When Saudi Arabia's government announced last month that it would join the list of Middle Eastern and Asian countries that have launched sovereign-wealth funds (SWFs), CFOs in Europe had more than just a passing interest. These SWFs — from the Government Investment Corp. in Singapore to Abu Dhabi Investment Authority — have grabbed CFOs' attention not only because of their multibillion-dollar rescue of Citigroup and Merrill Lynch, but because they're becoming major shareholders in firms across Europe. As Olivier Poupart-Lafarge, the recently retired CFO of French conglomerate Bouygues, puts it, "European companies are becoming 'emerging-market' companies. We are going to produce our products in emerging markets, we are going to sell our products in emerging markets, and tomorrow our shareholders are going to be from emerging markets." If history is any judge, CFOs should brace for big changes.
Veteran finance chiefs like Poupart-Lafarge recall vividly what happened when a different type of foreign investor — the "Anglo-Saxons" — came knocking on European doors in the 1990s. At the time, Bouygues was largely family-owned; today, two-thirds of the firm is owned by outside shareholders, including U.S. institutional investors. The arrival of the Anglo-Saxons heralded a new era for finance, both good and not so good. The good: the new investors ushered in more-transparent reporting, more-frequent contact via road shows and conference calls, and better governance. The not so good: CFOs in Europe have had to adjust to the short-termism of many Anglo-Saxons and their "excessive reactions to quarterly results," says Poupart-Lafarge.
As part of the new wave of foreign investments from emerging markets, the SWFs — not to mention deep-pocketed corporate acquirers from China, India, and the like — are already radically transforming how European companies are run. Citing Indian company Mittal Steel's 2006 acquisition of European rival Arcelor, Poupart-Lafarge says many of these new investors are doing far more to drive efficiency and improve performance than their previous owners did. To continue wooing these investors, he believes, Europe's CFOs will need to articulate the role their firms expect to play in the development of emerging-market economies — something that Anglo-Saxon investors did not address.
The Saudi announcement came as legislatures in both Europe and the United States debated whether and how much companies should open their doors to these new investors. Echoing the Organization for Economic Cooperation and Development, which just published guidance on how best to manage SWFs, Poupart-Lafarge advises CFOs to get ready to clock up a lot more frequent-flyer miles.
Janet Kersnar is editor-in-chief of CFO Europe.