Since the Battle of Agincourt the French have held a deep-seated mistrust of things Anglo-Saxon. But times are beginning to change. With an ever-growing awareness of the need to compete in international capital markets, a New Realism is taking hold of the collective psyche of France’s hitherto inward looking financial community.
From the end of World War II, French economic policy has been characterised by central economic planning minimising the use of equity as a source of finance.
That all started to change during the 1980s, however. In 1987 credit restrictions were lifted, freeing competition between lending institutions. The same year, French securities were made tax deductible; a huge privatisation programme was launched; and the Conseil des Bourses de Valeurs was given the power to reform listing regulations. Two years later, in 1989, all remaining foreign-exchange controls were lifted.
Consequently the level of investment in equities in France rose dramatically, with bourse capitalisation increasing by 54.5 per cent between 1990 and 1993, reaching 37.9 per cent of GDP. By December 1995, total funds in Paris invested in equities alone stood at $261.1 bn compared to $142 bn four years earlier. As a result Paris has established itself as the fourth largest financial market in the world.
Alongside the development of an equity market came recognition of the need for better corporate governance. Regardless of regulatory developments, companies are developing their own governance strategies to meet the requirements of a shareholder constituency that has grown more used to Anglo-Saxon practices. ‘That is what happened in the US five or six years ago,’ says Sophie L’Hlias, president of Franklin Global Investor Services. ‘As competition for investors’ money increased, companies began to use corporate governance as a marketing tool. When French companies realise this they will start to catch up.’
But what about French investment abroad? ‘We want foreigners to buy our shares but we are not prepared to invest in them,’ complains Nicole Micheletti, head of Cliff, the French investor relations society.
Despite the growth in equity investment in France, Luc Prinet-Marquet, managing director of Gavin Anderson & Co in Paris, estimates that only 25-35 major investment institutions invest abroad. Omnium, one of the largest IR firms in France, probably handles fewer than 15 IR jobs a year for foreign companies, and for some clients that might just mean organising the practical side of a roadshow or presentation.
‘Most companies will not bother listing in Paris because the market is just too small,’ says Jean Yves Lger, managing director of the IS Group, a division of Omnium. Add to that the fact that most French fund managers do not speak English, do not go abroad and will deal through financial analysts rather than directly with companies, and the situation seems pretty bleak.
But things are changing. Andrew Dewar, managing director of Edelman Worldwide in New York, recalls a meeting of the Chicago Board of Trade in Paris ten years ago. ‘It was conducted in French with a translator for the US CEO. Only French was spoken at the meal afterwards so there was absolutely no communication between the analysts and the company.’ Dewar contrasts that to a presentation he attended for a French chemicals company in April: ‘The meeting was conducted in English with no need for translation facilities and the analysts really seemed very well-informed.’
In Dewar’s opinion, the French have done a superb job in the last decade. ‘Paris does not represent a large audience like London, but if you can get together a group of well-informed analysts and investors, it’s well worthwhile visiting.’
Anglo-Saxon investor relations firms like Gavin Anderson, Burson-Marsteller and Shandwick clearly agree since they have all been busily setting up offices in the city over the last few years (New York’s Morgen-Walke followed in April). Jane Goodman, director of Akka, set up in 1994, believes that French investors have become more interested in diversifying their portfolios and more aware of the globilisation of the market. As a result, information on foreign companies has become more accessible, she says.
Gavin Anderson’s main advice, according to Luc Prinet-Marquet, is to focus on corporate public relations and press relations as well as investor relations.
‘A clever foreign company will not come to Paris just to meet the investors. It should also come to meet the press and the financial community as a whole,’ he says. ‘French newspapers are interested in anything foreign so we try to court the key financial papers like Les Echos, La Tribune and L’Agefi, and get them a good story. French investors, on the other hand, are not yet very interested in foreigners unless they are a big named stock like ITT or IBM so another reason to come to Paris is to get yourself known and position your company in order to take advantage of the changes that are beginning to take place.’
