Groupe Dynamic

In acquiring Illinois-based Square D, Didier Pineau-Valencienne is pushing one of France’s oldest industrial enterprises further into the global arena. The souffle isn’t quite finished yet.

March 1 1994 by Chief Executive


When the European monetary system fell into disarray, Le Monde wrote darkly of a financial conspiracy spearheaded by American “speculator” George Soros. (Never mind that Soros is Hungarian born.) The clash over GA11 prompted French Prime Minister Edouard Balladur to characterize the trade framework as an “Anglo-Saxon plot” to undermine France‘s economic and political stature. And when EuroDisney opened near Paris, the French elites seethed with accusations of “cultural imperialism.” (Never mind that Credit Lyonnais, a government-controlled bank, owns MGM.)

Underlying this antagonism-besides centuries of history is the fact that France and the U.S. have very different conceptions of capitalism and how enterprises should be run. But Didier Pineau-Valencienne, 62, chairman and CEO of Groupe Schneider, breaks the Gallic mold. Since he became CEO in 1981, DPV, as his friends call him, has been globalizing and sharpening the focus of the $11 billion Paris-based manufacturer of low- and medium-voltage power distribution equipment and industrial control products and systems. (The latter automate machines and production lines.)

Founded in 1836, Groupe Schneider ranks as one of France‘s oldest enterprises. From 1981 to 1987, the company sold off its machine-tool, heavy-equipment, shipbuilding, and steel businesses. Its principal operating companies now are Merlin Gerin, Telemecanique, Spie Batignolles, and Palatine, IL-based Square D, which Schneider acquired in 1991. Groupe Schneider operates in 130 countries with 97,000 employees, half of whom are based outside of France.

While not effacing his Ecole des Hautes Etudes Commerciales education, Pineau-Valencienne’s years at Dartmouth’s Amos Tuck School and Harvard Business School’s Advanced Management Program have left their mark-and not just because he’s comfortable with English as the company’s lingua franca. Seeking an edge, Pineau-Valencienne broadened the company’s focus beyond the French and European markets, accelerated the pace of change, and reorganized what he calls an “incoherent conglomerate.” Today, the company is divided into three operational areas-Europe, North America, and everywhere else-and it focuses on its core competency, the management of electricity. To this end, Square D itself was reorganized together with other Schneider units such as Federal Pioneer in Canada and Federal Pacific in Mexico into a new unit, Schneider North America. The president and CEO of the North American unit is Square D’s Charles Denny.

Pineau-Valencienne, a former Rhone-Poulenc petrochemicals division chief has his work cut out for him. The Schneider name isn’t widely known outside the company’s direct markets, and the global thrust pits the company head-to-head against formidable international concerns, including the U.S.’ Westinghouse Electric and Emerson Electric and Europe’s Siemens and ABB. Schneider stock declined 8 percent in 1992, although it outperformed the French composite index, Societe des Bourses Francaises, in the first quarter of 1993. Down the road, PineauValencienne reckons closer integration of current units will yield improved operating efficiencies, while further debt reduction will shore up the balance sheet.

For his birthday, Groupe Schneider executives presented him with a model train, comprising a locomotive with the Schneider logo, and railcars with those of the company’s principal units (see photo). A board director of 10 companies, including Bankers Trust New York Corp., Whirlpool, and Equitable in the U.S., Pineau-Valencienne relishes his American connections, arguing that the Square D purchase propels Schneider into the front ranks of power distribution. He also has high hopes for continued synergy between computers and control devices, which he believes will permit the construction of “smarter” buildings and power units that control heating, air-conditioning, and other systems while communicating with centralized building management systems.

CE’s J.P. Donlon recently caught up with Pineau-Valencienne in New York in the wake of his selection as the French-American Chamber of Commerce’s Person of the Year.

ONE BUSINESS, ONE FOCUS

Groupe Schneider has undergone a turnaround in the last 10 years. What was the underlying strategy?

In 1981, Groupe Schneider was a conglomerate of a number of businesses: steel, mechanics, shipbuilding, ski equipment, fashion, newspapers, and travel agencies. Today, only the name remains. We sold everything that was not our core business-electrical manufacturing and distribution and industrial control.

This is not a trivial undertaking, especially for a European company. The general thinking in France was that we would never make it, but I take some satisfaction in knowing that we have succeeded. We have made tremendous progress in the last 10 years.

Why did you choose electrical distribution and industrial control as your major business?

We are only at the very beginning of the sophisticated use of electricity. The circuit breakers in Chicago have been there for 50 or 60 years. They still work. But today, products such as computers, washing machines, and faxes have more complex requirements. We provide our customers with new ways to use cheap electricity.

Here’s an example. The frequency of electric current varies every now and then-it can go from 60 cycles per second to 59, and that causes problems. Groupe Schneider is focusing on developing computer controls that analyze information about the current and other factors and that enable a customer to decrease the amount of money spent on electricity. For instance, a control could be programmed to run a customer’s washing machine at night when electricity is cheaper.

We are the only company that concentrates on these types of services. Most of our competitors, such as GE, Siemens, ABB, and Japanese companies Omron, Mitsubishi, and Toshiba, have many other businesses, and electrical distribution and industrial control are not their major concerns.

Nevertheless, those are formidable companies and a little better-known than Groupe Schneider. How will you remain competitive?

