Regulation overdose reminiscent of “banana republic”

Keystone

Nestlé chairman Peter Brabeck has hit out at proposed new regulations to increase shareholders' powers, saying some "populist" rules belong to a banana republic.

Brabeck, speaking at the annual conference of the Swiss Business Federation, economiesuisse, on Friday, called on politicians to show restraint and to remember that banks, not companies, started the recession.

Switzerland has witnessed a growing groundswell of public opinion aimed against perceived mismanagement by executives and the size of their pay packets, and particularly their bonuses.

Criticism has spread to some Swiss companies, among them food giant Nestlé, as the financial crisis started to affect other industrial sectors. Switzerland’s financial regulator has already imposed rules to rein in bonuses paid out to bankers.

Other voices, particularly the sustainable investment group Ethos Foundation, has called for shareholders to have a say on company remuneration policies as well. Nestlé is one company that now gives shareholders an advisory vote on such matters, along with UBS and Credit Suisse banks.

Pressure “understandable”

But Brabeck warned that proposals to empower shareholders even more could damage Swiss companies. Under such proposals individuals would be prevented from holding the post of chairman and chief executive concurrently and legal restrictions would be imposed on the size of bonuses in relation to salaries.

“The pressure to react to the financial crisis with a variety of new taxes, laws and regulations is naturally high, and to a degree understandable,” Brabeck said at the meeting in Zurich.

“But there is the danger that over-regulation could be damaging. Populism shapes legislation in banana republics.”

Brabeck’s remarks echoed previous calls from economiesuisse to restrict the introduction of new regulations to the bare minimum to ensure the smooth running of the financial sector in future.

“Liberal, flexible company law is one of the main strengths of Switzerland,” economiesuisse president Gerold Bührer reiterated on Friday. “Over-regulation, such as in the US, would dampen hope [for a recovery].”

Such a recovery appears to be some way off, according to recent data. A survey by the KOF Swiss Economic Institute last month revealed a lack of confidence among firms that conditions would improve in the coming months despite economic data from other countries suggesting the recovery may be starting.

Bankruptcies

A study by market research company Dunn & Bradstreet also showed more companies going bust in Switzerland this year than at any time since 1994. The figures revealed 3,267 firms folding between January and August, an increase of 30 per cent from the corresponding period last year.

Researchers predicted a final figure of 5,200 bankruptcies for the whole of 2009.

Brabeck agreed that the picture would remain bleak at home for some time to come despite encouraging signs emerging from Asia.

“[The recession] reached Europe later [than other parts of the world], but I fear that the consequences for our continent will probably last longer,” he told the meeting of assembled company executives.

“I think we must calculate on a timeframe of 10 years before we can get back to where we were before the financial crisis.”

Matthew Allen, swissinfo.ch in Zurich

economiesuisse

The Swiss Business Federation was created through the merger in 2000 of the Swiss Federation of Trade and Industry and the Society for the Promotion of the Swiss Economy.

Its members include 100 trade and industry associations, 20 cantonal chambers of commerce and individual companies in the financial, manufacturing, advertising, media, construction, engineering, chemicals, pharmaceutical, technology, media and tourism sectors.

It also represents the interests of many small and medium-sized enterprises and works together with the Swiss Employers Association.

The umbrella organisation also has the support of around 30,000 companies, employing 1.5 million people in Switzerland.

It plays an important role in the Swiss economy by representing the views of its members to the government and to the public.