Bertrand Collomb: Business cloud has silver lining for Europe

Corporate scandals in the United States have created an opportunity for European business to regain the upper hand after years of being in thrall to the American approach, says Bertrand Collomb. –

Society and business in Europe are traditionally based on dialogue and a common commitment to long-term progress. European governments have been strongly attached to conserving the values of continuity, solidarity and equality. But while these values provide a solid basis for successful development over the long term, they can also be an impediment to competition and mobility.

This relatively “slow but sure” progress was challenged in the 1980s by the very strong swing to free competition that appeared in the US and the UK under president Ronald Reagan and prime minister Margaret Thatcher. Stimulated by strong competition – from Japan in particular – and supported by the development of new technologies, the American economy rapidly became much more competitive and innovative.

These developments also led the global financial markets to increase their expectations, which later proved to be excessive. One of the most noticeable results was a very one-dimensional view of business, with considerable importance given to short-term value creation as measured by immediate stock market performance.

The crisis of 2001-2002 showed the limits and the excesses of this approach. Markets do not always give an accurate forecast of the economic and business situation. Long-term shareholder value requires a stakeholder approach.

This crisis, which we are still experiencing, highlights the inconsistencies between short-term shareholder value and true stakeholder value. It has made civil society and companies even more aware that sustainable development is the only way for a company to thrive in the long run. Companies have to take into account their impact on the societies in which they operate and the environment that surrounds them.

Europe has managed to avoid the excesses that led to the Enron scandal and today has a real opportunity to reestablish its conceptual, economic and social influence on several business issues.

For instance, principles-based accounting rules and corporate governance guidelines can guarantee respect for the interests of partners and shareholders. Europe can lead by example. It can resist an excessively legalistic approach with an open and democratic system based more on guidelines than on prescriptive rules, balanced by duties to preserve social links.

Today Europe has the skills and the culture to succeed. First, its diversity makes it ideally suited to the complexities of the global economy. Diverse cultures and languages breed more tolerance and understanding, which in turn build precious competitive advantages in a global economy with local markets.

Second, Europe’s capacity for self-criticism, born of its diversity as well as its poor performance in the past, should help bring about change and improvement.

Third, the European Union (EU) is developing into a true home market. The transformation has been remarkable over the past 15 years. Visible and hidden trade barriers have been significantly dismantled as the single European market has become a reality, although there still remains much to do on simplifying national tax and administrative regimes.

More and more regulatory frameworks are now European. If some European legislation still suffers from the bureaucratic tendencies of civil servants, at least it has the merit of being relatively uniform.

But to make its full contribution towards reestablishing trust, Europe needs to accept the challenge of change: it must evolve towards more effectiveness and value creation. European business is ready to contribute.

It has already done much in different areas – economic integration, environmental protection and improving transparency and social responsibility. And European companies are ready to go further in terms of combating poverty in emerging countries, protecting the environment, promoting health and safety programmes, and helping to stimulate economic development.

But the fact remains that the peoples of Europe are still not quite ready. People still need to be convinced that it will be in their own interest to become involved in this global evolution.

European business has shown that it can be efficient in world competition. But the EU’s organization, even if it is efficient in some areas such as trade, still suffers from too much administrative red tape, which continues to stifle initiative. Structural barriers to growth remain in the fields of competition policy, market integration, innovation, the dissemination of new technologies and the efficient use of human resources.

Enlargement of the EU, which presents many opportunities for value creation, also poses a very difficult challenge. Enlargement is welcomed by European business, since it will add to Europe’s growth potential. By increasing diversity and stimulating economic development, it should create new market opportunities and develop innovation through the sharing of know-how.

Nevertheless, enlargement also presents a risk of organizational paralysis if Europe’s political leaders cannot find a way of making things work with 25 or more countries in the EU. Significant institutional change is needed to ensure that enlargement is successful.

In particular it is necessary to avoid adding complexity and delays to the process of taking decisions. European competitiveness will only improve when decision-making is faster and more efficient and when regulation is implemented more consistently.

So what is the business agenda in brief for Europe? It is to build on Europe’s cultural diversity and social cohesion by implementing change and improving economic effectiveness. The main issues Europe must address in the coming months will be competitiveness, EU governance after enlargement, competition policy, corporate social responsibility guidelines and regulatory simplification.

Bertrand Collomb
Bertrand Collomb is chairman and chief executive of the French-based building materials group, Lafarge SA.