VZCZCXRO9206
RR RUEHAG RUEHDF RUEHIK RUEHLZ
DE RUEHFR #6394 2681611
ZNR UUUUU ZZH
R 251611Z SEP 06
FM AMEMBASSY PARIS
TO RUEHC/SECSTATE WASHDC 1633
INFO RUEATRS/DEPT OF TREASURY WASHDC
RUCPDOC/USDOC WASHDC
RUCNMEM/EU MEMBER STATES

UNCLAS PARIS 006394 
 
SIPDIS 
 
SIPDIS 
 
PASS FEDERAL RESERVE 
PASS CEA 
STATE FOR EB and EUR/WE 
TREASURY FOR DO/IM 
TREASURY ALSO FOR DO/IMB AND DO/E WDINKELACKER 
USDOC FOR 4212/MAC/EUR/OEURA 
 
E.O. 12958: N/A 
TAGS: EFIN ECON PGOV FR
SUBJECT: FRANCE TO REVIEW SHAREHOLDER LAW, STOCK-OPTIONS ABUSE 
 
 
¶1. Summary:  The National Assembly plans to review the law on 
employee shareholding in October.  The government is anxious to 
address the issue before the June 2007 presidential elections, since 
it wants to promote investment as well as address the abuse of stock 
options by company executives, which has caused several high-profile 
scandals.  A lively debate is likely, as the law affects the 
pocketbooks of company executives, employees, and investors.   END 
SUMMARY. 
 
Scandals Related to Stock-options 
--------------------------------- 
¶2.  On September 20 the GOF announced its decision to address the 
issue of stock options in parliament.  The debate was sparked a few 
months ago when it was discovered that Airbus head Noel Forgeard had 
sold his own stock options and those of his children just before the 
announcement by the company of delays in the delivery of the A380. 
Airbus stock prices fell after the announcement.   A similar move by 
the CEO of Vinci, Antoine Zaccarias, created a strong backlash. 
 
¶3.  In June, former center-right PM Edouard Balladur proposed that 
heads of companies should not use stock options during their tenure, 
rallying 178 deputies behind his measure.  However, Finance Minister 
Thierry Breton recently confirmed in a press conference he favors 
more flexibility.  He suggested that heads of companies should be 
required to hold a minimum of 25-30 percent of their stock options 
during their tenure.  Breton would let boards of directors decide 
the precise percentage, and proposes to submit the decision to 
shareholders' votes, aware that shareholders are already wary about 
executives' earnings. 
 
Legislators Will Examine the Shareholding Law 
--------------------------------------------- 
¶4.  The stock option reform will be examined by the National 
Assembly in October as part of the employees' shareholding law ("Loi 
sur la Participation").  The plan of Breton and Labor Minister 
Borloo is to launch a wide debate on the economic and social role of 
investing.  In a move to encourage employee shareholding, Breton 
wants to promote the distribution of free shares by companies to 
employees, suggesting companies could benefit from tax deductions. 
 
 
¶5.  Jean-Michel Dubernard, the head of the Social Affairs Commission 
at the National Assembly, applauded Breton's project. However, his 
counterpart Patrick Ollier, the head of the Economic Commission, 
called the project "too timid."   He suggests mandatory shareholding 
in companies with fewer than 50 employees, and a requirement that 
employees hold shares at least three years, as opposed to the five 
years proposed by Minister for Small and Medium-Sized Companies, 
Gerard Larcher.  Larcher explained he did not want companies to use 
shareholding as a substitute for effective wage increases.  He 
warned that shareholding in companies with fewer than 50 employees 
would require sector negotiations. 
 
Analyst Reactions 
----------------- 
¶6.  According to commentators, the main risk is that the debate 
about stock options may overshadow the discussion about employees' 
shareholding.   For her part, Collette Neuville, the influential 
head of the Association of Small Shareholders, acknowledges that 
former PM Balladur's proposal fits well with good corporate 
governance rules, but would not keep company executives from 
pressuring earnings committees ("Comites de Remunerations") to get 
as many stock-options as they want.  She also warned that the 
proposal would not prevent heads of companies from ignoring limits 
set on the holding of stock options, arguing that banks would find 
new financial techniques that would allow this to occur.  "This is 
only more work for banks," she opined.  Not surprisingly, Neuville 
suggested giving more power to shareholders over the award of stock 
options to company executives. 
 
COMMENT 
------- 
¶7.  Nine months before Presidential elections, the government is 
clearly concerned about being seen as protecting the interests of 
both businessmen and employees, while calming electors who might be 
critical of the government for tolerating financial scandals. 
Debate on the measure at the National Assembly will be lively.  The 
Socialist and Communist opposition is likely to fiercely defend 
employee shareholding, and to call for making stock option rules 
stricter.  The center-right majority appears divided about practical 
ways to implement any new legislation. 
 
STAPLETON#