New Law in preparation for French BSchools : will it really help ?

Posted on 16/07/2014


Short answer is no. Long answer is below!

The French assembly is about a new law aimed at supporting the development of a large portion of the best French Business Schools. Before we discuss it, I need to do (again) a brief history of the French Bschools system for those of you who are not familiar with it, as it is rather specific. If you are already familiar with it, skip the next section.

Most French business schools were created a long time ago (1819 for the oldest one) by Chambers of Commerce, which were also mostly created a long time ago (1599 for the oldest one). Chambers of Commerce, contrary to the Anglo-Saxon system, are (were) very powerful entities, levying taxes and owning ports and then airports and performing all sorts of duties on behalf of the state. They were also the natural gathering place for merchants, shopkeepers and later industrialists and business men. Naturally, these people decided that it would be great to be able to train their sons to take over their shops or small businesses. That’s how business schools were created.

All was going well in the world of business schools throughout the first part of the 20th century, until  few events happened:

. universities realized that they missed something by not offering business studies and started to open programs, trying to compete with BSchools (not with any great results so far based on the rankings and accreditations) and because they are public, with the support of all governments, who always considered bschools as lower quality money making machines (although they are well ranked, internationally accredited, AND not-for-profit) for the reproduction of the elites (which is true but also true for many state-owned prestigious schools in engineering, law, political sciences,…). So, regularly, governments are trying to annoy Bschools or at least make sure they don’t really support them.

. As business schools belong to Chambers of Commerce, they are legally considered as a business unit of a Chamber of Commerce. Even the most well-known one, HEC, is a business unit of the Paris Chamber of Commerce, with no legal autonomy. This was fine when the job of the Bschools was to train local or national heirs. But when more and more students from all over France and later from all over the world entered the business schools, the local component started to disappear, and this made several chambers of commerce presidents (elected among their peers) and boards unhappy and/or disconnected to the realities of the needs of a business school. A President of a Chamber of Commerce, the ultimate boss of a business school, can be a car dealer, a real estate investor or a baker (true story), who can be very good businessmen, but not necessarily versed in the evolution of higher education worldwide.

. Some Bschools tried to go around this governance issue by transforming in the past few years into not-for-profit association, but still with some strong governance control by the Chambers of Commerce for most of them. But associations are still not fitted for the development, the opening to external investors,… Others, were forbidden by their mother entity to do so and remained as a business unit, needing the signature of the President or Director General for all of the important decisions and for many of the daily ones.

. Hence the idea for the past few years to create a special status for business schools, that would give them autonomy, in terms of decisions but also in terms of financing. And that should be the point of the law to be discussed at the end of the month.

What does the law say? (available in French in page 135 of this document )

That a special status can be created that will allow Bschools to become “independent” but with a few constraints:

. The Chamber of Commerce will have at least 51% of the shares and voting rights

. No other shareholder or group of shareholders can have more than 33% of the shares and voting rights.

. No dividends can be distributed.

So what?

. it will certainly help in the daily management of the business schools (but this was possible before with a delegation of signature and powers)

. Chambers of Commerce still having the majority, the issues raised above in terms of governance, development, internationalization,.. will remain.

. No dividends = no investment companies. That’s the very bad news in my opinion. There are now investment funds ready to invest (and investing) in higher education with a rather pater familias approach but they still need to recoup their investment. UNLESS, it opens the door to easier joint ventures or franchise-type agreement. But what will happen if the joint ventures has financial difficulties, the Chamber of Commerce will still be responsible at the end.

. No easy access to money, still a rather tight governance… It means that French Bschools will still be slowed down in their development, handicapped by their relative small size and without resources to grow.