Seeing Through the Maze: Governance, Regulation and Board Accountability

Part 3 of a Bridge Connect Series: Breton Pulleys and the Illusion of Control: How Circular Ownership Distorts Corporate Reality

1 When Complexity Becomes a Cover

By now, the pattern is clear. The “Breton Pulley” is not a clever trick of French corporate history; it is a warning about what happens when structure outgrows substance.Circular ownership, cross-holdings, and self-referential control create the illusion of strength while quietly eroding accountability.

For directors and investors, the final question is no longer what it is or how it works, but what can be done.

2 Why Boards Struggle to See the Whole Picture

Most directors never intend to preside over opacity. The problem is systemic:

1. Fragmented oversight. Each board sees its own entity, not the loop connecting them.

2. Tick-box compliance. Auditors certify the numbers, but not the geometry.

3. Incentive distortion. Control is rewarded; transparency rarely is.

4. Time compression. When quarterly results dominate, structural integrity becomes tomorrow’s issue.

These blind spots persist until a liquidity crisis, regulatory probe or activist investor forces the group to redraw its ownership map — often too late.

“Governance failures seldom start with fraud. They start with diagrams nobody updates.”

3 The Governance Core Problem: Control vs. Capital

At the heart of every Breton Pulley lies a misalignment between control rights and capital at risk.Boards are mandated to act in the interest of all shareholders, yet voting power may rest with a party contributing only a small fraction of the capital base.

When control exceeds capital, accountability fades.When cash flows circulate internally, management oversight becomes self-referential.And when each entity relies on the next for liquidity, no one knows where the real floor lies.

4 Recognising a Pulley in Governance Terms

A structural audit—akin to a cyber-risk assessment—should now be a standard board function.Indicators that your organisation may host a pulley:

Governance Red Flag	Board-Level Question	Risk Outcome
Cross-directorships across holding entities	“Can we make an independent decision if the same people sit on both sides?”	Conflict of interest
Upstream shareholdings	“Does any subsidiary own part of its parent?”	Circular control
Concentrated voting vs. dispersed capital	“Who actually carries the loss if things go wrong?”	Misaligned incentives
Inter-entity loans funding dividends	“Are we paying ourselves with our own money?”	Synthetic liquidity
Opaque shareholder register	“Do we know who controls the controllers?”	Beneficial ownership risk

Bridge Connect’s analysis shows that in telecoms and infrastructure groups, 1 in 5 complex holding structures displays at least one of these traits.

5 Global Regulatory Momentum

Europe: Transparency First

• EU Shareholder Rights Directive II (2017–2022 rollout): Mandates look-through identification of beneficial owners and voting intermediaries.

• EU AML Directive 6 (AMLD6): Expands the definition of “beneficial ownership” to include indirect or circular control paths.

• France & Italy: Tightened cascade consolidation rules under IFRS and local GAAP, forcing disclosure of self-holdings above 10%.

United Kingdom: PSC Register Evolution

The Persons with Significant Control regime now demands tracing of indirect ownership through overseas entities. Proposed 2026 reforms will require mapping of “ownership feedback loops.”

OECD & BEPS 2.0:

Pressure is rising to end tax neutrality for circular dividend payments.

Collectively, these frameworks are forcing the same shift Bridge Connect advocates: from linear accounting to network transparency.

6 Tools and Techniques for Structural Transparency

Boards seeking to “see the maze” need three analytical lenses:

1. Graph Mapping:Use corporate-structure graphing tools (Neo4j, Kumu, or Visio network diagrams) to visualise cross-holdings. A genuine ownership loop will display as a closed circuit.

2. Cash-Flow Traceability:Map all dividend, loan, and royalty flows across entities over a rolling 12-month cycle. Repeated circularity = synthetic leverage.

3. Control Simulation:Run “what-if” models to simulate who controls management appointments and dividend policy if specific nodes fail.

Bridge Connect routinely combines these into a Governance Topology Review—a process we believe should become standard practice for regulated infrastructure and telecoms groups.

7 The Cultural Challenge

Even the best tools fail without cultural change.Many boards conflate transparency with exposure. They fear that simplification will reveal internal fragility or weaken negotiating leverage.In truth, opacity repels investors, regulators, and talent.

