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International Business: FRANCE

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The last act came abruptly. On Apr. 18, the board of French telecom giant Alcatel Alsthom replaced embattled Chief Executive Pierre Suard with a temporary chief, Marc Vienot. The board members--the elite of French industry--had little choice, since judges had ordered Suard to sever all contacts with Alcatel following a series of investigations over charges of fraud and corruption.

For now, all eyes are on Vienot, chairman of French bank Societe Generale, which is Alcatel's largest stockholder with 9.1% of voting rights. Vienot must nominate a new CEO by July 31. Rumored candidates for the job include Jozef Cornu, an Alcatel director and a Belgian national; Serge Tchuruk, chairman of oil company Total; and Pierre Faurre, president of communications and electronics company Sagem. Vienot may actually choose two new bosses: one for telecom unit Alcatel, which represents two-thirds cf the company's revenues of $35 billion, and one for the holding company, which includes the engineering and train subsidiaries.

With his choice, Vienot has a rare opportunity to trigger radical change at Alcatel (table). He and other Alcatel board members also are likely to pioneer a new, more vigilant style of corporate governance at the telecom giant. The board already has created a permanent committee of five directors that will consult with the new CEO on important issues. The committee includes ITT President Rand Araskog and Credit Lyonnais Chairman Jean Peyrelevade. Just as important, Alcatel needs a hard charger to reverse its slumping market share and dramatic profit decline of 49% last year.

Ideally, Alcatel's new boss should have the same kind of international qualifications as 45-year-old Ron Sommer, the newly appointed CEO at Deutsche Telekom, who previously ran Sony Corp.'s European operations. The next boss must break with Suard's management style, which lacked the flexibility needed to deal with the rapid pace of change in telecom and information technology. Board members admit privately they were astonished at Suard's monarchic control, which left Alcatel with no one to step in and run the parent company. "The emperor approach to managing a global company--the patron who is never wrong--won't work anymore," says Nigel Deighton, research director at Gartner Group Europe.

To prevent the recurrence of scandal and bolster Alcatel's competitiveness, the board will have to reshape its relationship with the new CEO. Instead of rubber-stamping decisions as in the past, subcommittees may supervise the development of strategic businesses. Keeping close tabs on management's performance would send a serious signal to French industry. "The real problem today in France is the board of directors doesn't control management or review the accounts," says Elie Cohen, professor of economics at the Institute of Political Studies in Paris and head of the National Center for Scientific Research.

BLINDSIDED. Many analysts say a manager recruited from outside France's tight coterie of technocratic elites would have the best chance of breaking with tradition and forging a more decentralized management model at Alcatel. "The choice is absolutely critical," says Gartner Group's Deighton.

In the worst-case scenario, Alcatel could fail to find a decisive chief and fall as hard and fast as former champions IBM and Digital Equipment Corp., analysts warn. Just as the computer market shifted in the late 1980s, blind-siding smug managers at IBM and DEC, converging technologies are altering the telecommunications market radically. According to some estimates, Alcatel may already have slipped last year from the world's largest telecom equipment maker to No. 3 behind AT&T and Motorola Inc.

Although Alcatel is still profitable, its telecom margins are rapidly eroding as deregulation spurs competition. The company still can charge elevated prices for its phone equipment in France and Germany, which remain largely closed monopoly markets. Yet if Alcatel were forced to drop its prices to prevailing rates overnight, it would lose billions of dollars, according to one market researcher in France.

That means the changeover at Alcatel must come fast. The new CEO "really only has one shot," says Trevor Brignall, senior partner at BIS Strategic Decisions in Luton, England. It's up to Vienot to select a visionary who won't use French corporate tradition as a guidepost but instead will help invent the future.

BIG CHORES FOR ALCATEL'S NEXT CEO

A STRONGER BOARD To boost competitiveness and avoid more scandal, the company must have a supervisory board with real power over management

A NEW CHAIN OF COMMAND Alcatel should shed layers of management to improve speed and flexibility in a global marketplace

BETTER PRODUCTS The company needs new products for a market where telecom, computer, and media technologies are converging

DATA: BUSINESS WEEKBy Gail Edmondson in Paris


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