: Revitalizing a French Conglomerate
Introduction
The case charts out the progress of Vivendi (formerly CGE) under the leadership of its two most recent Presidents – Guy Dejouany and Jean-Marie Messier and in the process contrasts their leadership styles. The case discusses the two decade long stint of Dejouany at the helm of CGE which not only saw the company diversify into many new sectors but also towards the end making losses and experiencing serious financial problems. It goes on and tells us about the change in leadership and the steps taken by Messier to get the company back on track.
Legacy of Guy Dejouany
Under his leadership, the company saw huge growth by means of diversification. CGE had diversified into a wide variety of businesses including real estate, transport, healthcare and telecommunications and the number of subsidiaries grew manifold. This was exemplified by the fact that the portion of revenues from the traditional water management, waste treatment and electricity businesses reduced from 80% to 46% from 1975 to 1995.
Dejouany was a “real operational guy” who knew everything which occurred in any part of the company. A total of 70 people reported directly to him. Reward systems at CGE, as in most of the French Economy, were predominantly based on salary rather than performance bonuses. The 1980’s was a period with low venture capital funding and weak stock markets meant minimal funding for new projects. Thus cash rich CGE with its highly decentralized structure had a great chance to expand. The reason to diversify was based on Dejouany’s personal relationships and experiences and also to leverage the company’s existing relationships. In mid 80s, the company increased its portfolio investments or “cross shareholdings”. This cross shareholdings gave enhanced voting rights for participating companies.
The early 1990s
With increase in debt levels and drop in return on invested capital, the cash position of the company weakened. There was a major cash crisis in the firm. An alleged bribery scandal of 1995 came into picture. In 1990s, significant legislative reforms were made to tighten the process.
French Business Environment: The 1990s
In an already sliding French economy, CGE had to operate in the difficult environment as well as had to maintain the employment level as it was the largest employer. The weakness in French equity market was compounded by the absence of an established domestic pension system. Enormous pressures were being placed on France to ‘conform’ to market capitalism.
Jean Marie Messier
He believed that CGE must focus on core activities i.e. Utilities, Communication and Construction & Property. He reduced the debt burden by divesting stakes in non core business such as healthcare, etc. Alliances were created with cash rich partners to supplement CGE’s resources in fast growth areas with high cash requirement. A series of mergers began to consolidate many of the 2714 subsidiaries that composed CGE. Messier reduced the number of people directly reporting to him from 70 to around a dozen.
Structural Changes
Messier opened a new headquarters for the entire company in the heart of Paris. With this the tasks of capital and human resource allocation changed in a big way. He planned to have asset allocation and clearly set targets for each of the divisions at the corporate level. He promoted the concept of mobility among employees to develop a new culture in the company. 200 managers were initially selected under the program and were circulated within the divisions. A new incentive system with performance bonus was also implemented. The focus now shifted to creating shareholder value. A new strategic direction for each of the core businesses was also decided. The utilities business was to look for expansion opportunities abroad whereas the construction and communication businesses focussed on the domestic market.
Vivendi
In the 1998 annual shareholders meeting, Messier asked the shareholders to approve CGE’s merger with Havas and the renaming of the resulting company as Vivendi. In doing so, he explained that the merger represented the company’s commitment to building a stronger presence in communications expanding beyond the traditional base of water, utilities and property management.
Arjun Kumar | Gaurav Chowdhary | Ishan Bhardwaj | Sriganesh T.V.