Following the promise made by Mr. Peter Brabeck-Letmathe, new Chairman of the Board and CEO, at the last General Meeting of Shareholders, Nestlé has initiated the process of a general revision of its Articles of Association. The Board of Directors sent out a survey to its 250’000 shareholders to seek their opinion on fundamental changes of certain Articles that impact directly on the governance of the company.
The deadline to return the survey is August 26, 2005. This new step in Switzerland is a result of the General Meeting of Shareholders 2005 where an important number of shareholders supported the resolutions submitted by the ethos Investment Foundation together with five big Swiss Pension Funds. The resolutions aimed at aligning Nestlé’s Articles of Association with the rules of best Corporate Governance practice. Today, the Board of Directors admits that several Articles, which served to protect the group in case of hostile and surprise takeovers, have no longer a reason to exist in view of the evolution of Swiss Law, International Law and codes of good Corporate Governance practice. The company, therefore, asks for the opinion of its shareholders prior to submitting a revised version of its Articles of Association to the General Meeting of Shareholders in 2006.
Ethos welcomes Nestlé’s move and has decided to communicate its position on the various questions raised in the Nestlé Shareholder Survey.
Question Number 1: Restriction of voting rights at 3% of the share capital (Article 6.6)
x Abolish the Article
Limiting voting rights impedes on the principles of shareholder democracy (one share, one vote). In the past, companies justified this measure often as a safeguard against unexpected or hostile takeovers. However, as the Board of Nestlé points out, current Swiss Law excludes surprise takeover operations and guarantees a process of loyal and transparent public takeovers bids as well as equality in the treatment of investors. Ethos Investment Foundation, therefore, recommends to abolish the limitation of voting rights.
Questions Number 2 and Number 3: Special quorum and qualified majorities (Articles 16 and 17)
x Abolish the Article
Nestlé is one of the last big Swiss companies to include in its Articles of Association special quorums of “presence” (articles 16 and 17) requiring the presence of a specific percentage of the share capital at the General Meeting to take certain decisions. Given that a great number of shareholders are not registered in the shareholder registry and, consequently, do not vote at the General Meeting, a quorum is often difficult to obtain. For example, to reduce Directors' term of office on the Board requires the presence of shareholders “representing at least two thirds of the share capital”. Yet, at the General Meeting 2005, only 65% of the share capital of Nestlé was registered in the share registry, thus making it impossible to modify the terms of office. Also, according to Swiss Law, certain important decisions (such as the transfer of the company’s headquarters) have to be approved by two thirds of the votes present at the General Meeting and this constitutes a measure of sufficient protection. Ethos Investment Foundation recommends to abolish the articles requesting special quorums.
Question Number 4: Board of directors – Term of office (Article 23)
x 3 years
Electing the Board of Directors is one of the fundamental shareholder rights. Ethos considers that a shorter term of office allows shareholders to assess the independence and the performance of the board of directors more regularly. As recommended by Swiss Law, a large majority of Swiss companies have three-year terms of office for directors. Nestlé is the only company among the 100 largest Swiss companies to have five-year terms. Ethos Investment Foundation recommends to reduce the term of office to three years.
Question Number 5: Auditor – Term of office (Article 30)
x 1 year
It is Swiss custom to appoint the auditor annually. Nestlé again differs, being one of the few Swiss companies to appoint the auditor for three years. The new rules of transparency in force now, enable precisely the annual reassessment of the auditor’s independence and a comparison of the audit fees with those of other services (tax consulting, due diligence…). Ethos Investment Foundation recommends, therefore, to reduce the term of office of the auditor to one year.
Select this link to access Nestlé's Shareholder Survey, and its Articles of Association.
