Raw edge of Continental capitalism

THE ousting of Jean-Marie Messier from French media giant Vivendi underlines how much European business has changed and is changing. A few years ago, internationally minded British businessmen spotted the trend when they noted how many more French, German and Swiss businesses were giving their executives share options and talking about shareholder value. Then came the roadshows in the world's financial centres to broaden interest in the shares as a prelude to international expansion using the capital they provided.

That expansion showed how control of many companies was no longer in their country of origin. Mannesmann fell to Vodafone because so many of its shareholders were non-German. The outcomes of the battles between Banque National de Paris and Societe Generale for the hand of Paribas, and by TotalFina for Elf Aquitaine were decided by shareholders in Britain, not France.

If that was a clue that the style and values of Anglo-Saxon capitalism were being adopted, we see now they have taken some of the rest of it too. Shareholders are no longer passive sheep to be fleeced; they can revolt in this brave new world.

Messier is not the first high-profile casualty in Continental boardrooms. Recently Rolf Huppi, boss of insurance and fund management group Zurich, was forced out, the current boss of Credit Suisse, Lukas Muhlemann, is under pressure and Deutsche Bank has appointed the first non-national, Josef Ackermann, to restore its fortunes. Nor were Messier's survival chances helped when he backed rivals against Jacques Chirac for the French Presidency - just the latest in a series of wrong calls.

Now comes the real test. It is probably asking too much for Messier's successor to be other than another Frenchman. It is not expecting too much for Vivendi's prize assets in the media industry and mobile phones to be allowed to fall into non-French hands if and when the business is broken up. But this is where the attitude of the French establishment becomes crucial. It has always in the past used every conceivable subterfuge to keep foreign bidders out, whatever European Union rules say about free movement of capital. Is it prepared to change now?

So this is a watershed. European capitalism will never be a mirror image of American capitalism and nor should it be - European values are different. But if European business is to remain globally competitive its governments have to be willing to accept the judgment of the markets. That applies as much to the French government as to everyone else.

Why panic?

THE decision today by the Accounting Standards Board to shelve for a few months the full implementation of FRS 17, its controversial approach to the treatment of pension liabilities, has come a bit too late for BT. Yesterday JP Morgan circulated a report alleging that the recent stock market falls might have landed the telecoms giant with a £4.2bn hole in its final-salary pension scheme - roughly a quarter of the group's stock market value. In a climate of acute nervousness about pensions, it and JP Morgan got the headlines you might expect.

But today the investment bank retreated considerably under the smokescreen of a 'clarification'. This said the deficit was an estimate of what the company would show under FRS 17 and was based on the fact that, in its last accounts, BT said it had a potential FRS 17 deficit of £1.8bn. But, as BT pointed out yesterday, it is the much less volatile actuarial valuations that govern what a company has to pay in. An FRS 17 deficit requires no injection of funds. In which case, why the panic?

Brain gain

AN intriguing issue for lovers of technology investment is whether the computer industry will recover from its current deep depression or whether investors would be better off looking for something else. Those who think such shares are cheap rest their hopes on the fact that these technologies will continue to reshape our lives.

People tend to believe that shares which have risen so high and fallen so low must rise again. But they should heed Warren Buffett, the legendary American investor. Even at the height of the dotcom boom he was saying investors should never confuse a breakthrough which transforms society with the opportunity to make money. His thesis was that all the truly momentous innovations - railways, electricity, cars, radio, television, aircraft and now computers and telecommunications - have ended up a disaster for those who financed them.

The reason is always the same. The innovations promised to bring such a fundamental change in people's lives that they quickly became glamorous, so they aroused massive investor interest and a flood of money. This allowed far too many participants to be financed, which meant overcapacity, ferocious competition, low prices and impoverishment for investors through non-existent profits.

Having had their day in the sun - and flown too close to it - they never really recapture investor interest. Perhaps because of this, many venture capitalists believe biotechnology offers a better bet for investors over the next few years, and British Venture Capital Association leaders were today making that case to the Commons Trade and Industry Select Committee.

Britain is the leader in Europe in this area, they say, but the Germans are catching up, so if we are to retain our lead this country needs to sharpen up its act. This requires simplification and clarification of the tax rules on capital gains and share options so entrepreneurs and their teams can be incentivised at minimal cost. But we also need more and better schemes to commercialise academic research and reap the economic benefits of what our best brains develop in the labs.

We've heard it before and it really is time we finally addressed the issue that the country which produces more Nobel science prize winners per head than any other remains notoriously poor at exploiting their ideas.