French president Emmanuel Macron's plan to shake up a cosy establishment bodes well for French stocks.
Emmanuel Macron came up with a predictably tepid series of minor reforms this month. There was, however, one really eye-catching idea: scrapping the Ecole Nationale d'Administration (ENA), the elite finishing school that dominates French life.
The Strasbourg-based school has a mere 80 graduates a year, compared to 6,000 at Oxford and Cambridge, and a similar number for Harvard and Yale. And yet the "enarques", as they are known, go on to dominate the country's institutions. Macron himself is a graduate, as were four of the eight presidents of the Fifth Republic, Prime Minister Edouard Philippe and eight other PMs since 1958, and virtually all the top civil servants.
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A narrow pool of talent
The enarques are just as dominant in the corporate world as they are everywhere else. Of the top 100 French companies, 40% of directors have graduated from the school. Of the men (they are almost always men) running French companies, an extraordinary number are graduates of the ENA. Michel Pbereau, chairman of BNP Paribas. Frdric Oudea, chief executive of Socit Gnrale. Stephane Richard, chairman and chief executive of Orange. Pierre-Andr de Chalendar, chairman and CEO of St Gobain. The list goes on and on. It is as if you looked down the list of FTSE chief executives and found that not only had most of them been to Oxford, they had been to just one college. Of course, there is nothing wrong with having really smart people running companies. The trouble is, it is a very narrow talent pool to draw on. The result?A narrow, closed business culture, which, while sometimes brilliant at day-to-day management, is also very conservative and far too resistant to new ideas. And a set of leaders who, while they may be smart, have only a shallow experience of the industries they are operating in. Executives routinely move into the private sector, back into the civil service, and then into a chairmanship. That just doesn't happen in other countries.
The results have hardly been spectacular. Take the CAC 40, the benchmark index of the largest French companies. It is the least dynamic major index in the world.Even a relative newcomer like the shopping centre operator Unibail-Rodamco-Westfield dates back to 2007 and was formed from a series of mergers of existing companies (the kind of thing the well-connected enarques are good at). There are very few genuinely entrepreneurial outfits.Many CAC 40 members, such as the insurance giant Axa, date back to Napoleonic times.
Time for new blood
There is nothing wrong with continuity. Some of the world's best companies have deep histories.There is nothing wrong with bosses having plenty of connections and experience of government either. But a dynamic business culture also needs constant injections of fresh blood. It needs to be open to outsiders, and most of all it needs to have plenty of space for new companies to crash into the elite. France has plenty of big, successful firms. But none of them are doing anything very innovative, and there are no significant new businesses coming through.
It doesn't have to be like that. France, despite its image, has always been an entrepreneurial country, but in the last three decades it has lost this quality. This is partly due to crushingly high taxes and punishing labour laws. But it is also partly because it is dominated by a very narrow elite that is stuffy, unimaginative, and more interested in preserving its own status than expanding. France still has plenty more to do to create a pro-business, start-up culture. But abolishing the ENA will be a step in the right direction and could re-energise French business.It might take ten or perhaps 20 years to make a difference but eventually it could just possibly make the CAC 40 an exciting investment again.
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