French governance farce

We thought that French ‘capitalisme de copains’ would be part of an exotic past. The farce that a last-minute support to Arnaud Lagardère, a failed manager of Lagardère SCA, amounts to telling us otherwise (see Open battle around Lagardère, 22/04). It is an absolute governance disgrace.

It is an excellent opportunity for French institutions and their appointed asset managers to stand by their self-professed ESG credentials and bang on the table for the respect of minority shareholders.  

There is no shortage of splendid personalities in the unrolling saga for the control of Lagardère SCA, a partnership in shares. The point of focus is the next AGM on 05/05/2020, when the board is due to be largely refreshed. The by-laws of Lagardère are such that the only weakness in its statute armour is the board. Tipping it over is the starting point to unwind the absolute powers of Arnaud Lagardère. Patient Amber, an activist investor, has been hard at work on the subject over the last few years and had a miss about three years ago only because the Qataris with 20% of votes did not respect their own word.  

The cast for that showdown is bordering on exceptional, with no one really here to defend minority investors:

Arnaud Lagardère, a scion who proved apt at destroying unchecked the firm carrying his name, owing to his unassailable position as the associé commandité.
UK-based but French driven, Amber as the activist investor with plenty of skin in the game and presumably the only respectable party in this high-stake exercise (AlphaValue has no business with Amber).
Patrick Sayer, ex CEO of Eurazeo (Buy, France), presumably a competent pair of hands being the potential Chairman of the board as a representative of Amber.
Patrick Valroff an ex Credit Agricole (Sell, France) grandee who is the incumbent Chairman of the Lagardère board and essentially failed to spot a problem including Credit Agricole’s long support to Arnaud Lagardère’s personal holding with presumably negative net assets.
Nicolas Sarkozy, the French ex-President, now a last-minute board member appointed by Arnaud. Mr Sarkozy’s position needs to be stamped at the AGM to be confirmed.
Guillaume Pepy, the ex-boss of SNCF (French railways) in the same position as Mr Sarkozy.
Marc Ladreit de Lacharrière, a well-heeled entrepreneur with a formidable address book, owning Fimalac with interests in media. His group is said to have acquired 3.5% of Lagardère SCA very recently. God knows why. He recently popped up at Casino (Buy, France) to help Naouri.
Vincent Bolloré, a powerful buccaneer in French and Italian finance, who excels at startling his adversaries. He bought nearly overnight a 10.6% stake, using Vivendi’s balance sheet, i.e. money that he does not own but controls (30% of voting rights). It is an accepted fact that Vivendi (Buy, France) cannot really carve out Lagardère’s media assets without falling foul of competition laws.

Nobody has a clue of how the AGM will unroll and even whether it is going to being held in an orderly way as COVID-19 has led to plenty of excesses when it comes to virtual AGM. It is nearly certain that, whatever the votes, they are going to be challenged ex post.  

As for the votes, proxy advisors such as ISS are backing the Amber initiatives but again it is less than clear that institutional shareholders will enter the fray.  

They should at two levels.  

At Lagardère first, where c. 61% of the votes are identified with QIA controlling c. 20%, Amber 14%, Vivendi possibly 8% and Fimalac possibly 2%+. What BlackRock (presumably its ETF) and Caisse des Dépôts vote does matter.  

At Vivendi second, which has already had its (virtual) AGM and voted its dividend but where institutions should be in a mind to force a better balanced board that would defend the interest of investors who are not Bolloré SA. That would certainly help prevent incongruities such as the purchase of a speculative stake in Lagardère (not to mention the earlier purchase of Havas).

We highlight below the governance scores of these three groups. That they are mediocre is not a discovery, they were already poor 10 years ago: very French, a scarcity of independent directors.  

That this should be allowed to continue is more perplexing.