Éric Pichet

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Éric Pichet
Éric Pichet, seminar in November 2012
Born	(1960-07-23) July 23, 1960 Tananarive (Madagascar)
Nationality	France
Field	Corporate governance, Economics of Taxation, Epistemology for the Social Sciences
Alma mater	HEC Paris University of the Littoral Opal Coast (Doctorate) 2006
Influences	Paul Feyerabend, Sigmund Freud, Pierre Bourdieu, Maurice Allais, Adam Smith

Éric Pichet (born in 1960) is a French economist and post-graduate professor. His main areas of expertise lie in market finance, monetary economics, fiscal economics, corporate governance and fiscal governance.

Biography

Eric Pichet is a graduate of HEC Paris, ESORSEM (French Staff College), IMPI ; Doctor in Management Sciences and HDR (Habilitation à Diriger les Recherches, French post doctoral degree to supervise PhD student research) in Management Sciences. In 2006, he received his PhD in Management Sciences from the University of the Littoral Opal Coast on the topic of “Convergence between Corporate Governance Practices in the Large Publicly Listed Companies with Dispersed Shareholdings”. In 2008, he received an HDR from the same university with an HDR dissertation entitled “An Hypermodern Analysis of Contemporary Social Governances”.

He made his debut in the French brokerage firm CHOLET DUPONT, then in an English firm HSBC as an Options Specialist, Derivatives Trader and finally Financial Analyst (member of SFAF - The French Society of Financial Analysts). He also intercedes as an Independent Financial Expert and since 2004 as an Independent Director (member of IFA – French Institute of Administrators and of its research center) sitting on the boards of several companies such as the SICAV des analystes in France and of more than a dozen publicly listed international hedge funds abroad. He is also a member and an Expert at APM Association for Progress in Management^(fr), the chairman of CORAL (a French think tank composed of authors, publishers and editors for the development of books).

Professor of Economics at KEDGE Business School, he has also been, since 2000, the Director of The Wealth & Real Estate Institute (IMPI) at KEDGE which is a postgraduate programme in wealth and real estate management. He is a fellow at the Royal Institution of Chartered Surveyors, Associate Researcher at LAREFI of BORDEAUX IV and Professor at the SFAF Training Center since 1990. In 2011, he published a methodological guide aimed at professor-researchers who are candidates for the HDR entitled “Art of the HDR” which contains advice on writing the HDR dissertation and on how to supervise the Ph.D Students.

Theories

Éric Pichet has originated several theories in different domains.

Theory on Corporate Governance

Enlightened Shareholder Theory

Enlightened Shareholder Theory^[1] is a corporate governance theory which is fundamentally stockholder-oriented but which integrates certain advances in "shareholder-oriented" corporate governance theories. Also, his other work, including his doctoral thesis which addressed the « Convergence between Corporate Governance Practices in the Large Publicly Listed Companies with Dispersed Shareholdings », have enabled him to define three important groups of governance principles intended for large publicly listed companies:

Principles ensuring transparency of information from companies
Principles ensuring the control of the company by the stockholders through, in particular, an adequate composition of the board mixing administrator competency and independence with procedures ensuring the correct functioning of the board.
Principles allowing for the involvement of the board in corporate strategy and not only of a sole CEO.

Theory on Governance of Financial Institutions

Having analysed the causes, linked to the loopholes in the governance mechanisms of the Kerviel affair,^[2] he concludes that there is a necessity to significantly improve the governance of big financial institutions by:

attaching the department of internal control directly to the Board and not to the head (CEO ) of the company
reinforcing the competence of every board in the expertise of financial markets by hiring specialists and experts in the field
systematically establishing specialized committees within the Board, notably a Strategic Committee and a Risk Committee

More generally, having analysed the case study of today collapse of the financial institutions during the latest financial crisis of 2007-2010, he identifies 6 symptoms^[3] that are always present in such circumstances and which always combine to create an explosive cocktail.

