Peter Brabeck-Letmathe, chairman of Nestlé, has taken another swipe against Switzerland’s new shareholder say-on-pay rules, collectively known as the Minder initiative, declaring at the Swiss food giant’s annual general meeting (AGM) that they will greatly weaken Swiss corporate governance.
Even before it was overwhelmingly approved in a national referendum in March 2013, Brabeck-Letmathe was one of Minder’s most outspoken opponents. In a newspaper article published two months before the referendum, he warned that Switzerland would give up “one of the finest corporate governance systems in the world” if the initiative were adopted. Now, more than three months since the initiative took effect, he has expanded on why he believes Swiss corporate governance is being undermined.
Addressing Nestlé’s AGM yesterday, Brabeck-Letmathe said: “Some of the consequences (of Minder) are unintended, starting with the transfer of power from boards with a strong Swiss presence to more international shareholders and proxy advisors.
“In our case, almost two-thirds of our shares with voting rights are held by persons outside Switzerland. For us and other Swiss multi-nationals, the new legislation will mean a significant transfer of power abroad.” Brabeck-Letmathe also said the level of volatility within Swiss boards would increase, as Minder required those boards to be elected on an annual basis.He added: “This transfer of power from the board to shareholders and the annual election will tend to favour a short-term perspective. The board has a fiduciary obligation towards our company and is legally responsible for its long-term success. Shareholders, on the other hand, are free to pursue their own interests and to adopt a short-term vision in a way that suits them.”
While Minder’s voting requirement, which singles out Swiss pension funds, will likely lead to greater use of proxy advisors, it’s not clear why Brabeck-Letmathe sees this as troubling. Proxy advisors only suggest voting positions to their clients. How they vote is ultimately up to them.
Equally puzzling is why Brabeck-Letmathe expects international shareholders to become more powerful at the expense of Swiss boards. Even before Minder, these shareholders could (and did) participate in advisory votes on executive pay at Swiss AGMs. Minder merely makes these votes binding. Contacted by RI, a Nestlé spokeswoman said she had no further comment on the chairman’s speech.
But Dominique Biedermann, chief executive of Swiss proxy firm Ethos, did react to the comments. Although Biedermann agreed that Minder would lead to greater use of proxy advisors, he doubted that the initiative would make Nestlé’s board more volatile. “The fact is that Nestlé’s current board members are very committed to the firm,” Biedermann said, adding that their compensation was, anyway, “very generous.”