We have a number of advantages. Now that we have acquired French industrial-control company Telemecanique, we are the only ones to have a major share of the European and U.S. electrical markets, a substantial share of the Asian electrical market, and a small portion of the Australian and African electrical markets. Today, 25 percent of our total activity is in North America, 60 percent in Europe, and 6 percent in Asia. Among our competitors, Siemens is very active in the U.S., and ABB is busier with large power plants than with our segment of the business-using industrial controls to manage power usage.

GOAL OF THE CENTURY

Where would you like to be in the year 2000?

We aim to have 30 percent of our total activity in North America, 45 percent in Europe, and the remainder in Asia and other parts of the world. We already have 30 percent of the Southeast Asian market-including Vietnam, Cambodia, Laos, and Burma-and we have manufacturing facilities in Indonesia, Singapore, and Thailand. Currently, we have a joint venture in Korea and are developing others in China.

In addition, we would like to be listed on the New York stock market, and on those in London, Frankfurt, Munich, and Tokyo, as quickly as possible. Recently, we launched a major equity issue worldwide and raised 3.2 billion French francs ($600 million). I think this shows that the financial markets are confident in our strategy and in the way we are trying to run our businesses.

When we bought Square D, which manufactures industrial-control and electrical-distribution products, systems, and services, in 1991, our debt-equity ratio went up to 2. At the end of last year, it was approximately 0.7. By the end of 1996, I want to have less than 10 billion francs of debt, our equity being roughly 20 billion francs. Total equity today is 16.4 billion francs.

We are broadening our sources of capital, turning more to the international markets. We were controlled at 60 percent by three major stockholders: an insurance company and two major banks. These stakes now are diluted to a combined 27 percent.

How many American shareholders do you have?

A very small number, 2 percent or 3 percent. But we’re aiming at 25 percent North American stockholders.

What does North America contribute in terms of profits?

In 1992, Schneider North America businesses accounted for $1.8 billion of our $11 billion in total revenues. I always tell analysts they have to look at goodwill when determining profitability. Goodwill refers to the value of intangible assets, such as reputation, name recognition, and customer relations, that give a company an advantage over competitors. Groupe Schneider’s assets include a substantial amount of goodwill due to our acquisitions in recent years. Goodwill has nothing to do with the cash flow; it’s a matter of accounting principles. So the analysts penalize our net profit based on the amount of goodwill we have to amortize. I think we should be judged before goodwill and be compared with our competitors on that level.

CULTURAL COHERENCE

How do you meld the different structures and cultures of Groupe Schneider in France and worldwide?

The most difficult thing is to make different cultures work together, since they often don’t share the same values. For example, look at insider trading, which has been a crime in the U.S. since early in the century. It has been a crime in England only since 1988 and one in France since 1991. However, it is not a crime in Germany, and it has been a common practice in Japan. We do business within all these countries, but we don’t play by the same rules. So we are trying to find the goals we share-such as improving client service and bringing new products to market-and build on them.

And we would never bring in a Frenchman to improve an American business or vice versa. Run the business locally. I am happy that Charlie Denny, formerly president and COO of Square D, is now president and CEO of our North American operations. He also is on Groupe Schneider’s executive committee. We work with him to create tailored strategies with an international focus.

In terms of infrastructure, electricity is even more specialized in individual countries than telephone systems. How do you create products that can be sold and delivered across boundaries?

Ninety percent of our products fit local requirements, and they really are global products. We make global component products such as circuit breakers, and then we modify them in each local region to fit that area’s requirements. For example, we designed a circuit breaker that can be used globally, but which requires a minor adaptation of the shell to make it work in Mexico or Egypt or the U.S.

Is your R&D centralized?

Yes, within the major businesses themselves. Internationally, we do a lot of joint product development among the Schneider companies. We have an international product development council comprised of representatives from Telemecanique and Square D and our other companies that meets regularly to exchange information. This prevents duplication of research efforts. From January 1988 until the end of 1992, we invested 47 billion French francs ($8 billion), some of which was spent on acquisitions. Of that, roughly 31 billion francs went to research and development and industrial investment.

SYSTEM INTEGRATION

What do you regard as your greatest personal challenge?

To integrate independent countries and people into a worldwide business. Every country has its own values, and we must remember that we shouldn’t impose our values on others. Everybody is changing a lot because of communications and global markets. And France is changing also. Groupe Schneider is an example of a changing French company.

Our board meetings are bilingual, and we have simultaneous translation. One of the top Groupe Schneider managers, a Frenchman, told me we will be able to use English as the sole language two years from now, and he said we should strive for that. However, I think we probably should keep two languages.

What is your major concern for the future?

My succession. My retirement is proba-. bly several years down the road, but I have to make sure the whole business won’t fall apart through a misunderstanding between cultures.

Do you think anyone other than a Frenchman could become chief executive of Groupe Schneider?

Oh, yes. My successor should be international, as should the rest of the management. I would like to have an American financial officer or human resources manager. Our organization can only be international if we have top people of all different nationalities working together.

The world market presents tremendous opportunities, but there are an assortment of challenges, as well. Today we are judged by our stockholders, by our clients, by the market 24 hours a day. Everything is instantaneous. You have to deliver products in 24 hours. You have to give good service to the client 24 hours a day, 365 days a year. It’s not an easy proposition, but I’m pleased with the fact that we have made great strides.