Will the French Ever Learn to Love Big Business?
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Holmes Report

Will the French Ever Learn to Love Big Business?

All around the world, from the free market of the United States to communist China, people agree that the free market system is the best way forward. In only one of 20 countries surveyed did a majority disagree with that proposition: France.

Paul Holmes

All around the world, from the free market of the United States to communist China, people agree that the free market system is the best way forward. In only one of 20 countries surveyed by the Program on International Policy Attitudes at the University of Maryland and international polling firm Globescan did a majority disagree with that proposition: in France, only 36 percent agreed that that the free market economy is the best system, while 50 percent disagreed.

In the United States, there’s an oft-repeated joke, based on a quote attributed to President George W. Bush who is supposed to have said that “the problem with the French is that they have no word for entrepreneur.” On one level, the joke is a jab at the president’s ignorance of language; but on another level it’s a telling comment on French attitudes toward business.

The French left, in particular, is deeply suspicious of globalization and its impact. A recent survey conducted by Telos found a deep divide between the governing UMP party and its Socialist opposition. While 70 percent of UMP parliamentary deputies believe high unemployment is the result of an inflexible labor market, a similar number (71 percent) of socialists, blame global competition. And while 43 percent of UMP deputies say globalization is a mostly favorable phenomenon (a number than does not denote wild enthusiasm), only 5 percent of socialists agree.

So French voters are likely to be confronted with a stark choice in next year’s presidential and parliamentary elections: between embracing economic liberalism, free markets, and increased competition on the one hand, and retaining traditional French social capitalism, restrictive labor laws, and economic protectionism on the other.

The past couple of years have provided a stark illustration of the consequences of French ambivalence toward free markets, from the rejection of the proposed European constitution to the student protests over Prime Minister Dominique de Villepin’s relatively modest efforts to liberalize the country’s labor market.

Those events have prompted a national debate in which corporations—indigenous French companies and multinationals with operations in France—have a considerable stake. Doing business in France market poses unique challenges. Decisions that would be routine in the U.S. or the U.K. can cause enormous controversy and even social unrest.

Last September, for example, after Hewlett Packard announced plans to cut almost 6,000 jobs across its European operations—1,240 of them in France—the company faced a firestorm of criticism.

“The story occurred against a backdrop of two national issues,” says Jean-Pierre Beaudoin, chief executive of French public relations consultancy i&e Consultants. “First, the government had recently promised that its first priority would be unemployment.” In fact, the HP announcement came only days after Prime Minister Dominique de Villepin had made unemployment—running at 10 percent in France—his number one priority..

At the same time, Beaudoin says, public policy in France has changed to emphasize centres of excellence in certain industries, and Grenoble [the French headquarters of HP, where most of the job cuts would likely occur] was a centre of excellence in high-tech, the site of an economic and entrepreneurial story the French were eager to tell to attract more foreign investment.

Hewlett Packard’s European managers were summoned to Paris in late September for a meeting with the French Labour Minister, and de Villepin suggested that companies might be required to sign a “code of conduct” limiting their ability to lay off workers if the government financed roadworks and other public improvements benefiting their factories. President Jacques Chirac even asked the European Commission to intervene, although it declined to do so.

Patrick Nowak, a representative of the CFE-CGC trade union, said that an inter-union committee at HP would call for a strike, arguing that management did not appreciate “the impact of such a decision on workers.” Angry workers poured into the streets in the city of Grenoble, where HP employs about 2,400 people, about half its French workforce.

Meanwhile, the reaction of political leaders to overseas bids for French companies has led to charges of protectionism. In July of last year, rumors that Groupe Danone—one of France’s biggest food companies—was the target of a potential takeover bid by PepsiCo prompted several politicians to warn that they would not permit Danone to be bought by a foreign company.

A matter of hours after the first reports of an intended bid, senior sources within the government were issuing assurances that a leading French corporation would not fall into American hands. While such attitudes are not unique—at the same time, U.S. politicians were stating their opposition to a Chinese company’s bid for oil giant Unocal—they were in marked contrast to the British government’s willingness to allow Rover (the last of the U.K.’s automakers) to fall into foreign hands.

In August, after The Wall Street Journal reported that a Brazilian company was thinking of making a bid for Eramet, a French mining concern, the French government revealed that “it had compiled a list of eleven sectors that it would shield from foreign takeovers,” the Journal reported. While the list was not made public, it was said to include casinos, biotechnology companies, and businesses related to security and defence. 

And in the first quarter of 2006, there was another controversy, after the Dutch company Mittal Steel launched a hostile €18.6 billion bid for Arcelor, a Luxembourg company that employs 30,000 French workers. French finance minister Thierry Breton, former chief executive of France Telecom, expressed “very strong concerns” about the deal.

The political defense of Arcelor was positioned not in terms of protectionism, however, but rather as function of a broader view of an organization’s responsibilities and a reluctance to allow the short-term interests of shareholders to override the needs of other stakeholders. It was not, according to Breton, a forlorn attempt to hold on to the ways of the past but rather an example of a broad, forward-looking, more progressive approach to business.

