France Telecom Board To Decide Richard’s Fate After Charge

France Telecom SA (FTE)’s board meets today to determine whether Chief Executive Stephane Richard will keep his job after being charged with fraud linked to his time at the French finance ministry five years ago.

If Richard is ousted by the board, France’s largest phone company, also known as Orange, will be faced with a third change at the helm in less than a decade. Richard, 51, was parachuted into the top job at the Paris-based company three years ago after his predecessor Didier Lombard stepped down before the end of his term amid criticism over how he handled a series of employee suicides unions linked to a reorganization.

Richard has the support from the state, which with a 27 percent stake is the company’s largest shareholder. French President Francois Hollande yesterday said the three government-appointed members of France Telecom’s board will be instructed to vote to keep him as chief.

“As long as he can function as chief executive, he should stay,” Hollande said in an interview on M6 television. “If his legal problems one day prevent him from carrying out his functions, then the conditions will have changed.”

France Telecom’s 15-person board also includes three directors elected by workers and one appointed by employee shareholders. Other members include France’s first woman astronaut Claudie Haignere and former Carrefour SA (CA) Chairman Jose Luis Duran.

Labor Split

Employee shareholders, who hold about 5 percent of the company, have come out in support of Richard, while reactions from workers’ unions have been mixed. The CFE-CGC union said last week they wanted Richard to stay. Sud, another worker group, called for Richard’s suspension, saying being charged for fraud “isn’t compatible with running the company.”

The fraud charge against Richard stems from the time when he was chief of staff for then-Finance Minister Christine Lagarde in former President Nicolas Sarkozy’s government — between 2007 and 2009.

The charge, related to a dispute that began in 1993 between a state-owned bank and French businessman Bernard Tapie, is turning into a distraction for the phone carrier as it strives to reverse falling sales. France Telecom, owner of the Orange brand, is contending with price wars in France and political turmoil in countries like Egypt.

Tapie Award

Tapie, who endorsed Sarkozy’s successful presidential effort in 2007 and his failed re-election bid in 2012, won a 385 million-euro ($509 million) arbitration award in 2008, ending a dispute with the government over his company’s sale of German sportswear brand Adidas AG (ADS) in 1992. Tapie accused then-state-owned bank Credit Lyonnais of cheating him in the sale.

Lagarde, now managing director at the International Monetary Fund, in her role as finance minister, didn’t appeal the arbitration decision, saying “a very large majority” of the money would return to the state through the creditors’ claims.

She has denied any wrongdoing and was heard last month in a separate investigation. She averted being charged and was named a key witness after two days of questioning.

Richard will appeal the judges’ decision to charge him and “views their accusation as insulting and grotesque,” his lawyer, Jean-Etienne Giamarchi, has said.

Richard was called in to head France Telecom in March 2010 as the company worked to deal with dozens of employee suicides that unions blamed on stress from reorganization efforts. While he eased labor tensions at the company, the stock was the worst performer in France’s benchmark CAC-40 index last year.

Business Elite

A member of the French business and political elite, Richard made his personal fortune by participating in a leveraged buyout of Nexity SA, the property developer created from the real-estate assets of Generale des Eaux.

Born in Cauderan in southwestern France, he graduated from France’s elite Grandes Ecoles, like top executives at several large companies in France. He attended the Ecole des Hautes Etudes Commerciales and the Ecole Nationale d’Administration.

He was hired by France Telecom in 2009 as an eventual successor to Lombard, due to retire a few months later.

Richard’s ascent was hastened by more than 30 employee suicides that took place from 2008 to 2010. Unions criticized how management dealt with the issue, speeding up Richard’s move to the top job. He became CEO in March 2010. Lombard is under investigation for the suicides that ended his tenure.

Price Wars

After dealing with the social tensions, Richard has faced the challenges of France’s phone market.

Competitor Iliad SA (ILD), a broadband provider, entered the wireless services market and started selling discounted packages starting at 2 euros per month in January 2012, prompting other phone companies to cut their prices.

Richard signed a roaming agreement allowing Iliad to start selling its packages before it had deployed a full network of its own. Extra revenue from the agreement has so far partially compensated sales lost because of falling prices and subscribers leaving to Iliad.

After the first quarter, France’s biggest phone company said it would focus on cutting costs this year and keeping a lid on debt as credit agencies increased pressure. First-quarter earnings before interest, taxes, depreciation and amortization fell 9 percent to 3.12 billion euros. Sales dropped 5.9 percent to 10.28 billion euros.

Shares of France Telecom have dropped about 12 percent this year, bringing the company’s market value to 19.5 billion euros.

Source : Bloomberg