen-point code for improving governance intended to be used by those companies listed on London Stock Exchange.11 The effort to reform governance only recently has arrived in France, where legislators and business people are struggling to reform a culture that has been highly centralized around government affairs since time of Napoleon I. These reforms are encapsulated in two influential reports: Vienot Report of 199512 and Marini Report of 1996.13 Both reports suggest ways to improve director accountability to shareholders.14 Although this effort to re-democratize15 French companies is based largely on Anglo-Saxon model, France's governance movement should not be construed as a wholesale purchase of Anglo-Saxon model.16 Rather, one should view France's governance movement as an effort to incorporate elements of Anglo-Saxon model into French system while developing national solutions to problems that are unique to French business landscape.17 On a micro level, these reforms should result in greater financial returns for shareholders. …