Re-inventing Public Enterprise Management. United Nations October 27-28, The French Experience

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1 Re-inventing Public Enterprise Management United Nations October 27-28, 2005 The French Experience Presentation by Marc Dandelot

2 Public Enterprises: The French Experience Contents 1. Public Enterprises in France: Historic Overview 2. Public Enterprises in France : key achievements 3. Public Enterprises in France : a drastic reduction in 20 years 4. Public Enterprises in France : recent privatizations 5. Public Enterprises in France : strenghs/weaknesses 6. France Telecom: a successful Public Enterprise 7. France Telecom: the need for change 8. France Telecom: privatization, step by step 9. Public Enterprises in France: current issues 10. How to be a good strategic shareholder? 11. The «French Government Shareholding Agency» (1) 12. The «French Government Shareholding Agency» (2) 13. Private/public partnership can be powerful 14. Floating Public Enterprises on the Stock Market 15. Basic rules for the management of Public Enterprises

France Telecom: a successful Public Enterprise 7. France Telecom: the need for change 8. France Telecom: privatization, step by step 9. Public Enterprises in France: current issues 10.

3 1. Public Enterprises in France: Historic Overview In the mid 80s, the public sector in France was massive, present in all areas of the economy (including banks, automotive industry) This situation was the result of several waves of nationalisations (1936, 1945, 1981) Public Enterprises played a key role in major infrastructure programs (Energy, Transport, Telecommunications) Since 1986, many privatizations have occurred. The public sector has been reduced by half.

nationalisations (1936, 1945, 1981) Public Enterprises played a key role in major infrastructure programs (Energy,

4 2. Public Enterprises in France: Key achievements French Telecommunications Program Launched in 1974 (see slide 6) French Nuclear Program Launched in 1974, reacting to the oil crisis Nuclear plants now provide more than ¾ of the electricity produced in France Fast train TGV Paris-Marseilles in 3 hours!

1974, reacting to the oil crisis Nuclear plants now provide more than ¾ of

5 3. Public Enterprises in France: a drastic reduction in Twenty Years Enterprises Headcount (1,000)

6 4. Public Enterprises in France: France Telecom Recent Privatizations of major enterprises Air France Merger with KLM Snecma Merger with SAGEM Toll Motorway companies

7 5. Public Enterprises in France: Strenghs/weaknesses Strenghs Ability to cope with long term objectives In France, ability to operate under private law Ability to carry high debt (with the State guarantee) Ability to define a strategy including Public Service priorities Weaknesses Political influence in the management Overstaffed, with conservative Trade Unions Difficulty to cope with a competitive environment Slow to react when facing problems

define a strategy including Public Service priorities Weaknesses Political influence in the management

8 6. France Telecom: A successful Public Enterprise In the early 70 s, telephone density in France was the lowest in Europe; quality of service was poor An ambitious investment plan was launched, carried on by France Telecom (100% public) France Telecom was the pioneer of new technologies (digital switching) and data networks (Minitel) Within a decade, the quality of the telephone service became one of the best in Europe France Telecom was very profitable, which created a lot of envy! France Telecom was operating as a monopoly

the pioneer of new technologies (digital switching) and data networks (Minitel) Within a decade, the quality of the telephone service

9 7. France Telecom The need for change Telecom markets were progressively opened to competition (mobile, business services, international, residential); deregulation became the rule in Europe Challenged on their home markets, Telcos started to look for new markets abroad Diversifying Human resources was key; Top management changed (CEO from the private sector) New Corporate culture: competitive spirit, without forgetting the values of the Public Service

markets, Telcos started to look for new markets abroad Diversifying Human resources was key; Top management changed

10 8. France Telecom Privatization: Yes, but step by step 1. For years, the privatization of France Telecom has been a very controversial issue; it happened late, when the controversy had dissipated 2. In 1997, a minority stake of FT was listed on the Stock Market (Paris and New York); the employee were offered to buy shares at an attractive price; the IPO was very successful 3. The state ownership was progressively reduced, from 80% to 51% 4. In 2003, the state ownership dropped below 50%; nobody paid attention to this event In this process, the key step was the first IPO

