France Update: “The Lagardère case demonstrates that the SCA is not an impregnable fortress”

Under pressure from its major shareholders, the Lagardère Group last week presented its plan to convert a limited partnership (SCA) into a limited partnership. While the Paris Stock Exchange now has only a dozen SCA,100 SCA, does this decision suggest, in your opinion, that they are an expert on this status, that it will soon disappear?

For many years, the SCA has suffered from a bad image among investors, who consider it notably undemocratic. It’s unfortunate. This status, based on the existence of two categories of associates, the general partners and the sponsors, allows the former to be given political power (the appointment of leaders in particular) and the latter essentially economic rights. As sponsors, shareholders have limited prerogatives to vote on dividends, approve accounts and appoint supervisory board members and auditors. On the other hand, they have no weight on the strategy implemented by the leaders, or even on the appointment of the leaders. However, the case of Lagardère demonstrates that the general partners must nevertheless be accountable to the shareholders and that the SCA is not an impregnable castle. In this sense, some criticisms of its supposed lack of democracy are being undermined. It is quite amusing to note that one of the main challengers to the SCA at Lagardère is a fund, Amber Capital, which, like all funds, manages the funds of investors who have no say.

I would also add that history has highlighted the effectiveness of the SCA which, on an industrial level, can facilitate the preservation of a family culture and values, as at Hermès or Michelin, while sometimes generating for shareholders an exceptional market performance. Even if it is not excluded, by fashion effect, that the SCA will be replaced within a few years by a new statute, the principle of separation of power and capital on which it is based will probably be strengthened.

How will this separation of powers become important?

An important driver will be CSR, which today represents a real bottom blade. Under pressure from legislators, investors, customers and more broadly civil society, companies are being given increasingly heavy responsibilities in terms of ecology, social welfare, etc. To deploy its strategy and action plan, a company must take into account the interests of the growing number of stakeholders. Employees are already invited to the boards of directors regardless of their ownership of capital. It will certainly be the same in the years to come with representatives of other stakeholders: appointment of independent directors with specific sensitivities (environmentally, for example), taking into account the remarks of the proxies… This will result in substantial powers for non-shareholders. In a way, we find the logic that prevails today within the ACS.

Wouldn’t the operation of the ACSs, however, benefit from more interactions between these two types of partners?

Certainly, and the pattern adopted by Michelin perhaps foreshadows how the SCA could evolve. Within the tyre group, the task of proposing the appointment of managers at the general meeting of shareholders rests with the management assistant company (SAGES), which is the general partner. Sages is made up of three colleges: members of the founding family, executives and qualified personalities outside the company.

Interview with Philippe Ginestié by Arnaud Lefebvre, Option Finance

Ginestié Magellan Paley-Vincent, France, a Transatlantic Law International Affiliated Firm.  

For further information or for any assistance please contact france@transatlanticlaw.com

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