When the chief executive of France‘s electrical giant Groupe Schneider was arrested by Belgian authorities last year on questionable charges of forgery and embezzlement, and thrown into jail without so much as a toothbrush, it sounded like a storyline from the latest John Grisham novel. When CEO Didier Pineau-Valencienne was released 12 days later, jumped bail, and became the target of an international arrest warrant, the plot thickened.
Specifically, Pineau-Valencienne was charged with shortchanging a pair of Schneider’s Belgian units in an attempt to buy out minority shareholders. By his own description, however, the CEO became a pawn in the supercharged, longstanding debate between France and Belgium about the cross-border power of French industry. The media roiled the mix, delivering a blow-by-blow account of the proceedings and characterizing Pineau-Valencienne-known to associates as DPV-as a European Michael Milken or Ivan Boesky. But perhaps most important, the affair caps a string of corruption cases involving European executives (see sidebar) and underscores that business connections no longer shield continental captains from charges of impropriety the way executive privilege protects heads of state.
The broad corruption sweep, Pineau-Valencienne argues, is fueled by sensationalistic journalists. The only way to sidestep the spotlight, he says in an interview from Schneider’s new headquarters in Billancourt, a suburb of Paris, is “to be very clean.” Regarding the specifics of his case, the 64-year-old CEO bristles. “The prosecutors claimed there was embezzlement to the detriment of the minority stockholders. The opposite is true. When I came to Schneider, the net value of Cofibel [a Belgian subsidiary] stock was zero. The day I was arrested, it was worth more than 4,000 French francs ($824) per share. How could I have embezzled anything?”
Today, Pineau-Valencienne is trying to put his days as a fugitive behind him: The arrest warrant has been lifted, and the CEO is cooperating with Belgian authorities, returning-incredibly-to provide additional testimony. A five-month audit by international accountants Deloitte Touche Tohmatsu concluded in January that Schneider had committed no wrongdoing, though it held that Jean Verdoot, former managing director of the Belgian subsidiaries Schneider acquired, had embezzled a fraction of the total amount in question.
The wild melee leaves many questions unanswered. Among them: If two European countries can’t work together smoothly on a simple business investigation, how can they ever negotiate the complex trade, tariff, and currency arrangements required to dissolve borders and breathe life into fading plans for the European Union?
WANTED: DEAD OR ALIVE
Pineau-Valencienne is an unlikely protagonist in this potboiler-or farce, depending on how you look at it. Educated at Harvard and Dartmouth, he ran the RhÃ´ne Poulenc petrochemicals division for six years before becoming head of Groupe Schneider in 1981. He was named businessman of the year by French business magazine Nouvel Economiste in 1991; honored by the French-American Chamber of Commerce in 1993; tapped to serve on several U.S. blue-chip boards including Bankers Trust, Whirlpool, and the Equitable Cos.; and rumored to be the next head of Patronat, France’s employers’ federation. Currently, Schneider is one of France‘s top 25 corporations, with 1994 revenues of $10.1 billion and net profits of $122 million, a 73 percent jump from the previous year. A successful $2.23 billion takeover in 1991 of Square D, a Palatine, IL-based electrical equipment company, gave Schneider a toehold in North America and the ability to hold its own against global competitors such as General Electric and Westinghouse and Europe‘s Siemens and ABB.
The story began with PineauValencienne’s plan to restructure Schneider, a one-time European leader in steel and heavy industry that went on a diversification spree in the 1960s. When Pineau-Valencienne took the reins, he sold off the shipbuilding, ski equipment, fashion, and travel-agency businesses, planning to focus solely on electrical distribution. As part of this ongoing process, he offered in September 1992 to buy out minority shareholders in two fairly unimportant Belgian subsidiaries-Cofibel and Cofimines.
Upon completion of the deal, shareholders complained the companies had been undervalued. Schneider reached an out-of-court agreement with some of them at the end of 1993, but others remained unsatisfied, and a judicial inquiry ensued.
Belgian prosecutors lodged two charges against Pineau-Valencienne and Groupe Schneider: First, they alleged that dividends from Belgian offshore companies had not been distributed to all shareholders, with some 3 billion Belgian francs ($105 million) supposedly funneled into Schneider at the expense of its Belgian subsidiaries between 1988 and 1992. And they alleged that offshore companies and assets worth BFr4.8 billion ($168 million) had been hidden from regulators and shareholders in Cofibel and Cofimines.
In May 1994, Prosecuting Judge Jean-Claude Van Espen asked PineauValencienne to come to Brussels and answer a few questions. After 20 hours of intense questioning, the CEO was thrown into Brussels‘ Fore’t prison for 12 days. The case erupted into a media circus.
French newspapers gleefully accused the Belgians of spite. Les Echos, the Francophone financial daily, called Pineau-Valencienne’s arrest audacity, and the leftist French newspaper Liberation led with the headline “Small-time Belgian judge locks away big-time French company chief.” Belgium, on the other hand, retorted that French judges would have behaved in exactly the same way if they were not in the pockets of the business establishment.
Edouard Balladur, then prime minister of France, even called Jean-Luc Dehaene, his Belgian counterpart, about the affair, while a group of 35 leading French industrialists-including former Prime Minister Edith Cresson-placed on May 29 a full-page advertisement in Journal du Dimanche supporting PineauValencienne.