a power-hungry and authoritarian leader (Richard Fuld at Lehman, Sean FitzPatrick at Anglo Irish Bank) motivated by an insatiable need for social recognition and obsessed by the desire to unseat the current leader (Goldman Sachs, in this instance).
the failing of internal governance systems, particularly the board of directors, which on each occasion showed themselves to be incompetent and/or subservient.
the firms’ almost unlimited ability to access cheap short-term funding.
massive investment in assets generating yields above the risk-free rate and whose safe reputation they found reassuring, to wit, property. These investments can be direct or indirect. Others went too far offering direct loans to developers (the two Irish banks) or private borrowers (i.e. Northern Rock’s mortgages). Lastly, the problems of others stemmed from their purchase of certain classes of securitised property assets (i.e. Lehman’s subprime and similar investments).
banks geared up massively on credit, with some inflating their balance sheets to more than 30 times their equity capital.
the nonchalance of regulators which was either a question of principle (the Fed has never tried to burst asset bubbles; the Bank of England was very proud of its “light” and even limited regulation); a poor distribution of tasks amongst regulators (in the UK between the FSA, the Bank of England and the Treasury; in the US, the Fed did not monitor the investment banks); or connivence with the institutions that regulators were supposed to control (as was the case in Ireland).

The best way of avoiding future financial failures consists of:

firstly applying rules of internal governance found in codes of good practice (the first of which was the 1992 Cadbury Report), whose first prescription is to build a board of directors whose members are both competent (i.e., capable of understanding the particularly complex issues that financial establishments face and doing much more than serving as good accounting auditors) and truly independent (i.e., capable of arguing with the top management).
secondly, the authorities must require financial institutions to diffuse high-quality information, including full fair value to shareholders and money market lenders so they can evaluate the risks that the company is taking.
lastly, external regulators must replace the lax Anglo-Saxon regulation that we experienced before the eruption of the Financial crisis, with a new kind of regulation is both adaptive and intelligent.

Today, the real risk resides in an excess of inappropriate regulation, one consequence of the knee-jerk legislative reaction to the crisis. Suffocating financial institutions under a mountain of paper and useless and costly procedures will not stave off the danger and in fact only succeed in hobbling the credit markets. The capitalist system will adapt, as it has always done. It remains that the winners of the 21st century will not be those countries that are against capitalism or propose a different form thereof, but those that have been able to adapt the most efficient (thus most competitive) regulation, one based first and foremost on principles and practices and not on rules and validation processes that are purely procedural in nature.

Theory on Taxation

Theory about the usefulness of a wealth tax

His work on the economic consequences of the ISF^[4] (French Wealth Tax) has brought him to argue that the ISF reports loss of revenue twice as large as what it generates.^[5]

Theory of optimal taxation

Influenced by Adam Smith of whom he has written two biographies, he considers that taxation must rest upon four principles expounded by the Scottish economist in "An Inquiry into the Nature and Causes of the Wealth of Nations" but adapted to the 21st century:

Fairness: taxes must be paid according to each person’s resources and must integrate the Polluter Pays Principle,
Judicial Security: prohibition not only of all forms of arbitrariness but also all forms of insecurity during the whole life of tax plans to which a taxpayer may adhere based on the fiscal incentives,
Economy Principle: taxes must be as low as possible in order not to harm economic development. This is the reason that he advocated in 2011 to place the necessary efforts in reducing the public deficit not, as the FILLON government proposed through a September 2011 finance bill to rectify the economy, by increasing taxes by €11 billion and cutting expenses by €1 billion; but by reaching parity between the increase in taxes and the decrease in spending as not to hinder growth,
Ease and Understanding: the payment of taxes must be made easy for the taxpayer and one must add at the beginning of the 21st century that taxes approved by the constitutional body^[6] must be easy to understand.

