Eric Pichet

Eric Pichet (2012)

Éric Marcel Xavier Pichet (* 1960 ) is a French economist and professor at the KEDGE Business School . His areas of specialization include market finance, monetary policy, tax policy, corporate governance and fiscal governance.

Life

Eric Pichet is a graduate of HEC Paris , ESORSEM (French General Staff Academy ) and IMPI (Postgraduate Institute for Wealth and Real Estate Management at Kedge Business School). He received his PhD in management from the Université Littoral - Côte d'Opale in Dunkirk, with a dissertation on the subject of “Convergence between corporate governance practices in large listed companies”. In 2008 he obtained his research habilitation (HDR) at this university with a dissertation on the topic “A hypermodern analysis of contemporary social governance”. He received his doctorate in law from the University of Panthéon-Assas with a dissertation on "Developing a general theory of social and tax expenditure".

At the beginning of his career, Pichet initially worked in France as a stockbroker at Cholet Dupont and then at HSBC in options and derivatives trading. He then became a financial analyst and joined the French Society of Financial Analysts (SFAF). He was also an independent financial expert and has been an independent board member since 2004. He is a member of the research center of the French Institute for Directors (IFA) and a member of the boards of several French investment companies, including Twenty First Capital, Gestion 21 and Signaux Girod, where he is also chairman of the audit committee. Pichet works with more than a dozen listed international hedge funds outside France and is Chairman of the Board of Directors of Diapason (Lausanne).

He is also a member of the APM (Society for Progress in Management), where he is also active as an expert, and he is chairman of the board of CORAL, a French think-tank made up of authors, book publishers and editors.

He is currently employed as a professor of economics at the KEDGE Business School. Since 2000 he has been director of the Postgraduate Institute for Wealth and Real Estate Management (IMPI) at KEDGE Business School. Pichet is a member of the Royal Institution of Chartered Surveyors, Associate Research Fellow at the University of Bordeaux IV LAREFI Research Center and at the CEFEP Research Center of the Pantheon-Assas University. Since 1990 he has also been a professor at the SFAF training center. In 2011 he published a methodological guide for research professors aiming for a research habilitation in France. The book with the title "The Art of Research Habilitation (HDR)" provides recommendations for writing HDR dissertations and for accompanying doctoral students.

Theories

Éric Pichet developed theories in various fields.

Corporate governance theories

Enlightened Shareholder Theory

The theory of the enlightened shareholders is a modern and essentially shareholder-oriented corporate governance theory. Pichet's other work in the field, including his dissertation on “Convergence between corporate governance practices in large publicly traded companies with diffuse shareholder structures” enables him to define three main categories of governance principles that are applied in large publicly traded companies can. By applying these principles:

• the transparency of company information is ensured
• control of the company is guaranteed by the shareholders, above all through balanced boards of directors (independent board members with different competencies) and optimized processes within the board of directors.
• it enables the entire board of directors to participate in the company's strategy development - and not just the executive board member.

Governance Theories for Financial Institutions

After analyzing the role of failed governance mechanisms in the Kerviel affair, Pichet identified a need for significant improvements in governance of large financial institutions based on the following:

• the internal control systems of large banks report to the entire board of directors instead of the chairman of the board
• Directors are empowered to consult financial market experts in order to develop greater competence in this area
• Systematic establishment of specialist committees in the board of directors, in particular for the purpose of strategy and risk control

After analyzing the financial institutions that suffered huge losses from 2007 to 2010, he identified 6 characteristics that are always present in these conditions and which, when combined, make an explosive cocktail. These features include:

