Governorship of company

The governorship of company is the whole of the processes, regulations, laws and Institution S influencing the way in which the company is directed, managed and controlled.

La governorship includes also the relations between the many implied actors (the Recipients, or stakeholders) and the objectives which control the company. The main actors are the shareholders, the direction (cf on this point the concept of Dirigeance) and the board of directors. The other recipients include the Employé S, the Fournisseur S, the customer S, the banks or other lenders, the vicinity, the environment and the community in the broad sense.

The word governorship is a new expression in French language, which has a etymology complexes.

A crisis of confidence

The Years 1990, described by the “Nobel Prize” of economy Joseph Stiglitz as the Roaring Nineties in reference to the Roaring Twenties (the Mad years which preceded the Krach by 1929) are characterized by a stock exchange exubérance and a certain number of drifts:

an explosion of the remuneration of the managers of undertaking in particular of their variable part leant with Stock-option S, temptation is large to make pass its private interests before those of the company;
the introduction of new financial instruments and countable novel methods which (to simplify to the extreme) make it possible not to enter or not to show the real extent of the Endettement to the Bilan of the company, temptation is large to use them so that the results of the company are improved, the stock exchange courts raised and the stock-options all the more remunerative;
a Deregulation, in particular in the banking sector , which in softener the rules weakens the institutional mechanisms of control;
and for all to say, a certain relaxation in the ethics of the leading classes (the Puritanisme which made the beautiful days of American capitalism and the ethical Protestant woman that max Weber associates with the spirit of capitalism, are then clearly in Bern), an ambient cynicism (of the financial analysts of banks of investment of reputation praising with the public qualities of actions which they judge in-house rotted );

all that leads us to abuses, scandals and a detrimental crisis of confidence for the good performance of the stockmarkets.

Following the businesses Enron (2001), Andersen (2002) and WorldCom or Parmalat (2003), it appeared necessary to give again confidence with the shareholders, creditors and employed, injured by the many accounting scandals which defray the chronicle of the American and different companies. This reconquest of confidence was to pass by the installation of radical reforms in the governorship of company .

The law Sarbanes-Oxley

The Loi Sarbanes-Oxley (or SOX ) was adopted in 2002 in the tread of the Enron scandal. It imposes on all the companies dimensioned with the the United States, to submit to the American Commission stock exchange transactions (SEC) of the accounts certified personally by their leader. This law relates to also the 1.300 European groups having interests in the United States.

It thus makes the leaders penally responsible for the accounts published. It also ensures and especially the independence of the To that the eurs vis-a-vis the pressures of which they can be (and are) the object on behalf of the managers of undertaking.

The report/ratio of Richard Breeden

At the request of the judge of the bankruptcies, being occupied with the the United States of survival of the company MCI (ex-WorldCom), Richard Breeden, the former SEC President of the , the body of regulation of the American stockmarkets, has in a ratio of 149 pages, made public in May 2003, produces 78 recommendations. This report/ratio should in the long term become the base of the reform of the governorship of company and its proposals to be binding at all the large ones and medium businesses.

The new board of directors of MCI proceeded, in July 2003 with the adoption of all the proposals of the report/ratio. It is a question of preventing which the abuses made by the former owner Bernie Ebbers and his collaborators can reproduce who reigned by intimidation on a seemingly advantageous company in a sector where competition carried out losses. A double accountancy masked, in fact, 11 billion dollars of losses cumulated between 1999 and 2002, whereas, in same time, Bernie Ebbers was made vote a personal loan of 400 million dollars by the administrators, and that without any question.

It appeared necessary, with much, that finishes the era, during which owners reigned unbounded and without division on companies in which nobody dared to put embarrassing questions. The proposals of Richard Breeden will allow by founding multiple cords to limit the megalomaniac owners, or having strong personalities, and having one big leeway in their management, while trying to return the totality of the administrators independent of the management of the firm.

