(Reuters)
- In February 2008, Thomas Minder, a Swiss businessman whose
family-owned company is best known for its old-fashioned herbal
toothpaste, attacked his banker, UBS
Chairman Marcel Ospel, as if he were a form of stubborn plaque. At a
shareholders' meeting in Basel, he stormed the podium as Ospel addressed
the crowd. Ospel's bodyguards grappled with Minder and wrestled him
away before he could land his symbolic blow — he was trying to hand the
embattled head of Switzerland's largest bank a bound copy of Swiss
company law, which codifies corporate temperance.
"Gentlemen, you are responsible
for the biggest write-downs in Swiss corporate history," Minder had
railed just a few minutes before, referring to UBS's loss of $50 billion
during the subprime meltdown that prompted it to seek a government
bailout. "Put an end to the Americanization of
UBS corporate philosophy!"
The
bodyguards marched Minder out of the hall amid a chorus of boos and
jeers. Two months later, Ospel was gone, taking the fall for UBS's
recklessness, but Minder's campaign against big bonuses had only just
begun; shortly after Ospel was ousted, Minder filed the 100,000
signatures needed to launch a referendum to impose some of the tightest
controls on executive compensation in the world.
Of
the top 100 Swiss companies, 49 give shareholders a consulting vote on
the pay of executives. A few other countries, including the United
States and
Germany,
have introduced advisory "say on pay" votes in response to the anger
over inequality and corporate excess that drove the Occupy
Wall Street
movement. Britain is also planning to implement rules in late 2013 that
will give shareholders a binding vote on pay and "exit payments" at
least every three years. Minder's initiative goes further, forcing all
listed companies to have binding votes on compensation for company
managers and directors, and ban golden handshakes and parachutes. It
would also ban bonus payments to managers if their companies are taken
over, and impose severe penalties — including possible jail sentences
and fines — for breaches of these new rules.
Despite
strong opposition from the business elite, Minder's initiative is given
a good chance of passing when it goes to a vote on March 2. Even if his
referendum fails, the country will automatically adopt a
counterproposal put forward by parliament that would compel companies to
hold votes on executive pay, although the results would not be binding.
This
is a stunning turn of events for the land of secret bank accounts and
carefully calibrated neutrality. Even though most Swiss enjoy a very
high standard of living, Minder's campaign has struck a chord in a
proudly egalitarian country increasingly unhappy with a growing class of
super-rich unafraid to flaunt their wealth. Combine that with an
undercurrent of xenophobia — many of the top-paid executives in
Switzerland are foreigners — and you have a volatile mix. In another
sign of discontent, parts of the country are also considering scrapping
the tax breaks that have lured wealthy foreigners such as Formula One
driver Michael Schumacher, pop stars Phil Collins and Tina Turner, and
Switzerland's richest man, Ingvar Kamprad, the Swedish founder of Ikea.
"There is severe inequality that one really senses, even if there is no
abject poverty in Switzerland," says economist Hans Kissling, former
head of the Zurich statistics office, who has written a book warning
that the growing influence of the super-rich carries the risk of turning
Switzerland into a feudal state by undermining a tradition of direct
democracy that dates back to the Middle Ages.
Statistics
say the Swiss are the richest people in the world, with net financial
assets of nearly $148,000 per capita. That is a third more than the
average for the next two wealthiest nations—
Japan and the United States. And when it comes to distribution of income, Switzerland is one of the most equal societies.
But the ownership of that wealth, including
stocks
or physical assets such as land and housing, is much more unequally
shared in the nation, as is the trend elsewhere. The top 1 percent in
Switzerland control more than a third of the nation's wealth, which is
slightly larger than the share owned by the richest 1 percent in the
United States. Switzerland also has the highest density of millionaires
in the West, with 9.5 percent of all households having $1 million or
more, and the greatest number of ultra-rich families — 366 households
worth more than $100 million. Ten percent of all the world's
billionaires live there.
This
astounding concentration of wealth riles the Swiss, although their
economy has held up relatively well through the financial crisis. For
all its prosperity and success in international banking, Switzerland is a
country still firmly rooted in its farming past, a nation with no
history of monarchy or even aristocracy. "Even though Swiss people earn
good money and have an average high salary, we also have a strong
traditional feeling about what is good corporate governance," Minder
says as he sucks one of his company's herbal throat lozenges. "You can
have your second home, you can drive your Ferrari, you can eat your beef
every day, but Swiss people are middle class, with no extreme highs or
lows."
Minder is the epitome of the
Swiss entrepreneurs whose small businesses are the backbone of the
country's economy. They chide big banks and other homegrown
multinationals — like Roche, Novartis, Nestle and ABB — for adopting an
American-style get-rich-quick corporate culture. That, in their view,
contrasts with a Swiss business ethos that favors sustainability and
long-term relationships, one that has helped build a reputation for
high-quality products like watches and other precision instruments.
Minder took over the family business, Trybol, from his father in 1999;
his grandfather bought the company in 1913. Founded by a dentist in 1900
in the northern town of Schaffhausen, Trybol produced one of the first
toothpastes in Switzerland and is also known for its herbal mouthwash
and natural cosmetics.