1. A power-hungry and authoritarian leadership (Richard Fuld at Lehman, Sean FitzPatrick at Anglo Irish Bank), driven by an insatiable need for social recognition and obsessed with the desire to overthrow the current company leadership (in this case, Goldman Sachs).
2. Failed internal corporate governance systems, always with the participation of the board of directors, who repeatedly proves to be incompetent with regard to the management of the internal risk control function and / or is too subservient to the chairman of the board of directors.
3. Almost unlimited access to inexpensive, short-term finance.
4. Massive investment in short-term loans in high-yield assets whose security and liquidity have been overestimated. Between 2002 and 2006, this was best exemplified by direct or indirect real estate investments, mortgage-backed mortgage loans (i.e. Northern Rock) secured by real estate assets, or most recently by investments in other real estate-indexed assets or real estate loans such as CDOs, subprime loans, etc.
5. Excessive leverage, often 20 or 30 times the equity of these companies.
6. Failed external regulatory mechanisms, either due to excessive complicity between regulators, governments and large financial institutions (Iceland, Ireland), incompetent regulators (Iceland), or inadequate oversight (the Bank of England's "light touch" regulation). Other dysfunctions such as B. the failure of the US Federal Reserve (Fed) to burst speculative bubbles, a poor division of responsibilities between various regulators (in the UK between the FSA, the Bank of England and the Treasury and Commerce; in the US the failure of the Fed, the Investment banks) or total complicity with the institutions that should be overseen by the regulators, as was the case in Ireland.

If all of these six conditions are met, this can lead to substantial losses and ultimately to the collapse of financial institutions ( Lehman Brothers ). Basically, this is an example of systemic risk. Pichet teaches his students that "the needle that pops the balloon (i.e., the subprime loans) is only the trigger, not the root cause, of the crisis."

In the future, financial crises can best be avoided by:

• the provision of transparent information by major banks
• strengthening the influence of the board of directors and their ability to exercise control over corporate strategy
• a qualitative improvement of the regulatory bodies

He also criticizes three legislative tendencies that emerged after the crisis:

• Too many purely formal regulations (like the Dodd-Frank Act)
• The misconception that separating commercial and investment banks is an appropriate solution
• Prohibiting short sales in order to prevent their effects on price changes

Tax theory

Theory of the benefits of a wealth tax

Although Pichet does not question the theoretical usefulness of wealth taxes in modern tax systems, his analysis of the economic consequences of the French wealth tax (ISF) came to the conclusion that this specific tax costs twice as much as income is generated through lost revenue can. He clearly opposed the “French utopia” of a global tax for the super-rich.

Theory of optimal taxation

Influenced by Adam Smith , on whom he has written two biographies, Pichet believes that tax systems should be based on four basic principles, based on Adam Smith's work The Wealth of Nations , but adapted to the conditions of the 21st century . Century:

• Fairness: taxes should be paid according to the resources of each individual and the polluter pays principle should be an integral part,
• Legal certainty: Prohibition of any form of arbitrariness or any kind of uncertainty, regardless of how long the taxpayer has to consider the incentives associated with the original measure,
• Savings principle: taxes should be as low as possible so that economic development is not impaired. This explains why Pichet spoke in 2011 in favor of doing everything possible to reduce the budget deficit. However, he contradicted the proposal made by the French government under François Fillon at the second reading of the budget in September 2011 to increase taxes by € 11 billion and reduce expenditure by € 1 billion. Rather, he suggested ensuring parity between tax increases and spending cuts in order to maintain the country's growth momentum.
• Principle of simplicity: Tax payments must be made simple for taxpayers. This corresponds to the principle of comprehensibility of the tax system, which was sealed by the French Constitutional Council at the turn of the millennium.

General theory about social and tax spending

In a first study published on April 5, 2012 in “La Revue de droit fiscal”, Eric Pichet mentioned the large number of tax systems in industrialized countries. Since these each have their own history, it is not possible to define absolute tax norms. Pichet also distinguished between simple tax determination modalities and actual tax niches. His idea was that tax benefits (such as family allowances) that are granted to needy or disabled people are not tax niches, but rather that these are ways of determining the amount of tax owed in the French benchmark tax system. His proposal was that tax spending was unlawful (as it was not incentive and too costly or unjust) and should be eliminated. He developed a methodology that can be used to evaluate tax niches in terms of their benefits and serves to eliminate senseless tax expenditures.

