Jean Marie Messier became Chairman of Compagnie General des Eaux in 1996 at the age of 38. He was a graduate of elite French universities. At age 29, he held a senior post in the French Ministry of Economy and Finance. At age 32, he joined Lazard Frères, where he became the French investment bank’s youngest general partner.
He renamed the company Vivendi in 1999. And under Messier, Vivendi’s deal flow was staggering: the company sold 39 businesses and bought control of or stakes in 65 others. The capstone deal was a merger with Seagram-Universal and Canal Plus in 2000.
The share price climbed to a record high, and Messier became a darling of the financial press. Time magazine named Messier the 12th most influential businessperson in the world, and the French Government awarded him the Legion of Honor. Articles in Business Week and Fortune compared him to Jack Welch, the legendary CEO of General Electric.
The French press called him Jean “Magic” Messier. But Messier preferred J6M, which stood for Jean Marie Messier, moi-meme maitre du monde (“Jean Marie Messier, myself, master of the world”).
Massive impairment charges hurt the company’s credit ratings in 2001, which led to problems rolling over short-term debt, which put pressure on liquidity, which hurt the share price. Messier fought back in 2002 with a massive increase in share buybacks, a special dividend, and a request for a big increase in his compensation. Directors began resigning in packs, and Messier lost his job that July.
He paid over $2 million in civil fines for misleading investors in France and the United States. Now he’s been convicted on criminal charges for the same offense. In these difficult times, it may be gratifying to see a member of the global business elite in trouble. But what’s the lesson in the Messier mess for risk analysts? How could a manager so brilliant, so accomplished, so successful get himself and his company into so much trouble?
We think the answer is at the intersection of management and character. Messier displayed many of the traits of spectacularly unsuccessful people Sidney Finkelstein describes in his excellent book Why Smart Executives Fail.
1. They see themselves and their companies as dominant. Messier overestimated his ability to control events, especially when Vivendi got into trouble in 2001 and 2002. Instead of shoring up the company’s finances, he threw money at the share price and kept insisting Vivendi had more liquidity than it really had, as if his assurances alone were enough to save the company.
2. They identify completely with the company. But the relationship is inverted: the company’s good doesn’t come first, the manager’s does. Messier believed what was good for him must be good for the company. That’s how he could ask for a raise when Vivendi was in the middle of a liquidity crisis.
3. They think they have all the answers. Messier’s self-confidence and vanity were legendary. No one could persuade him to see the mistakes in business and financial strategy that led to Vivendi’s liquidity problems.
4. They eliminate anyone who isn’t 100% behind them. Messier fired the only other widely admired manager at Vivendi, Pierre Lescure, the highly popular CEO of Canal Plus. He stuffed the board with friends and supporters.
5. They are the company’s spokesperson. Messier loved the limelight and cultivated it. He became obsessed with the appearance of success, insisting that there were no real problems at Vivendi, even when losses were growing and financing shriveling away.
6. They underestimate obstacles. Messier refused to admit the extent of Vivendi’s funding problems. His CFO tried to warn him, saying, “I’ve got the unpleasant feeling of being in a car whose driver is speeding up into the bends and that I’m in the death seat.” But Messier ignored him.
7. They rely on what worked for them in the past. When things began to go wrong for Vivendi, Messier just did more of what he’d always done. He increased the pace of acquisitions and divestitures, raised share buybacks and dividends, and made more public appearances.
Messier, for all his ability, was a catastrophe masquerading as a hero. Fortunately, he did not destroy Vivendi, the way Bernie Ebbers did at WorldCom or Jeff Skilling did at Enron. But he came close. Analysts and investors who want to avoid the next management disaster should pay attention to character, and these seven traits are a great help for that.
I would differentiate between Vivendi (badly managed) from Worldcom and Enron which were outright frauds. Perhaps the nearest comparable for ineptitude is Edgar Bronfman Jr. who sold the family’s DuPont stake in 1981 and Seagram’s rather than appropriately managing the assets.