Proposals

Among these 78 proposals:

Executive Prohibition of the office plurality of the functions of Chief Officer (CEO) and president of the Board of directors.
Ineligibility with the Board of directors of any person in charge of company working with the company to manage.
Better remuneration of the administrators (for MCI of 35.000 $US with 150.000 $US) but obligation to devote 25% of their income after taxes to the purchase, on the stockmarket, of actions of the company to be managed.
Prohibition with the administrators to sit at the Board of directors of more than two quoted on the stock exchange firms.
Obligation with the Board of directors to meet at least 8 times per annum.
Obligation with the members of the Board of directors to go to visit the installations and sites of the company.
Obligation with the members of the Board of directors to receive each year a special training for better including/understanding the company and its sector.
Prohibition with an administrator to preserve his station more than ten years.
Obligation to replace each year one of the administrators, in order to prevent that the collegial structure of the council does not lead to the passivity.
Prohibition to pay the leaders with stock-options.
Creation of a ceiling of remuneration for the leaders, whose only vote of the shareholders will make it possible to exceed it occasionally (for MCI 10 $US million with the owner and 5 $US million for the other leaders employed).
Reinforcement of the direct democracy given to the basic shareholders. For MCI that passes by the creation of a site Internet especially dedicated to the shareholders who wish to alert the administrators and the other shareholders of their concerns, with the possibility of making vote for resolutions without passing through the general meeting.

In France

Three systems of direction:

System monist: The company with Board of directors. In this form the board of directors delegated all its powers to a managing director, but in practice, the president had the most capacities. Type of governorship which can have two methods:
1) Office plurality - the chairman of the board is also Directeur Général
2) Dissociation - the president of CA is not the Managing director

Dualistic system: The public limit company with directory (executive function) and Board of trustees (function of control).

Since 1995, several reports/ratios aimed to reinforce the independence of the administrators compared to the chairman of the board, which only concentrated too many capacities to him:

Report/ratio Viénot I (July 1995), on the initiative of the CNPF and AFEP: this report/ratio insists on the information of the shareholders, the periodic examination of the composition, the organization and the operation of the Board of directors, the presence of at least two independent administrators in the councils, the rights and Obligations of the council, the establishment of a committee of the accounts and a committee of remunerations,
Rapport Marini (1996), dissociation between president of CA and DG, limitation of the mandates of administrators, to extend the power of the committee of audit
Rapport Viénot II (July 1999), on the initiative of the MEDEF and the AFEP,
Rapport of Daniel Bouton (September 2002): this report/ratio stressed the ethical , the transparency, and the monetary and financial code.
Report/ratio of Pascal Clément, deputy, (December 2003): Mission of information on gouverment of company: freedom, transparency, responsibility. Report/ratio written within the commission of the laws of the National Assembly and proposes 15 proposals aiming at Rehabilitating the shareholder, Résponsabiliser the board of directors and Clarifier the matter practices of remunerations. This mission of information also carried out within the framework of its reflection the hearing of forty heads of undertakings, lawyers, experts and professors.

The law on the New Economic Regulations (NRE) of May 2001 appreciably modified the operation of the board of directors, by dissociating the functions executive and of control. It caused to reinforce the independence of the administrators compared to the president. Correlatively, it increased the transparency compared to the shareholders, thus pushing the companies to meet the requirements of financial rating and the Intérêt S of the Financial markets (value actionnariale).

Article 225-102 of law NRE requires of the companies with dimensions to communicate on the social consequences and environmental their activities, within the framework of their responsibility sociétale. It is not envisaged of true sanction in the event of nonapplication of this article, so that the companies are not obliged to satisfy the interests of the Recipients (partnership value). It seems that France is the only country where one passed by the legislative way to treat this question.

The relative law with Financial Safety (August 2003) shows various points of the BUTTON report/ratio in order to ensure a better transparency of the financial informations.

The whole of these reports/ratios and legal texts was published in a combined code with the Frenchwoman in October 2003 on the initiative of the AFEP and MEDEF.

Prospects for the governorship of company

One can release two great types of governorship of company:

Value actionnariale

In a first system which privileges the Création of value for the Actionnaire (shareholder been worth in English), the company seeks to maximize the stock exchange course of the titles held by the companies. The interests of the leaders are aligned on those of the shareholders and the financial investors. The organization of the Board of directors and the regulation transparency remuneration of the leaders are defined in this objective.

partnership Value

In a second system, one rather develops the creation of value for the whole of the partners (stakeholder been worth in English). In this case, one will seek to create richness between various human and material resources by co-operation with various types of recipients: customer S, suppliers, employed, Shareholder S, territorial collectivities,…). The performance is measured in comparison with the whole of the partners. This type of governorship will support the development of two types of capital: the financial capital, but also the human capital (know-how, competences, innovation.

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