Swiss corporate reformers mean business

Politicians want their say here, too Keystone

The growing public debate about Swiss corporate governance – which echoes similar controversies in France and Germany – has entered the political arena.

The Senate voted on Wednesday to oblige large blue-chip companies to disclose individual salary details for all board members, as well as their top executive (CEO).

But it rejected proposals by the centre-left Social Democrats to extend the obligation to all individual members of senior management – as in the United Kingdom and the United States.

The Social Democrats, undaunted, now want parliament to go a step further by passing laws to strengthen shareholder rights and prevent alleged abuses of power.

The proposals follow a string of negative headlines on issues ranging from “excessive” executive compensation to a sizeable shareholder revolt against the double mandate of Nestlé boss Peter Brabeck.

A common thread in each case is the growing divide between critics of the current system, who say top managers often abuse power for their own ends, and those who believe that the critics are in turn pushing their own (hidden) agenda.

A number of well-known management consultants have also entered the fray, with reports on corporate governance currently piling up.

Out of the closet

The Social Democrat proposals, which are being presented to parliament during the current session, call for legal limits on both executive compensation and the number of top-level mandates that can be held by one person.

Parliamentarian Susanne Leutenegger Oberholzer said: “In Switzerland, there is public outrage over managers who award themselves annual salaries in the tens of millions.

“The media have breathed fresh life into the ‘corporate rip-off merchants’ debate, and the Ethos [pension fund] has revived the issue of shareholder rights on account of the undemocratic events at Nestlé’s annual assembly,” she continued.

“These issues have been on the political agenda for a long time, but they have been pushed into the closet for many years.”

Leutenegger and her colleagues say other countries, particularly Britain, have enacted legal measures to ensure salary transparency and shareholder rights at general assemblies.

However, they say no similar steps have yet been taken in Switzerland, which still relies primarily on market self-regulation via stock exchange rules and the Swiss Code of Best Practice, formulated by business federation economiesuisse.

Star pupil Switzerland

But it is not just company executives and directors who say the critics are painting the picture too black.

A new study of European corporate governance by consultants Heidrick & Struggle says standards are generally on the up – with Switzerland the star pupil.

Philippe Haspeslagh, founder of the INSEAD-Heidrick & Struggles International Directors Forum, comments: “This fourth study shows significant progress across Europe, with Switzerland demonstrating the greatest improvement.

He adds: “This leaves Italy and Germany as the countries where significant change will have to await the next survey.”

Since the study first appeared in 1999, Switzerland has moved from way down the rankings to ninth position (2001), sixth position (2003) and now second place – just behind Britain.

The consultants say the “impressive” move up the league table follows internal reforms in the wake of a series of corporate failures in 2001-2002 and the Swiss stock exchange’s adoption of a new code in 2002.

The criteria assessed fall under three main headings: board “working style” (including structure and committees), composition and “disclosure levels”.

Limited understanding

Another survey, carried out on behalf of Zurich-based executive search company Knight Gianella, gave Swiss corporate governance a more mixed report.

The Board of Directors’ Rating 2005 identified weaknesses including lack of independence, work overload and insufficient company-specific knowledge.

Managing partner Sandro Gianella commented: “This critical and, in my experience, frequently correct assessment of the weaknesses is indeed surprising.

“After all, the board members have the power to nominate suitable personalities and to ensure the necessary transfer of knowledge within the board of directors.”

A global study, by consultants McKinsey, also painted a mixed picture, including the rather alarming finding that more than 25 per cent of directors surveyed had “at best, a limited understanding of the strategy of their companies”.

swissinfo, Chris Lewis in Zurich

Key facts

The principles of corporate governance embrace two main areas.
On the one hand, they should establish a balance of power within a company, for instance by separating the roles of executive management and the board of directors (management oversight).
On the other hand, they should protect the rights of shareholders over both board and management.

In brief

The Senate called for individual listing of board member compensation, but stopped short of extending the principle to all senior management.

The Social Democrats now want to introduce detailed legislative proposals to enhance shareholder rights.

But a new study says Swiss boards – while much maligned – are now among the best in Europe.