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Labouring a point

Scott Mcculloch is editor of Families in Business.

Ernest-Antoine Seillière wants all things good and great for the EU and, ultimately, the French economy: rapid  economic convergence, deep reforms to its labour markets and a big push to innovation. Will it happen, asks Scott McCulloch

It is difficult to define a family business, says Ernest-Antoine Seillière (pictured), patriarch of France's oldest industrial dynasty. But he admits Wendel Investissement, France's largest private equity group, is a business "where the family exercises a major influence". The Wendel family have been called French high society incarnate, and Seillière's charm and urbanity certainly support that view. That he presides over an investment group with a marketcap of about h5.5 billion confirms the potency of his family's sway – in the business and beyond. Seillière is influential.
 
He is also an inventor, and a canny one at that. He credits himself with the transformation (and preservation) of his family's fortunes after the disastrous nationalisation of the French steel industry in the 1970s. "We were confronted by a totally new world," he recalls. "And it was by a government from the right, not the left." France, at the time, was a land of strict exchange controls and administered prices. President Mitterrand put forward an ambitious programme of nationalisation as part of a "break with capitalism". Not only in France, but all across Europe, few questioned the state's involvement with business through a subsidy here, a decree there, and a bias against foreign ownership. In 2006, much of that has been swept away.

Now Seillière wants to begin inventing again. When he began his two-year stint as head of Unice, the European business lobby group, one of his first public comments was to back British prime minister Tony Blair's economic reform agenda. It was a thinly-veiled jibe on anti-capitalist sentiment in France. "Obviously the left parties of our country, and mainly the Socialist Party, have not been modernised in the way they have in other European countries – essentially the Labour Party under the influence of Tony Blair and the German Social Party [under] Schroeder."

Seillière believes Europe's more enlightened leaders on the left have finally "taken into account" the market and globalisation. "They have adapted their ideology to the facts of the world," he says. But the French government has still shown little willingness to tackle the underlying reasons for the poor performance of France's labour market: complex and restrictive labour laws; excessive levels of wage regulation; and high social security costs for employers.

A scion of the ruling Wendel family, Seillière was educated at the École Nationale d'Administration, antechamber to the elite, before serving a short stint in the upper ranks of the civil service. A Europhile and staunch capitalist, when the energetic Seillière took charge of France's confederation of employers in 1997, the bosses' club was stuffy, marginal and unloved. He modernised the association, renamed it Mouvement des Entreprises de France (Medef), and grabbed a pivotal place on the political stage. But as he gave way last July to Laurence Parisot, his successor and first female leader, French business is less loved than ever.
 
The new head of Medef, in a speech to delegates after her election, spoke of the need for reforms for the spluttering French economy, hampered by unemployment stuck at 10%, largely stagnant wages and a growing feeling of uncertainty among the French on the direction their country is taking.
 
Reaction from the unions was, predictably, adversarial. Maryse Dumas, top official with the left of centre CGT, France's main trade union, welcomed Parisot's election while stressing that the union had "many disagreements with her".
 
A communication specialist, Parisot won her appointment by preaching reconciliation between French citizens, generally hostile to the free market economy. Medef, which administers France's social welfare system jointly with unions, would achieve this by taking a more active interest in social issues, she says. It would introduce programmes to cut unemployment, integrate minorities and, critically, avoid the confrontational posture that had soured relations with the government and unions under Seillière.

Seillière has left an indelible mark on Medef. Under his leadership Jean-Pierre Raffarin, the former prime minister, was the first of his kind to ever attend an assembly of the nation's bosses when, in 2003, he told an assembly of Medef chiefs he would offer a "reconciliation" between the state and business. Seillière expected, as did many other French industrialists, less red tape, tax cuts and heavier promotion of innovation from Raffarin. But deep reforms are slow in coming.
 
Now, as president of Europe's largest employers' association, Seillière has bigger fish to fry. He wants a resolution to what he sees as three of the EU's key problems. How EU states are dealing with economic globalisation and the ageing of its population are two. The third, closing the technological gap with the US, is perhaps the most critical. That, says Seillière, comes down to how much money businesses and government are willing to pour into research and development. "All of this can be done if we have a convergence of our policies and a common European governance in order to organise it at the continental level."
 
As euroland economies struggle to reduce unemployment, convergence projects will be shunted down the list. Now yet another plan from the European Commission promises to reinvigorate Europe's struggling economies, calling for a Nordic-style, seemingly social-democratic approach, rather than an Anglo-Saxon free market model. The Commission's latest report includes 25 evaluations of national reform programmes drawn up by the EU members. Seillière says many lack ambition when it comes to concrete implementation of the announced reforms. "We must go beyond a mere diagnosis of Europe's problems and start the therapy," he chides.
 
