Ethos and eight Swiss pension funds have filed two shareholder resolutions aiming at improving corporate governance. The first resolution requests the introduction of an advisory vote of the remuneration report by the shareholder general meeting. This resolution was submitted to Holcim, Novartis, Swiss Re and Zurich Financial Services. The second resolution aims at preventing the combination of the positions of Chairman and CEO at Novartis.
Ethos also published its 2008 study on the executive remuneration of the largest Swiss listed companies. Despite a decrease of the remuneration in the majority of companies, in particular in the financial sector, the amounts paid still remain very high. Also, several companies are not in line with international best practice with regard to transparency and structure of executive remuneration.
In 2008, the executive remuneration in the 47 companies included in the SMI Expanded Index fell by 22%. The average remuneration of the non executive Chairmen was CHF 2 million and CHF 300'000 for a non executive director. The average remuneration of executive management was CHF 2.4 million. Moreover, the transparency with regard to remuneration, in particular the annual bonus, was not improved and still does not exceed the minimum required by law. Finally, an important part of long term share based incentive plans does not include performance targets, which is contrary to international best practice rules.
The economic crunch has shown that inappropriate remuneration and corporate governance may have very negative consequences on the economy. Which is why shareholders are now called to take action. It is in this spirit that Ethos and eight Swiss pension funds submitted the following shareholder resolutions.
“Say on Pay” Resolution
Ethos and the eight pension funds are repeating last year's successful initiative for more shareholder rights on executive pay. A “Say on Pay” resolution has been filed with three companies, Holcim, Swiss Re and Zurich Financial Services, and filed a second time with Novartis, with a view to the 2010 shareholder meetings. These are the largest Swiss Companies within the Swiss Market Index that do not confer any shareholder rights on executive pay. The “Say on Pay” resolution requests an advisory vote of the shareholder general meeting on the remuneration report.
Such “Say on Pay” resolutions have already been filed in 2008 requesting an advisory vote on the remuneration reports of five of the largest listed companies in Switzerland. The initiative bore fruit, because four of the companies (ABB, Credit Suisse Group, Nestlé and UBS) agreed to submit their respective remuneration reports or remuneration system to an advisory vote at their 2009 annual general meetings, enabling Ethos to withdraw the resolution. Only Novartis refused to discuss the matter and recommended to oppose the resolution. The resolution received nevertheless support from 31% of votes cast.
“Stop Chairman-CEO” Resolution
At the 2010 general meeting of Novartis, Ethos and the same eight pension funds will submit a “Stop Chairman-CEO” resolution aimed at preventing the continuation of the combination of the positions of Chairman and CEO.
Separation of the roles of Chairman of the Board and Chief Executive Officer (CEO) is one means of achieving a balance of power within a company. It enhances the Board's capacity to make decisions independently and to oversee senior management.
In recent years, the practice of having one person fill both roles has fallen sharply in most countries. In Switzerland, several big companies like Nestlé and Roche recently separated the two functions. Of the twenty companies listed on the Swiss Market Index, only Novartis still combines them, without any justification for maintaining this practice for over ten years.