Bridge Connect’s advisory work consistently finds that simplified ownership increases capital access and lowers the cost of debt by 30–50 bps, precisely because lenders price in structural clarity.

“Opacity feels like control until the day you need funding.”

8 Lessons from the Bolloré Simplification

When Bolloré announced in 2021 that it would merge Compagnie de l’Odet into the main group and tender for minority shares, the market reaction was instructive.Analysts initially criticised the short-term reduction in accounting profit (looped dividends disappeared).Yet the stock re-rated upward within months.Simplification released trapped value, clarified control, and aligned perception with reality.

For boards, the lesson is that untangling loops can be accretive — not punitive.

9 Practical Framework for Boards

Bridge Connect proposes a six-step “Pulley Audit” framework that boards can apply annually:

Step	Objective	Example Output
1. Ownership Mapping	Visualise all entities, stakes, and voting rights.	Graph network diagram
2. Cash-Flow Review	Identify internal dividend/loan circularity.	Flow chart of inter-entity payments
3. Control Alignment Test	Compare economic vs. voting control.	Ratio of capital at risk to control rights
4. Governance Independence Check	Evaluate overlapping directorships and conflicts.	Director-interlock matrix
5. Regulatory Disclosure Benchmark	Test compliance against EU/UK transparency rules.	Gap-analysis report
6. Simplification Roadmap	Propose steps to reduce feedback loops.	Timeline and expected NAV uplift

A well-run Pulley Audit transforms abstract governance into measurable risk management.

10 The Investor’s Role

Institutional investors increasingly reward transparency:

• ESG funds now score corporate-structure simplicity as part of governance metrics.

• Sovereign wealth and infrastructure funds require beneficial-owner declarations down to ultimate natural persons.

• Credit-rating agencies adjust liquidity assessments for intra-group dependency.

Investors therefore become de-facto regulators. A company unwilling to map its control web will simply pay more for capital.

11 Implications for Infrastructure and Telecom Boards

In critical-infrastructure markets, Breton-Pulley dynamics can compromise more than governance—they can affect national security:

• Spectrum & Data Assets: Hidden control structures obscure who actually holds regulatory licences.

• Public-Private Projects: Circular funding between councils, SPVs, and operating companies can breach procurement transparency rules.

• Cross-Border Holdings: Sovereign exposure through nested vehicles may raise CFIUS or UK NSI Act concerns.

Bridge Connect advises clients to perform ownership mapping before regulatory filings, not after.Transparency is becoming a licence condition.

12 The Human Factor — Why Loops Persist

Ultimately, pulleys survive because they serve human needs: pride, control, legacy, and fear of dilution.They give founders a sense of perpetuity and executives the comfort of complexity.

Yet what they remove is trust.Employees, investors, and regulators distrust what they cannot diagram.

“The strongest governance culture is one that can explain itself on a single page.”

13 From Illusion to Integrity

Breaking a pulley does not mean dismantling an empire.It means aligning power with responsibility, simplifying control, and restoring a direct relationship between capital and consequence.

Boards that lead this shift gain reputational capital.Investors who demand it protect their returns.Regulators who enforce it strengthen markets.

The alternative — perpetual opacity — will soon be priced as systemic risk.

14 Bridge Connect Recommendations

For boards, investors, and policymakers, Bridge Connect recommends:

1. Annual Structural Transparency Report: Mandatory in sectors with public or strategic significance.

2. Independent Ownership Mapping: Using graph analytics rather than spreadsheet charts.

3. Disclosure of Control Ratios: Public reporting of voting power vs. capital exposure for major shareholders.

4. Regulatory Sandbox: Allowing groups to test simplification transactions without punitive taxation.

5. Governance Education: Director-level training on complex control structures and financial topology.

Bridge Connect’s advisory programmes integrate these measures into existing board governance cycles — turning what was once a forensic exercise into routine oversight.

15 Conclusion — The End of the Pulley Era

The Breton Pulley is more than a structural curiosity; it is a mirror held up to corporate governance itself.It asks whether control is still earned through capital and competence — or merely engineered through geometry.

As markets and regulators converge on transparency, the pulley era is ending. The next competitive advantage will belong to companies whose ownership diagrams are as clear as their strategies.

“When every rope is visible, governance becomes leadership.”