French capitalism's big challenge

FRENCH national pride has taken one mighty battering this year. First its image abroad was dealt a huge blow by the surprise success of Far Right National Front leader Jean-Marie Le Pen in the first round of the Presidential election. Then last month the French football team, the mighty Les Bleus, flopped spectacularly at the World Cup, failing to score a goal and limping home after the first round.

Now one of its great national business champions, Vivendi Universal, is falling apart, the dream of building a French-owned media group to rank with the biggest in the world left in tatters.

Under the leadership of Jean-Marie Messier, the diminutive visionary at the helm of Vivendi, a French company had played the American capitalist rules at their own game and won. Or so it had appeared.

While he was successful, Messier enjoyed the support of the French establishment desperate for a home-grown player to rank alongside AOL Time Warner or Bertelsmann. Now, like Zinedine Zidane and the rest of the World Cup failures, his status as a French hero is over. It is also a setback for French ambitions to embrace fully a more freewheeling model of capitalism and finally break away from its highly regulated, unionised and protected traditions.

For decades the French business establishment has looked down its collective Gallic nose at the Anglo-Saxons, with their crude and simplistic business culture of destructive hostile takeovers, mass sackings and short-termist share price obsession.

The British were bad enough but the Americans, well, they were simply business barbarians. When President Mitterrand described EuroDisney as a 'cultural Chernobyl' he was speaking for millions of French people fearful of an American Trojan horse on the very outskirts of Paris.

By the late 1990s a new generation of business leaders was calling the traditional French model into question. Nearly half the total market capitalisation of the French stock exchange was in foreign hands, mainly British or American funds. Globalisation, the cult of shareholder value and technological change meant French protectionism was no longer viable.

In the vanguard of the revolution was the young and hugely ambitious executive in charge of Vivendi who once wrote in true Anglo-Saxon style: 'Legs are made for walking. A lung to breathe. A company to create value.'

Vivendi was a new and unique animal, a global multinational built, the American way, through aggressive acquisitions funded by highly rated paper. Its roots may have been quintessentially French, a municipal water company founded by Imperial decree in 1853, but when Messier became chairman in 1996 a violent remodelling of the group was under way. In 1998 he ditched the Compagnie Generale des Eaux name and replaced it with the all-purpose, meaningless Vivendi.

A succession of increasingly ambitious deals followed, giving Vivendi control or large stakes in phone company Cegetel, mobile service SFR and BSkyB among many others. It culminated in the awesome $35bn (£23bn) all-paper deal with Seagram of Canada in June 2000 to create Vivendi Universal.

The deal gave Messier ownership of the Universal film studio and the Universal Music group with its string of household-name artists. Messier sealed his Anglo-Saxon credentials earlier this year with the sacking of one of France's most respected broadcasting executives, the Canal Plus pay-TV boss Pierre Lescure, for the offence of losing money.

The departure of Lescure, who had presided over five consecutive years of losses, provoked a fit of the vapours from Les Luvvies, who accused him of trying to destroy l'exception culturelle Francaise, the idea that French culture must be protected. Now, it is Messier's turn to feel the merciless stab of capitalist cold steel between the shoulder blades.

With his dream in ruins and the Vivendi empire likely to be broken up, France must once again contemplate failure on the world stage. Like the hapless Les Bleus, corporate France must learn the lessons and regroup. The days of Fortress France are over.

From high-flier to has-been