Minder
blames bankers like Ospel, a Swiss national who spent several years in
investment banking in London and New York, for infecting Swiss business
with a high-pay culture. "He was working for Merrill Lynch in New York —
Wall Street
— and there is where the music was playing. (Big bonuses) came over,
and now (they're) not only in the financial industry: (They're) also in
productive industry, pharma, Nestle and others. There's a lot of
bullshit coming from America. There's no sustainable feeling of how
managers lead a company. It shouldn't be for the money, it shouldn't be
personal gain — it should be for the customer."
In
2001, just two years after Minder took over at Trybol, it was
threatened with ruin when Swissair reneged on a $530,000 contract. In a
blow to national pride, the debt-ridden airline had to ground its fleet
for two days in October 2001. That same year, Swissair paid Mario Corti
$13.4 million, even though he had failed to keep the company aloft. "It
was nearly the grounding of Switzerland, not only of Swissair," says
Minder, who saved his company by begging the new head of the airline,
which was taken over by Lufthansa, to honor the contract. But his rage
over Conti still burns. "That guy is now in America. He has not given
back any money. He was working for one year. I would say it is even
criminal."
Minder spent several
years venting his outrage to newspapers before deciding to go to war. He
spent two years raising funds to force a referendum on executive
compensation and another two years gathering signatures. It took him
another five years to actually put the issue to the people as the Swiss
Parliament wrangled over alternative proposals and tried to get Minder —
elected to parliament as an independent in 2011 — to drop his
initiative.
The influential
business federation Economiesuisse, which represents 100,000 companies,
says Minder's proposals could undermine Switzerland's position as the
world's most competitive economy, a title awarded to it this year for
the fourth year running by the World Economic Forum because of its low
taxes,
stable politics and business-friendly laws. Swiss companies accounted
for five of the top 10 best-paid chairmen in Europe in 2011, but only
the heads of Novartis and Roche made it into the continent's top 10 for
chief executives.
While Minder
expects Economiesuisse to spend up to $16 million to defeat his
referendum, a poll conducted in May showed that 77 percent of Swiss
voters back his proposals. Even the Swiss monthly business magazine
Bilanz has criticized high pay for CEOs and chairmen. "Too powerful, too
expensive," it scolded in a recent cover story, noting that the board
presidents of Novartis and Roche earn more than 10 times the
compensation of their counterparts at British pharma companies.
Few
top executives have dared speak out on this land-mine issue. Nestle
Chairman Peter Brabeck, an Austrian who has accumulated a fortune of up
to $215 million, is one of the few. "If the Minder initiative were to be
adopted, Switzerland would unnecessarily give up one of the world's
best company laws," he wrote in an opinion piece in the Neue Zürcher
Zeitung daily. "No well-advised company would chose to set up
headquarters in a country where an infringement of corporate government
rules can lead to imprisonment."
Many
believe support for Minder's initiative is driven by a national allergy
to high achievers. The Swiss seem to feel the need to cut their stars
down to size, such as former Swiss central bank chief Philipp
Hildebrand, who was long vilified as too proud even before a
currency-trading scandal forced him to resign in January 2011. One
exception to that aversion is tennis player
Roger Federer, who has managed to stay popular, in part by retaining a down-to-earth image despite his wealth and success with a racket.
Experts
attribute the Swiss aversion to star culture to a long history of
consensus building between the German-speaking majority and French- and
Italian-speaking minorities, and between Protestants and Catholics.
Apart from folk hero William Tell, Swiss history is thin on great
figures, perhaps because, having stayed out of the continent's major
wars, the country has not needed strong leaders. "Switzerland has no
kings, no emperors, no preeminent president, no one person upon whom
everything is focused," says Karin Frick, an economist at the Gottlieb
Duttweiler Institute, an independent research body. "Egalitarian
thinking and behavior is in the DNA of Switzerland, which means that
people who are richer or more successful than others tend not to show
it. The name of the game is understatement."
Communicaid,
a London-based business consultancy specializing in cross-cultural
awareness, cautions executives visiting Switzerland that its business
leaders tend to be modest about their role and discreet in their
exercise of authority. "People expect others to be on an equal level,
and from someone in leadership or senior management they expect a
certain amount of modesty and frugality in the way they approach money
or material goods," says Cora Malinak, an intercultural specialist from
Communicaid.
In his campaign, Minder, the vice president of his local soccer club and a keen birdwatcher and Alpine
sports
enthusiast, has repeatedly jabbed at the growing number of foreign
CEOs, tapping into simmering resentment of outsiders in this tight-knit
nation of just eight 8 million. The highest-paid chief executives in
Switzerland in 2011 were all foreigners: Americans Joe Jiminez and Joe
Hogan at Novartis and ABB, Roche's Severin Schwan from Austria, and
Nestle's Paul Bulcke from Belgium. Minder regularly pillories Credit
Suisse's American CEO, Brady Dougan, who has drawn fire for the $75
million stock windfall he received in 2009. "The moment you have the
guys like Brady Dougan and all the foreigners, if it's not working,
they're on the next plane back to New York," Minder says. "Swiss guys in
my position, usually they're accepted in the village. They don't only
have their work, but they have something besides their work — they
cannot manage a company the same way as Brady Dougan." (The ill will is
compounded by the fact that Dougan still can't speak German, even after
five years leading Switzerland's second-biggest bank.)