“The future of a business of this size is of crucial economic, industrial and social importance and has to be taken into consideration by any government whose duty is to promote national growth,” says Breton, arguing that the French minister of the economy is an “obvious stakeholder” in Arcelor. “Other stakeholders, such as employees, management, customers, suppliers and local authorities also have the right to state their opinion. It is in the interest of the shareholders of Mittal Steel and Arcelor to listen because the success of the future company and its shareholders is also a function of stakeholders’ consensus.”

Criticizing Mittal for its failure to present a “detailed industrial and strategic plan” and for an ownership structure that would ensure that Mittal’s founder held on to a majority of voting rights, Breton pointed out that “everyone knows inadequately prepared or executed mega-mergers increase risks of value destruction.”

It is clear that what French parliamentarian Bernard Carayon has termed “economic patriotism” is much more popular among French voters than de Villepin’s attempts to liberalize the employment laws. After the prime minister derailed an Italian bid for Suez, the French utility, by brokering a merger with Gaz de France, 69 percent of those surveyed by TNS Sofres said they approved of government intervention against hostile bids from abroad.

Even if companies can avoid such controversy, the costs of doing business in France are high. Guillaume Herbette, chief operating officer for Fleishman-Hillard in Europe, has analyzed the “social costs” of doing business in the region’s major markets. Social costs vary from market to market depending on employment law—the 35-hour work week in France, for example—holiday time, rules governing maternity leave and more.

In the U.S., Herbette says, social costs are around 8 percent of salaries; in the U.K., they are 13 percent; in Germany, 20 percent; in Italy, 30 percent. But in France, social costs are 47 percent of salary—significantly more than in any other market in Europe.

In the face of these challenges, and sensing the opportunity for change, businesses in France—historically reluctant to open themselves up to criticism by speaking out—are starting to take an active role in the debate.

“Since the end of the second world war we have been proud of our social model and we have been absolutely convinced that France has invented something unique between the capitalism of the Anglo-Saxon world and socialism,” says Christophe Lambert, president of the French operations of advertising group Publicis and author of the recent essay The Society of Fear, which examines the French economic malaise. “In the early 1980s, the U.S. and the U.K. revolutionized their economies to face globalization. We have refused to do so and in election after election we have chosen politicians who told us we can do without change.”

While several individual leaders have spoke out about the need for change, the most dramatic change involves the French confederation of employees, Medef (Mouvement des Entreprises de France), which has transformed itself over the past decade.

When Ernest-Antoine Seillière took charge of the group in 1997, it was “stuffy, marginal and unloved,” according to a recent article in The Economist. Today, Medef is no longer marginalized—although business is not noticeably more popular than it was.  In July of last year, Seillière handed over the reins of the organization to Laurence Parisot, boss of Ifop, an opinion polling firm, who promised during her election campaign that she would try “to reconcile France with its entrepreneurs.”

She said Medef—which administers the country’s social welfare system in partnership with the unions—would take a more active interest in social issues, introducing programs to help cut unemployment (still close to 10 percent), integrate ethnic minorities, and to avoid the more confrontational approach that characterized the final days of Seillière’s tenure.

But in January, Parisot launched an uncharacteristically blunt attack on French institutions. She was scornful of President Jacques Chirac’s call to tax the value added by high-growth companies, which came as he was praising those same companies as the engines of future economic growth (“There is an incoherence there,” she says, demonstrating a real gift for the obvious.) She also criticized the president for interfering with agreements between employers and the unions on professional training, and suggested that the state should not determine the length of the work week but leave such decisions to employers and their workers.
“We have to accept that decisions can no longer be made from the top of the state hierarchy, between senior civil servants,” Parisot says. “The legislators should decide the grand principles and, once they are decided, should let us negotiate directly with the unions…. It is not right to set one level of competitiveness for everyone at the same time. In some sectors it might be right to work 39 hours a week and in others 36. These issues should be debated at a decentralized level between representatives of the companies and employees.”

In an interview with the Financial Times, Parisot made the case that the next two years will be critical, with presidential elections creating the opportunity for a candid discussion of the issues facing the country. Medef will play a lively role in that debate, she says.

“Seen from abroad, perhaps one has the impression that things aren’t changing. But you have to realize that in France these things always begin with a debate of ideas. Once debate is under way, we act. I think the debate has begun.”

If companies are to influence change, however, they will need to change some deeply entrenched attitudes and address some very real—and understandable—fears.

“When you look at the French and Dutch referendums, it’s not surprising that the majority of people have concerns,” says Christian Terwiesch, a professor at the Wharton School of Management. “For those who grew up in the Old Europe, if the EU suddenly includes Eastern Europe, which is just next door, you can get in your car and drive over to economies with wage rates and employment standards that are so dramatically different. I don’t want to be judgmental, but you can imagine the fear and emotions on the part of employees in Old Europe who have worked hard but their jobs just moved a few miles across the border and their contribution is no longer valued.

“In a world that’s used to stability, the frustration is with new EU members and their cost advantage. And it’s frustration with global forces. A referendum is the only time in their lives when they can say no to globalization.”

