Impact of the Debt-Equity Ratio on the Corporate Governance in the Banking Sector of France

Abstract

Corporate governance first appeared as a topic of conversation in France in the mid-1990s in the wake of two quasi-simultaneous developments: the growing importance of foreign ownership (i.e. Anglo-Saxon institutional investors) and the succession of spectacular financial losses resulting from unmonitored managerial initiatives (e.g., Credit Lyonnais, Michelin, Paribas, Suez, Union des Assurances de Paris). French legislation protects the interests of shareholders by stipulating that all the most important decisions taken by companies must be approved by general meetings.However, French legal control is not overly burdensome. It simply sets forth the general outline of governance, leaving the responsibility for developing the details to corporate management. For example, French companies can have either a unitary (UK) or a two-tier (German) board system. The chairman of the board may also be the CEO. However, the regulation of governance has in recent years increasingly been developing by reference to soft legal guidelines.In France, the terms “corporate governance” and “shareholder value” have generally been associated with lay-offs and short-term thinking that privileges the next quarter’s financial results over the long-term health and social responsibility of the corporation. The contempt shown by managers, state officials, trade unionists, and the general public toward foreign mutual and pension funds was not a surprise.