In 1997, a minority stake of FT was listed on the Stock Market (Paris and New York); the employee were offered to buy shares at an attractive

11 9. Public Enterprises in France: Global competition Current Issues Rules of competition in Europe Many Enterprises need to expand abroad Deficit of Public Budgets Need for cash is high in public enterprises Constraints of the Euro rules More privatizations are inevitable Governance/Managerial revolution Public Enterprises must apply the best corporate governance rules Public Enterprises must apply international accounting standards More managerial skills are required

rules More privatizations are inevitable Governance/Managerial revolution Public Enterprises must apply the best

12 10. How to be a «good» public shareholder? The French Answer Public priorities can be part of the entreprise strategy, but the management must be independent from politics In France: major holdings in State Public Enterprises are now run by an autonomous Agency, created in 2003 : The «French Government Shareholding Agency» French Policy aims at diversifying the shareholding structure (teaming up public and private investors, and employee)

independent from politics In France: major holdings in State Public Enterprises are now run by an autonomous

13 11. French Government Shareholding Agency A clear ownership policy (1/5) Implementation of best corporate government practices in SOEs ( code of good practices between Agency and SOEs): Boards fully enpowered Committees Independant auditors Professionalized State representatives A clear ownership policy (2/5) Promotion of transparency in SOEs : Clear relations with the State, based on contracts Greater financial transparency : international accounting standards (IFRS) financial communication 12 JLG - May JLG - May

representatives A clear ownership policy (2/5) Promotion of transparency in SOEs : Clear relations with the State, based on contracts

14 12. French Government Shareholding Agency A clear ownership policy (3/5) A clear ownership policy (4/5) Active role of Agency as a shareholder : Enhanced relations with top management Annual strategic dialogue Regular reporting Agency systematically represented in audit and strategic/investment committees Close scrutiny on major investment/disposal projects Promotion of a modernized corporate culture and framework of SOEs : Promotion of high quality management, shareholder value orientation and international culture in line with the international practice = a major change with the traditional approach of some SOEs with an engineer culture more oriented towards technological perfection than financial performance Change of the by-laws of some SOEs (from State entities to companies : DCN/military shipyards, EDF, GDF, ADP, Postal Bank) 14 JLG - May JLG - May Oct 2005: first annual report of the Agency

corporate culture and framework of SOEs : Promotion of high quality management, shareholder value orientation and international culture in line with the international practice = a major change with

15 13. Private/public partnerships can be successful EADS / Airbus Arianespace Safran In these three examples, the State equity stake dropped below 50%

16 14. Floating Public Enterprises on the Stock Market Gaz de France & (may be) EDF (Electricite de France) Floating the Company is a compromise aimed at: Keeping State control Providing funds to the budget Changing the management/culture of the company Complying with standard accounting rules Promoting employee s equity stake

State control Providing funds to the budget Changing the management/culture of

17 15. Basic rules for the management of Public Enterprises In spite of privatization programs, Public Enterprises remain numerous in several sectors: Transport, Health, Education Many local & regional companies Public authorities must behave as a «good strategic shareholder», and set up an organisation / procedures adapted to this goal (i.e. choice of the CEO) The market is always the best judge of performances Control must be done by a professional and independant body Competition is often the best way to put pressure on the management and change corporate culture Developing employee s ownership is a great incentive Private investors are most often necessary as an additional source of funds

DEVOTEAM reports 2011 financials: 7% increase in revenues and 6% growth of diluted earnings per share

DEVOTEAM reports 2011 financials: 7% increase in revenues and 6% growth of diluted earnings per share Paris, February 29 th, 2012 In millions of euros (1) 31.12.2011 31.12.2010 change Revenues 528.1 495.0