And if the medicine is not applied? Seillière believes the EU faces a brain drain of businesses unless its leaders act to restore confidence following a "dreadful" 2005. "I think on the European side we are confronted with a crisis... it is a convergence of different elements. Of course we have an institutional political crisis and we have structural problems here and there that prevent us having growth at the same rate as the rest of the world."
 
Parisot hopes her remedy to structural problems – France's notoriously rigid labour code – will be the tonic. "For a small company, hiring an additional staff member can sometimes be a mortal risk," she declared last year alluding to the high social costs and strict rules on firing in France. And Parisot, who believes France's citizens are living in a "confused" social democracy, is winning high praise from her business constituency for a scathing attack last January on the state of France and its institutions. Speaking to her first general assembly since being elected in July, the normally soft-spoken business leader denounced the increasing impenetrability of French institutions, the double standards of its politicians and the need for urgent reform. She even appears to advocate dismantling the centralist structures of the French state – a step the politically well-connected Seillière never took publicly.
 
Seillière, however, is happy to tinker with his own businesses. Few companies can boast a 300-year history. Fewer still have a significant minority controlled by the heir to the founding family ten generations later. And almost none can claim to have transformed themselves in the way that Wendel Investissement has: from a bastion of France's industrial past into a private equity firm.
 
Wendel celebrated its 300th anniversary in 2004 but it has only been operating as an investment firm since 1978 when its assets were bought by the French state as it sought to nationalise the country's steel industry, in which Wendel was the largest player. Seillière says the family needed little convincing to transform the business. "I don't think anyone was in doubt that you had to change your guns and do something. I think there was agreement on that," he recalls. "I think the spirit of enterprise of the Wendel family was demonstrated largely on two occasions: in 1976 when it was decided to continue following nationalisation; and in 2002 when everybody accepted a new management, a new form of governance and a strategy which was quite different from the one I had pursued for 30 years."

Jean-Bernard Lafonta, who was appointed chief executive in 2002, is responsible for the latest transformation, which in June that year, saw French holding companies CGIP and Marine Wendel (both controlled by the Wendel family) merge into Wendel Investissement, an entity worth h5.5 billion. Seillière's Wendel family, close to 800 shareholders, hold 35% of the capital and 50.1% of the voting rights, with the rest in public hands. "If we recognise the family influence – the major influence – we act 100% as if we were a publicly-listed, professionally-managed company," he says.
 
Lafonta's influence is powerful too. He was the first head of the company to be appointed from the outside and not from one of the families descended from Jean-Martin Wendel, who established the company's first iron forge in Lorraine in 1704. Hand-picked and groomed by Seillière, Lafonta, who previously held the same post at CGIP, is an achiever. "I worked with him for two years to ensure that we had really found someone to achieve the goals that we had in mind," says Seillière. "I was then responsible for the company but I told him 'I'm interested in your qualities to be number one' – at least number one in management – I'm not interested in someone who is happy to stay in the number two position. As soon as I saw his ability, it was a quick decision."

Since then the company's profile has been stratospheric relative to its market position and share price five years ago. Wendel is unorthodox too: majority public equity in structure, private equity in operation. Publicly quoted private equity companies are a rarity, particularly those taking a long-term approach to their investments. Seillière believes the Wendel model could become the norm over time. "It is a very interesting issue because there are not that many investment companies that are listed, and I think it may become a model," he says with a flourish. "We are not obliged to sell because we would have to give back money to the shareholders. This allows us to keep the company as long as we believe it is generating value for shareholders."

Since the creation of Wendel Investissement in July 2002, the company's net asset value has been boosted by internal rates of return of 25% a year, an unusually high rate for any private equity firm. The share price rise has more than tripled that figure and between 2002 and 2005 shareholders were paid h1.3 billion in dividends and share buybacks.
 
Like its rival 3i, Wendel has a hands-off managerial approach to the companies in which it invests. It takes seats on the board and will advise on financial affairs, but leaves the day-to-day operations to company directors. The role is akin to that of owner or consultant. Wendel encourages companies to take a long term view and understand what will bring high growth – organic or otherwise. This, says Seillière, is where the family aspect of Wendel works in its favour. "The advantages of being a family business are seen by the investors [and] by the companies we integrate into our group and, I hope, by the management," he says. "We think much more long-term than normal investors and most private equity funds. We have a culture, which is a difficult to condense into a few words but let's just say that we have a double goal of increasing our assets while also increasing the value of our assets – as any company would like to do."

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