Alcatel Job Cuts Pose Test for French
Hollande Faces Dilemma Over How to Make France More Business-Friendly
PARIS—In France, old habits die hard.
Witness the pas de deux between Alcatel-Lucent SA ALU.FR -1.29% and the French government.
The ailing Paris-based telecom-equipment maker said last week that it had to slash some 10,000 jobs world-wide, including 900 in France, closing offices in cities like Toulouse and Rennes.
Within hours, several members of François Hollande's government, including the president himself, suggested that the French cuts were too deep.
The next morning, Mr. Hollande's prime minister threw down the gauntlet: He was prepared to use a new labor law to block the layoffs if Alcatel didn't reach a compromise with its unions.
The threat was remarkable because the law, which took effect just three months ago, had been touted as a boon for business, allowing companies to be more nimble in restructuring, partly by making it easier for them to cut pay and working hours in difficult times. Instead, the government was using it to prod Alcatel to dial back job cuts.
The episode lays bare a deeper dilemma facing France's year-and-a-half-old Socialist government: how to be more pro-business without alienating left-wing factions of its party and the electorate.
Mr. Hollande, like his peers across Europe, is struggling with economic growth that is too weak to overcome such ailments as rising debt and mass unemployment.
That's squeezing weaker companies, such as Alcatel-Lucent, and pushing healthy ones to shift resources to faster-growing parts of the world.
The Socialist president has made several moves to address concerns that France's laws are too rigid and costs too high. But he is battling a perception problem. Foreign investors think France isn't a good place to do business. French executives, meanwhile, are fed up with a steady diet of high taxes and lament the government's heavy hand in the executive suite.
The issue stems partly from Mr. Hollande's strategy of towing the middle ground: delivering enough stern rhetoric to please his left-wing parliamentary majority and hoping that investors aren't listening. As the Alcatel-Lucent situation shows, that balancing act is hard to pull off.
The government's threat to block Alcatel's restructuring plan frustrated France's business establishment, which read it as a sign that the same old script applied to the new, supposedly more-flexible labor system. "We shouldn't politicize this situation," said French business lobby chief Pierre Gattaz. "Alcatel-Lucent must do everything it can to adapt, restructure and survive."
Investors, who have pushed down Alcatel's shares, concluded that government heavy-handedness could raise the eventual cost of the company's restructuring and drag it out, both undesirable outcomes for a company racing to turn itself around.
Nor did unions take much heart from the government's support for scaling back the layoffs. "I appreciate it," said Hervé Lassalle , a representative at Alcatel's CFDT union, which represents most of the company's French workers. "But I am not sure how much of this is theater."
French officials stressed that the government is seeking to pressure Alcatel to reach a deal with its unions under the new labor law, something Alcatel has said it intends to try to do anyway.
Alcatel spokeswoman Régine Coqueran-Gelin declined to comment on the government's position. "Our focus is on the plan," she said. "There is a real urgency."
The line between theater and reality gets complicated in a country where the government casts a long shadow over the business world.
Apart from the stakes the French state still holds in many companies it considers "strategic," successive governments have routinely butted into boardroom affairs, seeking to influence everything from acquisition plans, to layoffs or broader strategy.
But, saddled with debt, the French government no longer has much money to throw at struggling businesses and often runs into European Union restrictions when it seeks to intervene.
Often French politicians make a lot of noise with little impact. In July 2012, when unprofitable auto maker PSA Peugeot Citroën unveiled a plan to slash more than 8,000 jobs and close a factory in France, the government pressured the company into months of negotiations before finally allowing the plan to proceed largely intact.
Last November, Mr. Hollande threatened to temporarily nationalize a steel plant owned byArcelorMittal MT +1.43% after his firebrand industry minister, Arnaud Montebourg , told the steel giant's boss he was no longer welcome in France. In the end, ArcelorMittal went ahead with the closure.
But France's apparently dirigiste economic policy isn't entirely a charade. In May, YahooInc. YHOO +0.83% dropped its plan to acquire the French online-video website Dailymotion after Mr. Montebourg insisted he wouldn't let an American company take majority control.
In the case of Alcatel, the government understands the desperate need for a turnaround. The company, born out of the ill-fated 2006 merger of France's Alcatel and Lucent Technologies of the U.S., has suffered losses in all but one of the years since.
In fact, part of Alcatel-Lucent's struggle in Europe stems from the highly competitive market environment that the EU—with France's consent—has created across the continent, opening it widely to Asian suppliers who have been shut out of the U.S. because of security concerns.
Alcatel's latest cuts, spearheaded by its new chief executive, Michel Combes , represent its sixth restructuring plan in six years. The company has already axed more than 20,000 jobs since the merger.
"We are not blind," said Mr. Lassalle, the union representative. "Alcatel is in a catastrophic situation."
The government has acknowledged as much. It is eager to avoid the failure of a major employer whose roots date to the 19th century.
The stakes are high, and not just for Alcatel-Lucent. If France's new labor code proves it is easier for companies to restructure, the upside could be significant—just as France's economy and Mr. Hollande himself need a boost.
But if the government's clings to its interventionist credentials, companies could conclude that reform in France happens in name only.