In 2016, Pichet published his general theory on social and tax spending in an article published on September 8, 2016 in “La Revue de droit fiscal”. The theory is based on the idea that all compulsory tax systems can be broken down into six main categories called “specific tax reference segments”. Each of them has a set of homogeneous tax standards that allow a methodical identification of these social and tax expenditures. Pichet elaborated this idea in a rigorous doctrine in which he determined individual exception rules, using a series of six successive filters, which analyze their legitimacy, usefulness, relevance, efficiency, effectiveness and social acceptance. The analysis is prescriptive and leads to a general doctrine in which each specific reference segment can be reviewed. By including tax and social niches, Pichet's theory receives an even more specific definition of social and tax expenditure. According to this definition, it is “any legal, regulatory or administrative provision the implementation of which results in a public authority losing revenue that can be replaced by budget expenditure; and which, directly or indirectly, reduce compulsory contributions from certain categories of taxpayers compared to what they would have paid if the norms based on general legal principles had been applied in the specific tax reference segment concerned ”.

Theory of optimal income and wealth tax; the concept of tax exile

In a research report published in the French “La Revue de droit fiscal” on November 15, 2012, and based on Arthur Laffer , Pichet explains that there is an optimal threshold above which tax revenues decrease and become both marginal and global develop negatively, on the one hand due to the decreasing attractiveness of the country in which the tax is levied and on the other hand due to international competition. He showed that in a country like France, to reduce the public deficit, spending cuts make more sense than tax increases. In 2013, France's national deficit exceeded the target of 3% projected in the annual budget and ended up being more than 4%. Pichet invented the expression “Fiscalité au Bollinger” or “Champagne taxation” to illustrate this theory.

He continued this theory in a study published in “La revue de droit fiscal:”: “It seems as if the tax increases lead to cautious behavior, a decrease in consumption and to the fact that basic needs are replaced by the purchase of products with a lower VAT rate are covered. Given the economic downturn, falling overtime and the deteriorating and worried environment, our assumption, which we made in November 2012 in a study published in the “Revue de Droit Fiscal”, is confirmed against the background of 2013 tax revenues. Under these circumstances the taxes for households and the increase in company pension contributions by 0.15% from January 1, 2014 or the increase in VAT to 20% will only slow down consumption and reduce public revenues even further. ”
Despite a relative control of the Spending in 2013, the persistently very high government deficit (4.3%) was mainly due to an unprecedented and unexpected drop in tax revenues, confirming the existence of a country-specific tax tolerance threshold, which France is likely to have reached. Above this threshold, any tax increase has a counterproductive effect, as mandatory taxes curb economic activity and further weaken the economic growth potential.

Central banking theory

Based on the knowledge drawn from the financial crisis in 2007 and 2008, Pichet proposed a new theory of central banking in industrialized countries in an article published in the Journal of Governance and Regulation [13] in May 2013. The idea is that the central banks of developed countries failed to foresee the crisis, but that they were able to take emergency measures to save the banking and financial system: conventional measures like massive rate cuts (and equally massive Injecting liquidity into the banking system against the provision of solid collateral, i.e. assets with a minimum rating of BBB), as well as unconventional measures, including the purchase of government bonds. In this article, Pichet criticizes the European Central Bank's (ECB) decision in May 2010 to buy large quantities of Greek government bonds (€ 40 billion in total by 2013) at a time when the country's credit rating was downgraded. This contradicts the practical doctrine that central banks should only purchase investment grade assets. In addition, it did not succeed in lowering the yields on Greek government bonds. The ECB was thus exposed to a significant risk of loss in the event of a Greek national bankruptcy. This contradicted the measures taken by the UK and US central banks to buy AA + rated securities issued by their national governments.