Regardless
of which reform plan the Swiss adopt, David Roth, the leader of the
youth wing of the Social Democrats, says it won't do much to address
Switzerland's deep inequality of wealth. Roth, 27, who organized the
"Occupy
Davos"
camp of igloos in Davos in 2011, is pushing for a much more radical
reform: Limit the annual compensation of top executives to just 12 times
that of their lowest-paid worker. Both World Economic Forum founder
Klaus Schwab and French President Francois Hollande have called for top
pay to be capped at 20 times that of the lowest pay-tier. "If the
shareholders vote on executive pay, it is still the rich voting about
the rich," Roth says. "This whole cartel needs to be broken." His
initiative is likely to be put to a vote in late 2013.
A
separate campaign to end special tax deals for wealthy foreigners who
live but don't work in Switzerland has also been driven by the growing
wealth divide and taps into Swiss hostility to immigrants. The annual
list of Switzerland's wealthiest 300 people published by Bilanz names
131 foreigners, with Ikea founder Kamprad in first place, at $38
billion.
Special tax deals for
foreigners were first introduced in 1862 by the canton of Vaud along
Lake Geneva (where Kamprad lives) in a bid to boost the tourist industry
in poor rural regions by encouraging wealthy pensioners to move there.
The deals were later adopted nationwide in rules dubbed Lex Chaplin
after Charlie Chaplin moved to Switzerland in 1953, having fled the
United States as a suspected Communist during the McCarthy witch hunt.
The number of super-wealthy foreigners lured to Switzerland has doubled in the last decade, to more than 5,000. Their
taxes
are based on the rental value of their property rather than their
income or wealth, on the condition that they do not work in the country.
The influx is blamed for pushing up housing prices, particularly in
desirable areas around Lake Zurich and Geneva as well as the more glitzy
Alpine resorts. Many of the tax exiles come from neighboring
France,
and more French could be scuttling across the border soon due to a 75
percent super-tax on income above 1 million euros ($1.29 million)
proposed by Socialist President Hollande. Bernard Arnault, France's
richest man, was pilloried last year for his decision to seek Belgian
nationality.
The cantons of Zurich,
Basel, Schaffhausen and Appenzell Ausserrhoden have already scrapped
their special deals for foreign tax exiles, but others have upheld the
current system, albeit raising the taxes levied on foreigners. Roth's
Social Democrats are campaigning to force a national referendum on this
issue too. "The system has an extremely damaging impact on the housing
market, on Switzerland's image, and international tax justice," he says.
The
Swiss government, which saw revenues of $716 million in 2010 from the
special taxes on foreigners, is seeking to head off the Social Democrat
campaign by increasing those taxes by about 40 percent. Economiesuisse
is campaigning to uphold the current system.
Both
Minder and Roth fear their campaigns could be scuppered. "It is going
to be a battle of money," says Minder. "It's the classic battle between
the small guy and the huge Economiesuisse establishment."
He's
right to be worried. Zurich economist Kissling says money has
increasingly determined the outcome of Swiss referenda, especially since
billionaire industrialist Christoph Blocher started funding campaigns
by the right-wing Swiss People's Party. He argues that the only way to
tackle wealth inequality is to increase the inheritance tax, another
issue the Social Democrats want to put to a vote, although that would
likely face even more entrenched opposition. Swiss inheritance tax
varies from canton to canton but is generally low — another draw for
foreigners.
The 1 percent may be
outraged by these assaults on their wallets, but they are already
adjusting. Back at that UBS shareholder meeting from which Minder got
the bum's rush, another chiding stockholder offered Ospel a string of
sausages. "In the future you will have to live a little more modestly,"
he told the UBS chairman. Forewarned of the stunt, Ospel whipped out a
tube of mustard, as though he were ready to tuck into them right then.
But he got the message. Later that year, Ospel and other ex-board
members agreed to return $35 million in bonuses and other payments from
the bank. Credit Suisse has not paid top executives any cash awards for
the last four years, in favor of stock-based schemes linked to the
bank's share price. Dougan's pay was cut in half in 2011 as the bank's
stock tumbled, although he still took home $6.2 million.
Ethos,
an influential group of shareholders that makes recommendations to
Swiss pension funds, says managers' total pay at financial firms dropped
23 percent in 2011, although remuneration in other sectors rose 5
percent.
UBS drew howls of outrage
again last year over the $4 million signing-on fee for new chairman
Axel Weber, prompting more than a third of its shareholders to reject
the bank's pay plans. Weber, who is German, refuses to comment
publically on the debate around the Minder proposals. That might be
caution, or it might be a smart tactical decision. "It is a matter for
the Swiss people," he told the SonntagsZeitung newspaper. "At the
moment, we generally see that the more bankers publically wish for
something, the less likely it is to be fulfilled politically."
(Editing by Jonathan Oatis and Prudence Crowther)
