Corporate Governance and Carrefour's Future

link here to article

This story is about the world's second largest retailer. This is a tough business. Fashions come and go and retailers have to adapt quickly to fickle consumers. But the real story is one of corporate governance in the new world of investor capitalism.

Blue Capital is an investment group founded by a US property tycoon and Europe's richest man Bernard Arnault. It owns 15% of Carrefour's common stock and it has placed 3 of its people and the Carrefour board. This gave them the power to hire the new CEO who had earned a reputation at food producer Nestle as someone who could turn a business around. Blue Capital invested in Carrefour because it believed that the value of its properties were not reflected in its stock price, and that the new CEO Olofsson was the person who could make 1+1=3.

Olofsson came to the job with no retail experience so he hired someone with retail experience, but with no experience in France, to spruce up operations. He also had to start the process of making 1+1+3 by selling off some of Carrefour's properties. This got him into a battle with its operating managers who did not want to give up operating control, and he eventually had to dispose of the manager he hired to run the French operations, who had difficulty adapting to the French culture.

Olofsson also had problems at the top of the pyramid. Blue Capital was not pleased with the stock performance, but neither were other investors who opposed Blue Capital's plan to sell off Carrefour properties. This put Olofsson in the difficult position of dealing with unrest among his operating managers and the conflicting opinions of the major investors in Carrefour.

My take from this story, as it has been told, is that it is a mistake to hire a CEO to run a retail operation because the person had established a reputation in food production as a tough guy who could turn organizations around. That seldom works. It also raises questions about the role of investors in running corporations. Blue Capital was looking for a way to boost the stock price and it believed that it could bring in a CEO who could implement its view on how to make 1+1=3. For Blue Capital running a complex corporation is only a numbers game. The right CEO can make the numbers come out right. On the other hand, there are other investors who have a different view on how to make the numbers come out right. Running a complex business is a tough job. It is even tougher when investors believe that they know more about how a business should be run than the management. This is the new world of investor capitalism. Unlocking perceived value and managing the stock price is the name of the game.