This gave birth to Pichet's proposal for a new doctrine to meet the needs of central banking in the 21st century, which was to redefine the concept of inflation: that redefinition should take into account not only consumer prices but asset price inflation as well , including stocks, real estate and even bubbles in the bond markets. In addition, a new instrument should also be used to distinguish harmless asset price inflation from dangerous asset price inflation, with central banks being given a new task to control leveraged asset price increases based on the easy availability of short-term credit. Most recently, Pichet advocates a redesign of the governance systems of the central banks based on three guidelines: independence (considered essential; regardless of the measures taken by the Japanese and Hungarian governments in 2013); Accountability based on greater strategic transparency; and reorganization of the boards of directors, not only with better gender parity (an ongoing challenge, as the polemic over the 100% male ECB Executive Board shows), but also and above all by adding members from a wider range of backgrounds. In this regard, it is clear that the appointment of governors with no trading experience was a major reason for the ECB's strategic mistake in large-scale purchases of Greek government bonds, which exposed taxpayers across the eurozone to great risks.

Publications

• Sectorial financial analysis. Peyrat-Courtens, 1991.
• Speculating. Les Éditions de l'Archipel, 1992.
• A practical guide to the MATIF. SEFI, 1995.
• Where is the money going ?. Mallard Editions, 2000.
• I know who Adam Smith is !. Mallard Editions, 2001.
• Stock options, theory and practice. Les Editions du Siècle, Chatou 2002.
• Adam SMITH, the father of Economics. Les Editions du Siècle, Chatou 2003.
• RICARDO, Economics' first theoretician. Les Editions du Siècle, Chatou 2004.
• with Marie Gerozieux de Laguerenne: The Family Office. Les Editions du Siècle, Chatou 2005.
• A practical guide to bonds. SEFI, 2007.
• A practical guide to the Stock Exchange. SEFI, 2008.
• Hedge funds: theory and practice. Les Editions du Siècle, Chatou 2008.
• Le gouvernement d'entreprise dans les grandes sociétés cotées. Les Editions du Siècle, Chatou 2009.
• A practical guide to options and the MONEP. SEFI, 2011.
• L'art de l'HDR. Les Editions du Siècle, Chatou 2011.
• France's 2016 Income Tax: theory and practice. Les Editions du Siècle, Chatou 2014.
• France's 2016 ISF Wealth Tax: theory and practice. Les Editions du Siècle, Chatou 2014.
• General Theory of Social and Tax Expenditures. Les Editions du Siècle, Chatou 2016.

Web links

• Pichet at KEDGE Business School
• Website Eric Pichet

Individual evidence

1. ↑ Eric Marcel Xavier Pichet Ph.D .: Executive Profile & Biography. Bloomberg, accessed May 4, 2017 . 
2. ^ "Enlightened Shareholder Theory: Whose Interests Should Be Served by the Supporters of Corporate Governance?", Papers.ssrn.com, 05/09/08
3. ^ "What Governance Lessons Should be Learnt from the Société Générale's Kerviel Affair?", Papers.ssrn.com, 14/10/10
4. ^ "What Kind of Financial Regulation for the 21st Century?", Http://papers.ssrn.com, 03/19/2012
5. ^ "The Economic Consequences of the French Wealth Tax", papers.ssrn.com, 04/05/07
6. ^ "An Immodest Proposal: A Global Tax on the Superrich", businessweek.com, 04/10/14
7. ↑ "Décision n ° 2005-530 du 29 décembre 2005 DC" www.conseil-constitutionnel.fr, 12/29/05
8. ^ "Tax Expenditure Theory and the Reform of French Loopholes", papers.ssrn.com, 04/18/12
9. ^ "General Theory of Social and Tax Expenditures and Proposals for Recasting the French System of Tax 'Loopholes'", papers.ssrn.com, 08/09/2016
10. ^ "The New French President's Budgetary and Fiscal Doctrine: Constraints, Implementation and Consequences", papers.ssrn.com, 11/15/12
11. ↑ Les conséquences de la doctrine budgétaire et fiscale actuelle, ifrap.org, 12/11/12
12. ↑ "The Economic and Budgetary Consequences of the Responsibility Pact and the True Path of French Public Finances from 2014 to 2017", papers.ssrn.com, 07/31/42