“It was such a political issue,” says Pineau-Valencienne with a sigh. He flatly calls his case the “revenge of the judges.” “When a prosecutor gives information to the media, a judgment is made on you. You may well be innocent, but the public finds you guilty. The prosecutors become the [new] judges, and the media become the guillotine. They not only judge you, they execute you.”
So Pineau-Valencienne jumped his bail of FFr2.5 million and refused to return to Brussels for further questioning, subsequently becoming the subject of an international arrest warrant and effectively confined in France (French law does not permit the extradition of a French citizen). “The declaration by the prosecutor was incorrect,” Pineau-Valencienne asserts. “We decided to take our time and do a full audit, and when we were ready, we would give the real information. We were not going to be attacked the way we had been in the beginning.”
He is proving to be correct. PineauValencienne has returned to Brussels in the meantime and will continue to provide information requested by the Belgian authorities. Pineau Valencienne’s protestations to the contrary, the cleanup drive is a healthy attempt to subject business leaders to the same accountability as here in the States. His case undoubtedly was helped by the fact that the five-month independent audit by international accountants Deloitte Touche Tohmatsu concluded in January this year that no funds had been diverted from Schneider’s Belgian subsidiaries, nor were the interests of the minority shareholders harmed in any way.
Regarding the complicated arrangements between the Belgian subsidiary and its Zairian mining interests, PineauValencienne says the value of the assets was virtually nil by 1994 when they were sold for a symbolic one franc.
Deloitte Touche Tohmatsu confirmed that an offshore network was set up to protect the company’s mining interests in Zaire from political upheaval and possible nationalization. It did, however, conclude that BFr237 million ($8.3 million) had been diverted by Jean Verdoot, managing director of Cofibel and Cofimines in the late 1980s, but offered no further explanation. Groupe Schneider will not comment, saying this issue is still under investigation. In fact, the truth may never be known, as Verdoot died of a heart attack in 1993.
They say time heals all wounds, and Pineau-Valencienne has become somewhat sanguine about the affair. But he worries that there appears to be no easy way to stop what he regards as an unpleasant trend in European business: muckraking.
“I am not blaming the judges,” he says. “I am blaming the media who take advantage of a situation to go into a form of journalism they call ‘investigative.’ I prefer to call it an inquisition.”
AFFAIRS OF DISHONOR
Something’s rotten in the state of France. Les affaires, as the French press has benignly dubbed 18 months of scandals, have reached the highest ranks of the French business establishment. Even before the strange case of Didier PineauValencienne, France had surpassed Italy as the hotbed of corporate and political impropriety.
Prime Minister Alain JuppÃ© came under attack for accepting cut-price apartments from the Paris Council in what has been called the “flats-for-the-family affair.” Pierre Berge, a close friend of former President Francois Mitterrand, has been charged with insider trading during his time at the helm of luxury group Yves Saint Laurent. Pierre Suard, head of diversified telecommunications firm Alcatel Alsthom, was accused of funneling nearly $1 million into home improvement-his own. And the mayors of Lyons and Grenoble are under investigation or in prison on similar charges.
Is this clean sweep driven by media exaggeration, an infection that Groupe Schneider CEO Didier PineauValencienne and others claim is transmitted from the U.S.? Or is it part of an attempt to subject both executives and politicos to more scrutiny, a propensity, one might argue, that also stems from the other side of the Atlantic?
In the past, a blind eye was turn-ed to questionable corporate maneuvers, partly because the careers of the French eminences grises traditionally straddle both public service and business, leading to a blurring-and often, conflict-of interests. The mix is complicated by the fact that the careers of these high-fliers normally take off after graduating from one of the Grandes Ecoles, which produce an inbred, old boy network rivaling that of Harvard Business School or Oxbridge.
Political decentralization in the early ’80s also opened the doors to potential conflicts. Larger budgets and new powers were given to regional and local institutions, which could then grant public works contracts to the private sector. Hammered by intense competition, construction and utility companies found that winning contracts hinged on paying kickbacks, often in the form of donations to political parties.
Finally acknowledging such impropriety, France has attempted to control corporate governance. The recent ViÃ©nor report, commissioned by the French government, emphasizes that directors should act as representatives of their companies and not in their personal interests. It proposes more independent directors and the creation of audit, remuneration, and appointment subcommittees.
However, the burning question remains: If Europe has always implicitly condoned corporate misbehavior, why the sudden change? The establishment blames the media. Laurent Fabius, a former French prime minister, is among those who claim gunning for public figures is “a dangerous tendency that comes from America.”
But the true answer may lie in the simultaneous reassertions of independence of the French legal system and the press. The leftist papers, of course, never were afraid of tweaking authority. Now it seems mainstream papers are following their lead. The French magistracy, meanwhile, has become less servile to the business establishment.
Cynics argue that following the success of New York Mayor Rudolph Giuliani-who made his career in the ’80s by hauling organized crime bosses and Wall Street white-collar criminals into court-his European counterparts want to turn themselves into national stars. And French prosecutors have more to prove than most as they generally have been seen as fawning servants of the elite.
More probably, globalization of business and opening of markets simply is whipping France into shape as international executives seek a level playing field and refuse to tolerate corruption. Whatever the answer, it is evident that justice no longer will be figuratively and literally blind. The lady’s tolerance of European business hijinks clearly seems to be on the wane.
Adrian Murdoch is associate editor of London-based WorldLink magazine.