Switzerland weighs the merits of being the global good guy

Consumers expect companies to behave sustainably and responsibly, and in the age of social media, they have nowhere to hide when it comes to their activities abroad. Keystone / Martial Trezzini

Unintended consequences of the Responsible Business Initiative threaten to undermine the Alpine nation’s admirable aims.

Legal risk is a threat businesses tend to give for moving to Switzerland, not one cited as a reason to leave.  On Thursday, however, Swiss lawmakers will debate a proposal that critics say threatens to deluge companies in litigation and drive hundreds from transacting business through the wealthy Alpine state.  

The Responsible Business InitiativeExternal link, which has been wending its way through the political process in Bern for three years, is straightforward in its intent. Companies based in Switzerland, it states, will be liable for the misdemeanours of their subsidiaries worldwide — and potentially liable for the conduct of any organisation with which they do significant business. Supporters say it promises to make the country a global force for change in corporate ethical conduct, environmental standards and labour protection. 

Similar efforts worldwide

Switzerland is hardly alone in considering such requirements on business. In the past decade activists across the developed world have championed similar efforts — with some success. Britain’s Modern Slavery Act came into force in 2015, France’s Duty of Vigilance law in 2017. Canada has an official government ombudsman to investigate corporate human rights compliance.  

Companies should, of course, shoulder more responsibility for abuses across the world. But working out who in a supply chain or corporate web is legally responsible for a misdemeanour, accident or crime, is a fiendish task. Most countries’ proposals have tentatively advanced corporate responsibility in specific areas, or in such a way as to force greater transparency while allowing companies to adapt sensibly — so avoiding undue damage to national economies. 

Other nations have reasonably concluded that the answer to the problem cannot be to declare oneself, through particularly stringent legislation, the sole point internationally at which to raise litigative challenges. 

Significant repercussions likely

But the Swiss proposal up for discussion at the end of this week merits attention for three key reasons.  

First, Switzerland is stacked with conglomerates, businesses, holding companies and trading houses that are here precisely because its regulatory regime is light-touch and non-judgmental. The country is a world centre for just the sort of companies that human rights activists are most interested in targeting. Changing the law would have significant repercussions in Switzerland and beyond. Switzerland’s banks, for example, might find themselves being sued for the activities of companies they have lent to. 

Second, the Swiss initiative goes further than other countries’ legislative packages in foisting liability for human rights abuses on to corporations. Crucially, it places the burden on businesses to prove they performed adequate due diligence — they are assumed responsible until proved otherwise.  

Third, the opportunity for a reasonable legislative compromise is about to end. Switzerland’s democratic process makes the likely choice binary: either the country ends up with blunt, unworkable legislation and serious consequences for business, or it is left behind as a pariah state in Europe, likely to face heavy criticism, if not regulation and legal challenge, from outside its borders.  

Matters have reached this stage because of a failure in Switzerland’s normally smooth, consensual and conservative political system.  The initiative emerged in 2016 as a product of Switzerland’s direct democratic process having garnered the support of more than 100,000 citizens, the threshold for constitutional change. In the usual course of such proposals, parliamentarians formulate a counter-initiative before efforts to find common ground lead to an agreed compromise.  

But if parliament cannot agree on a counterproposal, the initiative as formulated in its original popular petition is put to a national referendum. After two years of disagreement, Friday’s discussion in Bern is the last chance before the proposal is returned to the people — which looks the likeliest outcome. 

The initiative’s rightwing parliamentary opponents and many business lobbyists are confident enough the measures will be defeated by the public that they do not feel the need to compromise. Swiss voters have rejected everything put to them since 2015, the end of an unusual 12-year period when 11 such votes passed. Over the past 125 years only one in 10 referendums has changed anything. 

Era of compliance

Faith that the trend will be prolonged may be misplaced. Popular support for ethical constraints on businesses is relatively high in Switzerland. The country’s churches, for example, are likely to support the initiative, bringing with them a large constituency of rural, conservative voters hostile in general to globalisation and arguments over its merits and efficiencies. 

As even some big multinationals based in Switzerland know, the time when companies could sidestep legislation on such matters — or offer to regulate them themselves — is probably over in Europe. Consumers expect companies to behave sustainably and responsibly. Shareholders are weary of costly lawsuits or political risks related to corporate malfeasance. 

The age of social media gives companies nowhere to hide when it comes to the activities they undertake or support in the developing world. An era of harder compliance is here already and Switzerland cannot afford to fall behind.

Copyright The Financial Times Limited 2019