Analysis: how the Novartis golden parachute swung it for the Minder proposal

Swiss business lobby accepts defeat – and stops warning of corporate exodus

It certainly was not his intention. Yet it appears that Daniel Vasella, the former Novartis chairman who earned CHF300m (€245m) under the current system of executive pay at listed Swiss companies, was instrumental in the downfall of that system.

In a referendum yesterday, the Swiss overwhelmingly (68%) approved a grass roots initiative that radically reforms that system. The vote means that Switzerland will give shareholders the right to decide executive pay and be the first country to ban recruitment bonuses and severance (i.e. “golden parachutes”) for executives. The initiative is the brainchild of Thomas Minder, a small businessman who now serves as an MP in the Swiss upper house. He and Brigitta Moser-Harder, a small shareholder activist, had been campaigning on the issue since 2006.

“That an issue so controversial as this was decided with such a huge majority is nothing less than historic,” said Michael Hermann, head of Sotomo, a political think-tank in Zurich. “It’s even more astounding when you consider that Switzerland’s business elite and portions of the political elite were dead set against it.”

Indeed, until the Swiss learned two weeks before the referendum that Vasella was to get a non-compete contract worth CHF78m (€58m), the business elite may well have managed to blunt the Minder campaign.

In late January, a poll reflected that an expensive PR operation by Swiss business lobby economiesuisse was undermining Minder. Support for his initiative had been whittled down to just 54% from 77% last summer. And many Swiss were still undecided.

But Hermann and other experts said the public outcry over Vasella’s golden parachute – which was later withdrawn – sealed victory for the initiative. “I think it’s clear that the latest controversy over Vasella put its supporters over the top,” said Dominique Biedermann, chief executive of Ethos, the Swiss proxy advisor backed by pension schemes.While Biedermann hailed the result, he reiterated Ethos’ stance that the government’s counter-proposal would have been better as it permits shareholders to vote on how executive pay is structured. That proposal would have taken effect if the initiative had not been adopted.

Beyond the resounding support for Minder, the referendum’s other surprise is how silent economiesusse has fallen. Prior to the vote, the business lobby went to great lengths to defeat it. This included raising CHF8m from its members for the PR campaign and repeatedly warning of a possible exodus of listed Swiss firms. Economiesuisse even commissioned a film that depicted Switzerland as an economic wasteland fifteen years after the adoption of the Minder initiative. The film was never shown.

Yet when it emerged on Sunday afternoon that the lobby had lost, the lobby issued a statement that made no further mention of a possible exodus. Instead, it merely reminded the public that its role was to advocate “business friendly policies,” regardless of whether they were popular or not.

According to Moser-Harder, economiesuisse’s silence is a recognition that Switzerland’s biggest firms will not leave the country now that the initiative has been adopted. “That was just scaremongering. The fact is that firms such as Syngenta, ABB, Schindler, Zurich, Roche and Sulzer have all ruled out moving their headquarters to get around the new rules,” she told Responsible Investor. Biedermann agreed that Swiss firms that operate internationally would not quit the country. “The advantages that Switzerland offers them – infrastructure or low taxes for example – far outweigh any consequences of the Minder initiative,” he said.

However, Biedermann worries that some firms that are partly owned by their family founders may delist over Minder’s initiative. “That would be a problem, because if these firms then need financing from private equity investors, they may struggle. The reason is of course that such investors put more pressure on firms to maximise returns,” he said.