John L. Hodge blog: March 2013

(This post is the sixth in the series--see links below for previous posts)

A recent event in Switzerland illustrates the continuing role of government and the people in managing corporate power. On March 3^rd, in a national referendum, 68% of Swiss voters approved a measure that gives corporate shareholders the right to vote annually on senior managers’ pay and appointments. Corporate executives who do not comply with this measure are subject to a penalty of up to three years in jail or the forfeiture of up to six years’ salary. This new measure will be written into the Swiss constitution.

Also in Switzerland, the left-center Social Democrats are pushing another measure that would cap the pay of senior corporate executives at twelve times that of the lowest paid worker. At the moment there is not a likelihood that such a measure will pass, but if it did, it would create a major upheaval in the corporate world. Nonetheless, the threat of such a measure illustrates the power the people of Switzerland can have over their corporations.

The potential danger to Switzerland of measures like these is that Swiss corporations will pull out and incorporate elsewhere, analogous to what happened in the United States beginning in the late nineteenth century when companies sought to incorporate in the states with the fewest restrictions. (See previous post: “V: The Transformation of the American Corporation”.) Corporate executives in Switzerland are making such threats in an attempt to prevent such measures from passing.

For now, however, the newly approved measure will probably have little effect on the location of corporations in Switzerland. Corporations are already drawn to the country by its low taxes, stable politics and business-friendly laws. In other words, Switzerland may be somewhat like the Delaware of Europe. But the measure approved on March 3^rd suggests that this could change.

Switzerland is not alone in seeking greater governmental control over corporate executive pay. Reuters reports, “Brussels agreed [to] a cap on bankers' bonuses last week and countries including the

United States

and

Germany

have introduced advisory ‘say on pay’ votes.

Britain

also wants to give shareholders a binding vote on pay and ‘exit payments’ at least every three years.” (See link below.)

However, the Swiss measure goes further than any of these proposals. In addition to enabling shareholder control over executive pay, the approved measure also requires pension funds to vote in the interest of its members and make their votes public, and also restricts the financial dealings of Board members.

Unlike the ill-advised “People’s Rights Amendment” being circulated in the U.S. (see my earlier post: The Misguided People’s Rights Amendment), the measures taken in Switzerland and under consideration elsewhere target particular problems with corporate power rather than attack corporations as a whole as though they are all alike.

The Swiss measure opens the mental door to consideration of other measures that could regulate corporate financing of elections in the

U.S.

_______________________________________

References:

Reuters online: http://www.reuters.com/article/2013/03/03/us-swiss-regulation-pay-idUSBRE92204N20130303

“Executive Pay: Fixing the fat cats,” The Economist, March 9, 2013, p. 64.

Links to previous posts this series:

Corporations (Part I of series): Introduction—Why We Need To Know About Them (2/3/12)