On 3 March 2013, Switzerland’s citizens will have to vote on a proposed amendment to its constitution dealing with corporate governance and executive compensation in publicly listed companies. The proposed amendment or initiative gathered the required 100,000 signatures in support and hence a popular referendum at the national level becomes necessary. Although often referred to as “Minder Initiative” after Thomas Minder, its original promoter, the proposed amendment’s official German name is “Volksinitiative gegen die Abzockerei” meaning roughly “popular initiative against remuneration rip-off” or in its less drastic official French version: “Initiative contre les rémunerations abusives”.

The Minder Initiative requires inter alia (i) a legally binding shareholder resolution on total compensation of the board of directors and the senior executive management (Executive Persons), (ii) a direct election by shareholders of the chairperson and the members of the compensation committee for every business year, (iii) the prohibition of severence payments, sign-on bonuses and transaction based success fees to Executive Persons, (iv) electronic remote voting and mandatory voting by pension funds and disclosure of their votes in shareholder meetings, (v) proxy voting only by independent proxy elected by shareholders and (vi) the prohibition of delegation of management to a legal entity. Non-compliance with any of the above requirements is subject to criminal sanctions: imprisonment of up to three years and fines of up to six times the annual compensation. The proposed changes would be applicable to Swiss corporations (Aktiengesellschaften) listed on a stock exchange, including stock exchanges abroad.

Of course, not everything does add up in the Minder Initiative. For example, why would a responsible person of a pension fund incur a fine based on compensation of Executive Persons for not exercising the pension fund’s voting right? A literal reading could even lead to the conclusion that imprisonment AND a fine would have to be imposed in such a case. The criminal sanctions in particular reveal the rigor of what could otherwise be a legitimate governance proposal in favor of shareholders as principals vis-à-vis the Executive Persons as their agents. As even its proponents admit, the Minder Initiative would not lower executive compensation levels of listed corporates. Nevertheless, it is being promoted as a crusade against corporate robber knights, appealing in particular to the “Wutbürger”, the “citizen of anger”, so aptly portrayed by Swiss author Peter von Matt in his recent book.

In light of the Minder Initative’s rigor and deficiencies, Swiss parliament has come up with an alternative statute that will enter into force on 1 January 2014, in case the Minder Initiative is rejected in the popular referendum (the so-called Indirect Counterproposal; hereafter Counterproposal). The Counterproposal adopts many of the legitimate agency and compensation issues addressed by the Minder Initiative but avoids its rigor. For example, no criminal sanctions are included and rather than setting out a general prohibition, shareholders themselves can decide on severance and certain other payments to Executive Persons.

Of course, the Counterproposal has its drawbacks und ambiguities as well. For example, the extent to which variable components can be included in the basic total compensation to be approved by shareholders is unclear. From an international perspective and like the Minder Initiative, it also has some “quasi” extraterritorial effects: It impacts companies entirely held by foreign shareholders listed abroad with an executive management

based abroad and whose employment terms are subject to foreign law solely because of their Swiss incorporation. One may query whether the nexus to Swiss jurisdiction is sufficient to warrant regulation of such companies by Switzerland. No matter what the outcome of the popular referendum on 3 March 2013 is, a major overhaul of Swiss corporate governance rules for listed companies is bound to happen. One may hope that Swiss voters let themselves guide by legitimate agency concerns rather than by envy.

(Reference: CapLaw-2013-1)