The concerns of ordinary French workers about the impact of globalization are understandable and perhaps even rational—while globalization creates more winners than losers, the latter feel their losses acutely—the student revolt that saw as many as 3 million people take to the streets to protest new labor laws was more baffling to outsiders. So too was a poll indicating that three-quarters of young French people aspire to jobs in the civil service rather than the private sector, because of the attendant promise of “a job for life.”

The student protests that culminated in nationwide strikes on March 28 were focused on de Villepin’s proposal for a change in the CPE, an agreement that governs job contracts for workers under the age of 26. The prime minister sought to encourage employers to hire more young people—currently suffering a 23 percent unemployment rate—by making it somewhat easier to fire them during a two-year trial period.

The protests attracted not only students but also older workers, and those from the public sector (which is not covered by the CPE), as the reforms became a symbol of liberalization and a focus point for fears about globalization.

“A common feature unites France’s underclass rioters and the rebellious students,” opined The Economist earlier this year. “This is the failure of the French political class to explain to the electorate what is at stake, why France needs to adapt, and why change need not bring only discomfort. This failure has bred a political culture of reform is carried out with one hand and blamed on outside forces—usually globalization, the European Union, or America—while soothing words about protecting the French way are issued on the other.”

“Private enterprise is perceived as Anglo-Saxon,” says Beaudoin. “The French are particularly suspicious of American attitudes to business. “There is a feeling that without a strong role for government, companies will not act in the general interest.”

At the same time, “You cannot really talk about the French attitude toward business, because it’s not monolithic,” says Beaudoin. “There is quite a positive attitude toward small businesses, where there is proximity of management and ownership, and more of a family feeling. The French like small business, but they don’t like big business. There is not the culture of cooperation in France that there is with labor unions and management in Germany, for example, so the relationship of French people to big business is much more confrontational.

“Then there’s the attitude toward foreign business. It is accepted that foreign business will operate more along Anglo-Saxon lines.”

“It’s very complex,” says Jean-Pierre Rousset of TBWA Corporate in Paris. “People tend to love the company they work for. They like their bosses. But in general they don’t like companies and bosses.” Equally contradictory, he says, is the behavior of French consumers. “The criticize products made in France and buy products made in China. As citizens, they say that foreign products are bad, but as shoppers they just want to pay less.”

But French skepticism about the private sector is not a new phenomenon. Jean-Pierre Beaudoin traces the French attitude toward business back to the time of Louis XIV. “The people who have shaped France from an economic point of view have always been in government,” he says. [Louis XIV’s finance minister Jean-Baptiste] “Colbert has done more for the structure of the French economy than any business by itself.”

Colbert was convinced that international trade was a zero-sum game and pioneered state control of the French economy,

So while many government-owned companies have been privatized in recent years, many French people are still more comfortable with the idea that the government should control large businesses—particularly utilities, or companies in the financial services sector, where stability is obviously important.

“Twenty years ago, the state owned about a third of the French economy, and was responsible for about a third of business investment,” Beaudoin says. “The government helped guide sectors that were seen as strategic, such as energy, or transportation, or banking and insurance. So it’s not surprising that people from the older generation hold these views about the role of government and the role of business. The next generation will have different views.”

Religion plays a role, too.

“We must never forget that France is a Catholic country by culture,” adds Jean-Baptiste de Bellescize, chairman of Porter Novelli and head of its French operations. “Weber and Alain Peyrefitte explained very well that the Catholic culture reinforced by the Counter Reformation has banished profit and developed a culture of mistrust which is the opposite of the protestant culture which is based on trust. The mistrust in business is explained by our culture and must not be seen on the short term but in the long run.”

Negative perceptions of French business begin in school, Parisot says, where children are taught to see companies as a source of conflict.

“Schools are places where the traditional culture is transmitted,” says Beaudoin. “Schools are where young people learn about the history of the country, and the history is that the government has had a strong role in the economy and in business. But the ideology of teachers is also a factor. Most teachers are not very familiar with companies, they have no experience in the business world. And they tend to vote on the left, so they don’t have very positive attitudes about business.”

(The same can be said for politicians. According to Parisot, about 80 percent of French politicians come from the public sector.)

De Bellescize believes that the education system is only part of the equation. “The problem starts at home,” he says. “It is confirmed at church and reinforced at school.”

Nevertheless, there are several programs now in place designed to address some of these issues, including an initiative that invites teachers to spend time inside major corporations, and others that involve supplying education materials for use in classrooms. Teachers are “grateful and suspicious” when it comes to such assistance, says Beaudoin.

“They are grateful because what they get from the business world is always of good quality. They are suspicious because they are worried that companies will try to promote their own brands. They want the programs, but they don’t want the brands. So they are interested in programs that talk about the importance of a nutritious breakfast, but they don’t want anything that appears to be promoting the Kellogg brand, for example.”

Overall, “business has been doing things very slowly to explain the rules of the game, the rules of global competition,” says Beaudion. “Clearly, you can’t maintain companies that are not competitive in the international arena. The French understand this, but they have not yet accepted the consequences.”

Any change is likely to be incremental rather than abrupt.

“To my view it can only be a long term process,” says de Bellescize. “If change is too brutal we will have a revolution.”

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