Theory on tax expenditures

In a study published in La Revue de droit fiscal on 5 April 2012,^[7] having noted the proliferation of such loopholes in France and elsewhere over the past 20 years, he develops a complete Theory of Tax Expenditures (or tax loopholes) based on 3 key concepts:

The Benchmark Tax System : After abandoning the overly platonic notion of a fiscal norm, the concept of Benchmark Tax Systems is based on general principles that are themselves products of an ideological vision which most people share at a certain moment in time about what constitutes fair taxation. The American vision of a Benchmark Tax System is completely different from the French vision for example and what is a norm in one system is not in the other.
Tax Determination Modalities, which often seek to simplify tax calculations and collection to improve the situation for the taxpayer and, above all, the tax authorities. Tax Determination Modalities are not Tax Expenditures but could be very different from one system to another.
Illegitimate Tax Expenditures are costly, ineffective and inadapted loopholes and should be suppressed but Legitimate Tax Expenditures must be identified and if possible, improved. He shows that a measure’s longevity never justifies its survival. Conversely, a windfall effect is always a criterion for illegitimacy. To be legitimate a Tax Expenditures must inevitably be incentivizing.

He concludes with a new definition of Tax Expenditure: “all legislative, regulatory or administrative provisions whose implementation causes a loss of income for the authorities, with a certain category of taxpayers enjoying a lesser tax burden compared to which would have had to pay had the norm been rooted in the general principles of tax law typifying the Benchmark Tax System.” In addition, he gives a methodology the separate the Legitimate Tax Expenditures from the Illegitimate loopholes.

Theory on optimal taxation on income and wealth of individuals and fiscal exile

In a research paper published in the French Review La Revue de droit fiscal on November 15Th 2012,^[8] and in the filiation of Arthur Laffer, he explains that there is an optimal threshold above which the yield of taxation decreases and becomes both marginally and globally negative because of the diminishing attractiveness of the country and the competition between countries. He shows that the budgetary cost cutting is better than tax rises in a country like France and that the forecasted budget deficit of the French state will not be 3% of GDP as predicted by the government 3% but very probably above 4%. He illustrates his theory by an apologue “Fiscalité au Bollinger, A French tale of taxation and champagne in the 21st century”.

Theory of central banking

A May 2013 Journal of Governance and Regulation article^[9] drew lessons from the 2007-2008 Financial Crisis to suggest a new theory of central banking in the world’s rich industrialised countries. The idea was that central bankers had failed to anticipate the crisis yet would still be able to adopt emergency measures saving their banks and financial systems. The first measures were more traditional in nature and included a historically unprecedented cut in interest rates as well as a massive injection of liquidities into the bank system in exchange for very solid guarantees, such as financial assets with an at least BBB- rating. Otherwise, there were a number of non-conventional measures, including a massive purchase of state debt. The article severely criticised the European Central Bank’s May 2010 decision to make a massive purchase of Greek State debt (totalling €40 billion by 2013) at a time when the country was being downgraded. This policy, which runs counter to prudential doctrine where central banks are only supposed to purchase investment grade assets, failed to lower Greek Treasury bond interest rates and exposed the ECB instead to severe losses in case of default. It was also very different from the actions taken by the US and UK central banks, who had bought solid AA+ rated securities issued by their national governments.

Hence the suggestion of a new doctrine for 21st century central banking, one that would redefine the concept of inflation to include not only consumer price rises but also asset inflation involving shares, property and even bond market bubbles. There would also be a new tool distinguishing between asset benign inflation as opposed to dangerous asset inflation, with central banks receiving a new mission of controlling the last one defined as both debt-based asset bubbles and short-term leverage. Lastly, it advocated reformulating central banks’ governance systems along three lines: independence (which must be preserved, despite what the Japanese and Hungarian governments did in 2013); accountability, with strategies becoming more transparent; and recomposed boards of directors, leading not only to a better gender balance (which remains a challenge, as witnessed by arguments about the BCE’s 100% male board) but also and above all co-opting members from a more diverse range of backgrounds. After all, it is clear that appointing governors without any trading experience had been a major factor in the BCE’s major strategic mistake of purchasing huge quantities of Greek State debt, leaving taxpayers all across the Eurozone facing huge levels of risk.

