Off with his head: Messier pays for messing with France's elite

So much for egalité and fraternité. It wasn't just huge debts that did for Vivendi's boss

Just as Parisians were preparing to dance in the Champs-Elysées to celebrate the strength of the euro against the dollar – it would soon be affordable to shop at New York's Bergdorf Goodman again – they were rocked by a home-grown financial scandal.

Jean-Marie Messier, the golden boy of French business with the looks and ambition of Napoleon, was forced to resign from Vivendi Universal as his media company was hit by mounting debts and suggestions of accounting irregularity. The French delight in the scandals affecting Enron, WorldCom and Xerox, and their effect on the dollar, was halted in its tracks. The euro resumed its slide against the dollar as French-style capitalism looked to be no better than its American counterpart.

But the story highlights one of the main differences between American and French business practices. While the dissent in the US has been led largely by disaffected shareholders, Messier's demise was prompted by a few words on French radio from a businessman who was neither a shareholder nor director in Vivendi.

Claude Bébéar is the 66-year-old chairman of the AXA insurance group. "He is widely considered to be the godfather of French capitalism," says a leading French banker, though Bébéar was hardly drawing on privileged information to make his pronouncement on Vivendi. Everybody knew that the company had an enormous debt of €33bn (£21bn). It had transformed itself from a stodgy water group, then called Compagnie Générale des Eaux, into a media giant, the second-biggest in the world behind AOL Time Warner, with the €34bn acquisition of Seagram and the simultaneous purchase of the remaining stake in French television group Canal Plus. Messier set up Vizzavi with Vodafone as a European rival to Yahoo! Then he splashed out a further €11bn in cash to buy Barry Diller's USA Networks.

In March this year Messier was forced to announce the biggest corporate loss in French history, a staggering €13.6bn, while at the same time awarding himself a bonus worth 250 per cent of his salary, which boosted his annual pay to around €5m.

Even so, he was still considered the best man to lead Vivendi – until Bébéar went on air, saying Vivendi had a "strategy problem" that might be solved by a change of management. "The board must define a strategy, agree with the management on how to apply it and eventually, as often happens in the United States, make changes in the management if necessary to put the new strategy in place," he said.

Once Bébéar's position had been publicly aired, support for the beleaguered Messier disappeared. Banks refused him any more credit. Bébéar's sub-text was that French business sticks together, through good times and bad. Those who go against the club will be ostracised.

The mention of the US was a specific stab at Messier, who made no secret of his admiration for American business practices. He had persuaded Vivendi to buy him an €18m apartment in New York, and announced recently that Vivendi's accounts would be run to American rather than European standards.

The timing was unfortunate at best. Worse were his comments that the French cultural exception – the quota system that guarantees a certain amount of French output on radio or television – was dead.

French President Jacques Chirac responded by saying that anyone who treated art and culture like ordinary merchandise had a "profound mental aberration".

The French establishment had put up with Messier all the while he was successful. Once he was seen to be failing, they turned against him.

French business and banking, despite many changes in the last 10 years, is still run by a handful of men. Most of them graduated at the top of their class at one of the grandes écoles such as Ecole National d'Administration, where Messier went, or the Ecole Polytechnique, Bébéar's old school. The most influential are members of Enterprises et Cité, an informal group of bankers and businessmen founded by Bébéar in the 1980s. They meet once or twice a month to discuss matters of mutual interest. Bernard Arnault, chief executive of LVMH, is one of 30 high-profile members. To date, Jean-Marie Messier has not been invited to join.

For all Messier's love of new business practices, he comes from a traditional French background. His crime in the view of many French men was to embrace American culture, showbiz and business practices, which includes talking to the press.

Bébéar, by contrast, is almost unknown in his own country. He set up AXA in 1984 and led the insurer on a dazzling period of rapid growth, including successful incursions into the American market. The difference is that he did it quietly, with the support of fellow members of the French elite, including the politicians. Even though he has been investigated for an alleged money-laundering scheme, Bébéar remains an influential figure who is leading Paris's bid for the 2008 Olympics.

"The question of ethics is funda- mental," he said recently. He was trying to derail Beijing's Olympic bid, but he might also have been referring to Messier and his attempt to work without the support of his fellow énarques (the academic and political elite) and the establishment.

Analysts in France trying to salvage something from the mess of Vivendi Universal have established that the only real jewel in the crown is the staid water and sewerage company that used to be Compagnie Générale des Eaux. There are fears that this may fall into foreign hands.

Advisers to President Chirac, concerned about the fate of domestic television and water businesses, have held meetings with directors and financiers. The government said it was paying "close attention" but would not interfere. However, it emerged that French culture minister Jean-Jacques Aillagon has written to Vivendi's new boss, Jean-Rene Fourtou, expressing his concern about a break-up of the company.

French banking stocks have already been hit, particularly those, such as Société Générale, with exposure to Vivendi Universal. The bank's president, Marc Viénot, is trying to talk up the market, while explaining that Vivendi is still solvent. There are few comparisons to Enron, he says, although both companies shared the same accountancy firm, Andersen. Both BNP Paribas and Société Générale have said they will help the company's short-term liquidity problems.

"Vivendi is not in any shape or form facing a solvency crisis," said Michel Pebereau, chairman of BNP Paribas and a confidant of Bébéar. The old guard is back in charge.

Stock market attention is now turning to Alcatel, a telecoms company; Pinault Printemps Redoute, a retailing company; and France Telecom, which has been partly privatised. All three have big debts and there are fears that their ratings will be downgraded, which will make their borrowing more expensive. The share prices have plunged. The response from the French Treasury has been to hint that France Telecom could be renationalised.

Fourtou used to be boss of Rhone-Poulenc, where he revived the drugs and chemicals giant's fortunes through a merger with Germany's Hoechst that resulted in the creation of Aventis. He happens to be a close friend of Chirac. As for Bébéar, his radio comments have earned him a place on the Vivendi board, where he will head a finance committee set up to ensure transparency and resolve the short-term financial issues. The backroom puppet master is now front of house.