FRANCE Trends and Developments Contributed by: Sophie Vermeille and Jens Waldner, Vermeille & Co
Recent French experience reveals two recurring gov - ernance configurations: • companies controlled by a financially constrained shareholder who has strong incentives to maintain an optimistic market narrative; Casino illustrates this dynamic: the highly leveraged Rallye holding structure, dependent on Casino’s share price to service its debt, created structural resistance to transparency; and • widely held companies without a reference share - holder, where boards may operate with exces - sive autonomy and insufficient external discipline; Atos exemplifies this pattern: in the absence of a controlling investor, boards lacking sufficient inde - pendence or expertise allowed value-destructive strategies to persist. In both cases, minority shareholders criticise the absence of an effective counterweight capable of forcing the timely disclosure of emerging financial dif - ficulties. These two configurations – and the enforcement weaknesses that enable them – are examined in the sections that follow. Board failures: the breakdown of internal oversight On paper, France has one of the most comprehen - sive corporate governance frameworks in Europe. The French Code of Commerce, the AMF’s General Regulation, and the AFEP-MEDEF Corporate Govern - ance Code together prescribe detailed requirements for board composition, director independence, audit committee expertise, the management of conflicts of interest, and the quality of financial disclosure. The AFEP-MEDEF Code has been regularly updated and covers virtually every aspect of board practice – from the separation of the roles of chairman and chief executive to the evaluation of board performance and the engagement of directors with shareholders. Read - ing these texts in isolation, one might reasonably con - clude that French listed companies operate under a governance framework of exemplary rigour. And it would be unfair to suggest that these rules have had no effect. French boards have evolved sig -
nificantly over the past two decades. The proportion of independent directors has increased steadily; the growing presence of international directors – less likely to be embedded in the traditional réseaux of French business – has brought fresh perspectives and a more challenging culture to many boardrooms; board evaluation processes have become more sys - tematic; and the quality of advice available to direc - tors, from external legal counsel to specialised gov - ernance consultants, has improved markedly. These are real and meaningful advances, and they should be acknowledged. Nevertheless, the traditional emphasis in France on a stakeholder-oriented model of corporate govern - ance – as opposed to a shareholder-centric one – has sometimes contributed to a culture in which boards feel less compelled to engage directly with sharehold - er concerns. In such an environment, directors may be more inclined to defer to management or to prioritise other constituencies, even when investors raise con - cerns about the company’s financial trajectory. The difficulty remains that the quality of the rules and processes does not, on its own, guarantee their effective application. The governance framework has historically suffered from a significant deficit of both public and private enforcement, which has meant that boards of directors have not always faced the degree of accountability that the legal framework formally contemplates – and, in the most serious cases, over - sight shortcomings have persisted without giving rise to meaningful consequences. Consider the independence of directors. While the AFEP-MEDEF Code recommends that independent directors should constitute at least half of the board in widely held companies, the definition of “independ - ence” is applied with considerable flexibility, and the Code operates on a “comply or explain” basis that offers significant latitude. In many French listed companies, directors owe their nomination to the controlling shareholder or to the very chief executive they are supposed to over - see. This structural dependency can undermine the board’s ability to serve as a genuine check on man - agement. When board members are beholden to the
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