Participation in fiscal debates

Éric Pichet participates regularly in debates regarding taxation: in 2004, he carried out a study with Maurice Christian Bergerès, attorney-at-law, on the economic advantages of a tax amnesty.^[10]

Regarding the reform of the French Wealth Tax,^[11] in two studies published in La Revue du Droit Fiscal (Journal of Fiscal Law), he had assessed the annual global cost at cruise mode of the proposed law^[12] and then reassessed it after the passing of the law.^[13] These assessments showed that the reform was not in fact « the biggest gift made to the rich » as mentioned in political debates, but concluded that the reform was not totally financed, due to its annual direct budgetary cost of approximately €350 million to which one must add an indirect cost of approximately €200 million meaning a total global deficit of approximately €550 million (very far, however, from the figure of €2 billion often quoted by the press).

The public asset research

A June 2005 study published in the Politiques et Management Public magazine^[14] suggested creating a new field of scientific research operating at the border between economics and financial analysis – public asset research, based on a methodology that would count all assets held by the State (including intangible assets such as telephone frequency rights), together with all debts, from the explicit (State debt as per the Maastricht definition) to the implicit, like pension liabilities for civil servants. Having assessed the French State’s net asset value at €1.1 trillion as of 1 January 2004, with total debt (implicit and explicit combined) reaching €2.5 trillion, the French State counted net liabilities of €1.4 trillion, much higher than in 1980.

Epistemology for the Social Sciences

Influenced by the thinking of Paul Feyerabend, Eric Pichet maintains the necessity of a constructivist inspired epistemology specific to the social sciences.

"If we consider the most complex object in the universe (besides the universe itself) to be the human brain, then human societies, and particularly the societies of the hypermodern era into which we have entered and which are the fruit of the interaction of thousands of human minds, and even, since globalisation and the advent of the internet, of the interaction of billions of human minds, are far and away the most complex entities there are to study".^[15]

Publications

2001: Éric Pichet. Adam Smith, je connais !, Publisher : Mallard.
2003: Éric Pichet. Adam Smith, le père de l'économie, Publisher : Les éditions du siècle.
2004: Éric Pichet. Ricardo, le premier théoricien de l'économie, Publisher: Les éditions du siècle.
2005: Éric Pichet, avec Marie Grozieux de Laguerenne. Le Family Office, Publisher: Les éditions du siècle.
2007: Éric Pichet. Le guide pratique des obligations, 2ème édition, Publisher: SEFI.
2008: Éric Pichet. Le guide pratique de la Bourse, 3e édition, Publisher: SEFI.
2008: Éric Pichet. Les Hedge Funds : théorie et pratiques, Publisher: Les éditions du siècle.
2009: Éric Pichet. Le gouvernement d’entreprise dans les grandes sociétés cotées, Publisher: Les éditions du siècle.
2011: Éric Pichet. Le guide pratique des options et du Monep, 7e édition, Publisher: SEFI.
2011: Éric Pichet. L'art de l'HDR, Publisher: Les Éditions du Siècle.
2013: Éric Pichet. L'ISF 2013, théorie et pratiques, 14e édition, Publisher: Les Éditions du Siècle.
2013: Éric Pichet. L'impôt sur le revenu 2013, Théorie et Pratiques, 14e édition, Publisher: Les Éditions du Siècle.

Eric Pichet has translated the three most important and most famous books in American stock market literature:

Reminiscences of a Stock Operator, by Edwin Lefèvre published in 1924 in the United States. The bible for traders describes the life of James Livermore and gives advice that have become part of finance vernacular such as 'shares are never too low to sell and never too high to buy'.
A Random Walk Down Wall Street by Burton Malkiel.
Where are the Customers Yachts ? by Schwed, Mais où sont les yachts des clients ?, which Éric Pichet often presents to his students as the funniest and most pertinent handbook on stock market wisdom, adding in the dedication 'Of all the books on finance, it’s the most useful, the funniest and Schwed has but one fault, he prefers gin to Bordeaux'.

External links

Official website: www.ericpichet.fr.
Article: La Fracture Bancaire, Le Nouvel Economiste
Mais où sont les yachts des clients, preface, table of contents, notes from the translator
Wealth tax in Investopedia Financial Dictionary
Elena Salgado “The new wealth tax would not affect the middle classes”

References

Persondata
Name	Pichet, Eric
Alternative names
Short description	Economist
Date of birth	July 23, 1960
Place of birth	Tananarive, Madagascar
Date of death
Place of death

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