Traditionally, meetings with investors in France have been conducted by banks. ‘Banks would put on such events for companies free of charge,’ says Jean Yves Lger. ‘But companies never got any feedback because the banks were always worried about ruining their relationship with investors. We, in comparison, are completely independent so are prepared to get on the telephone and find out what people really think, both in pre and post-screening,’ he says.
Omnium prides itself on its targeted, Anglo-Saxon-style approach. ‘We arrange small meetings between companies and investors either in March after annual results come out or in September after half year results. In the meetings we try not to speak of figures but conduct a discussion about the company’s strategy, its financial highlights and its plans for future development.’
Franc Vivier, who manages a foreign equities fund at Societe Generale, confirms that he is looking for an overview of what a company’s strategy involves. ‘I want to know what their geographic origin is, where they sell their products, what their market share is and what they have in the pipeline in terms of new products. Financial results are no longer so important because that information can now be accessed from brokers.’
Another fund manager at a leading institution says that the information he looks for can be split into two main categories: that strictly related to the company itself – market position, product, strategy and financial structure; and that related to the country and market it’s based in. ‘As we can’t visit those countries on a regular basis, it’s very useful to get an overall impression of legal and political as well as economic issues. And from people who actually live and work in the countries rather than through French economists,’ he adds.
Vivier says the most valuable aspect of a foreign company presentation is meeting the management. ‘If you only have a relationship with the investor relations representative you can’t really get a feeling for the dynamism or inventiveness of a company.’
For Vivier, the chance to meet with management is more important than having long, drawn out one-on-ones with a lower level executive. ‘When you are following 500 companies or more, it’s impossible to see them all individually. The time constraint is a real issue, so I would always prefer a breakfast meeting to a lunchtime one.’
A fund manager at Crdit Agricole agrees, saying: ‘Lunchtime meetings just eat into your day.’ He says he tries to get to one-on-one meetings if he is interested in a company because it’s easier to ask questions ‘when you’re not in a seminar room full of people.’ For his part, Vivier always makes the effort to get to foreign company meetings: ‘The quality of most foreign presentations is excellent and since they’ve made the effort to come to France, I always try to see them.’
And taking the time to include Paris on a roadshow schedule is not such a hardship. Despite the extortionate prices of everything from a taxi ride to a hotel room, it still remains one of the world’s most charming cities to conduct business in.
Indeed, French mutterings about the backwardness of their financial market seem out of place in the context of the smart Parisian surroundings: exceptionally clean streets, with well-heeled, well-dressed people eating in expensive restaurants and shopping in the world’s top stores. Prosperity emanates from every corner. Along the Champs Elyses are sculptures by Picasso, Moreau and Rodin, on display for public appreciation. And the glass pyramid outside the Louvre radiates Yves Klein blue – emphasising the city’s enviable mix of new and old.
La Dfense, just outside central Paris, is known officially as the financial district and in recent years companies like UAP and Societe Generale have moved out there. But the financial community is still really based in the centre of the city, in the streets around the Opra and Place de la Concorde, where the old bourse was situated.
Favourite locations for presentations and meetings include the ‘palace hotels’ which are so famous and plush they are now tourist attractions in their own right. The conference centre Pavillon Gabriel is also extremely popular with fund managers ‘because of its accessibility, easy parking and proximity to the metro,’ says Omnium’s Lger.
Paris remains a difficult lover to woo. Traditionally, there have been many financial and cultural reasons why the French have not been open to investing in foreign companies, some of which are still in place. But, says Edelman’s Andrew Dewar, the future looks bright. ‘It’s just a matter of time before pension funds are going to be introduced in France. Demographics are going to demand that, and when they are, and there is a larger pool of money available, there will be an even greater boost to the French market than that provided by the privatisations of the late 1980s.’
He may be right. But the IRO still needs to brush up, L’Hlias points out. The IRO representing a foreign company needs to do more than just fulfill his or her investor relations function. ‘They need to know what the local standards are to be able to gauge how to approach people. They’ve got to be bi-cultural in language, intelligence, attitude and style. A kind of superhero.’
