http://www.businessweek.com/stories/1995-04-02/twilight-of-a-czar

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Twilight Of A Czar


International Business: FRANCE

TWILIGHT OF A CZAR

Alcatel Alsthom Chief Executive Pierre Suard hurries down a flight of stairs to the courtyard of an elegant Paris apartment house. He is courteous but ill at ease as he ushers a visitor into a formal salon. Until he was barred from executing his duties by a French court on Mar. 10, Suard reigned over the world's largest maker of telecommunications equipment. Although he's still Alcatel's chief, Suard is forbidden contact with the company pending the conclusion of corruption investigations that target him and Alcatel.

Many French businesspeople think Suard's career is over--regardless of the probe results--because Alcatel's tarnished global image needs cleansing. In fact, BUSINESS WEEK has learned that some Alcatel directors favor ousting Suard. That would be a stunning development in France. Confides one Alcatel director: "Suard won't be coming back ....When a new CEO arrives, Alcatel will be a different company." It may need to be, since earnings at the $32 billion company plunged more than 40% last year, and competitors are racing to pick off new markets.

BITTER END. Yet Suard, 60, says he won't give up without a fight. He claims the court inquiries of customer over-billing, purported illegal political contributions, and alleged personal use of company funds have been trumped up by a foreign corporate rival. He won't name it, but the Paris rumor mill thinks he has in mind Sweden's Ericsson. "I can't imagine this process could last so long after I have given such proof of my innocence," says Suard.

It's a bitter end for a man who by all accounts forged a model French career and played by the rules of the French Establishment. His fall has become a case study in how the traditional ties between French business and government are coming under unprecedented pressure from a variety of forces: a newly activist judiciary and press, demands for clearer and more responsible corporate governance, and the need, in a global economy, to break out of a protectionist mentality.

Yet Suard just missed sailing into retirement a hero. A quintessential product of French elite schooling, Suard started his career as a civil servant, spending three years as a top aide in the powerful Finance Ministry from 1966 to 1968. Although tight-lipped and formal, Suard picked his friends well. One of those friends, Edouard Balladur, today is Prime Minister.

Suard joined Compagnie Generale d'Electricite (CGE), France's giant engineering, transport, and telecom conglomerate in 1973. He turned around the near-bankrupt cable division and made it CGE'S most international business. His low-key demeanor pleased his demanding boss, Georges Pebereau, who was installed at CGE by the Socialists after they won the presidency in 1981. Appointed vice-chairman in 1985, Suard played a key role in executing Pebereau's daring strategy to purchase a stake in ITT Corp.'s phone-switch operation.

The ITT deal transformed Alcatel from a telecom laggard into a global contender. Yet when the Gaullists won the Prime Minister's office in 1986, Pebereau lost his job. Instead, the Gaullists--including new Finance Minister Balladur--put Suard into the top spot at CGE. Balladur later bowed to Suard's desire to privatize the company, which emerged with a new name, Alcatel Alsthom. When the Gaullists were out of power between 1988 and 1993, Suard employed Balladur as a consultant to one of Alcatel's subsidiaries, a job that earned Balladur $20,000 a month.

Soon after becoming CEO, Suard pursued his vision of besting AT&T in phone equipment. A series of acquisitions starting with ITT bought him that goal. "I wouldn't do anything differently," says Suard. "The strategy has been right."

But the world didn't stand still as Alcatel expanded rapidly. As telecom, computer, and media technologies rapidly merged and deregulatory forces started rumbling around the globe, savvy rival CEOs were breaking up rigid hierarchies and creating nimble subsidiaries. Yet Alcatel was slow to adjust, depending too much on state-owned France Telecom and Deutsche Telekom for the majority of profits. This arrangement just delayed when Alcatel would have to compete without state aid.

Other weaknesses developed. Poor management oversight hurt Stuttgart-based Alcatel-SEL, which was slammed by price competition and huge penalties for being slow to deliver updated software for its switches to the German Bundespost. Losses at Alcatel SEL will total an estimated $286 million in 1994. Alcatel also was beaten to market in such technologies as cellular communications by Nokia, L.M. Ericsson, and Motorola.

As late as 1993, Suard was still celebrated in the French press for making Alcatel the biggest supplier of switches in the world. That all changed in 1994. A new generation of French prosecuting magistrates was pursuing leads on a variety of corruption cases involving local government, campaign financing, and big business. Alcatel got caught in the dragnet when two employees arrested for fraud told investigators of a scheme to systematically overbill France Telecom. Magistrates are now looking into several cases of alleged overbilling that may total $150 million. Alcatel denies the allegations and questions the motives behind these revelations. Yet critics of France's cozy links between government and business charge that any extra profits Alcatel allegedly milked from France Telecom were in effect government subsidies. France Telecom remains silent on the issue.

In July, 1994, a new investigation was opened--against Suard himself. Sources alleged that Suard had used $750,000 in company funds to refurbish his homes. He says the funds paid for a security system that the company wanted him to install. No matter. The prosecutors have widened their inquiry. They are questioning the company about a tortuous trail of payments that flowed from Alcatel affiliates to offshore bank accounts and back to the Gaullists. One ex-Cabinet minister targeted in this inquiry is Gerard Longuet, who supervised telecommunications. He denies any wrongdoing.

SINISTER CAMPAIGN. Suard's role in these probes remains a mystery. It's unclear whether he actively directed the alleged illegal use of company funds, and some members of the Establishment are rallying to his defense. In a page one editorial, the conservative daily Le Figaro worried that publicity-hungry judges were destabilizing a key French company. At least one board member says the prosecutors are "totally wrong." He adds: "There's a lot more support for Pierre than anyone thinks."

In the latest act, Suard made a surreal appearance on French television news on Mar. 15. Defiant, he blamed the scandals on this sinister destabilization campaign. He even threatened to transfer company headquarters to Brussels. The denouement of this drama has yet to come. But the toll it has exacted on Pierre Suard, Alcatel, and France's self-image has already been enormous.

Rise and Fall of a French Insider

1954 Pierre Suard's first step to joining the elite. Graduation from Ecole Polytechnique.

1960-73 Building the resume. Stints at Public Works Ministry, Paris airport authority, Finance Ministry, and engineering firm.

1973-85 Career takeoff. Joins Compagnie Generale d'Electricite, later renamed Alcatel. Turnaround expertise lands him No. 2 Job.

1986-93 Suard's golden era. As chief of privatized Alcatel, embarks on worldwide expansion.

1993 The first sign of trouble. Accusations that Alcatel overbilled France Telecom rock the company.

1994 The crisis. Suard placed under investigation for spending involving his residences, and judges pursue reports of illegal campaign financing.

1995 The fall. Suard barred from acting as CEO while investigations continue.

DATA: BUSINESS WEEKBy Gail Edmondson, with Marsha Johnston, in Paris


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