Increase in shareholder opposition in 2017: This is the conclusion of Ethos’ annual study on the general meetings, executive remuneration and corporate governance of companies listed in Switzerland. Overall, 14% of the resolutions received less than 90% support from shareholders, compared to 12% last year. The shareholders were particularly critical when voting on the remuneration of the board and management. In parallel to the publication of its study, Ethos also communicates its expectations for the draft revision of company law which is currently being discussed in Parliament.

Amongst the 200 companies comprised in the stock market index SPI, the average approval rate for items put to a shareholder vote reached 95.4% in 2017 (96.3% in 2016). In total, 7% of resolutions (4% in 2016) received less than 80% support and 27 resolutions were even turned down by the annual general meeting. In addition, around 30 propositions put to vote at companies with a controlling shareholder (holding at least one third of voting rights) would not have been approved when counting only the votes of the other shareholders. For Vincent Kaufmann, Ethos CEO, “the increase in opposition shows that shareholders have realised that they have the right to be heard”.

Increase in opposition

Propositions tied to the remuneration of the board and executive management were particularly contested: 21% of the consultative votes on remuneration reports were supported by less than 80% of shareholders, compared to only 16% in 2016. The average opposition to the remuneration report stood at 13.3% up from 11% in 2016.

Ethos was also more critical in its voting recommendations by refusing 18% of all propositions put to shareholder vote at SPI-companies (15% in 2016). In great part this is due to the amendment of Ethos’ proxy voting guidelines which henceforth oppose the election of board members holding executive functions in the same company. In addition, in line with the new European provisions and starting this year, Ethos opposes the re-election of auditing firms whose mandate exceeds 20 years.

Disconnect between remuneration and performance

The average remuneration remained more or less constant. Despite this, one can observe large differences between sectors. In particular, in the financial sector, the average remuneration of the executive management of financial companies among the 100 largest Swiss listed companies increased by 4% even though, for the same period, profits decreased by 16%. When voting on remuneration issues, this translates into a higher level of opposition at financial companies than in other sectors. At GAM, for example, the variable remuneration of the executive management was flatly rejected by the shareholders. The opposition was also important at Credit Suisse where shareholders pressure led to a 40% reduction of the executive management’s bonus. “ This disconnect between levels of executive remuneration and company performance is rightfully sanctioned more and more by the shareholders “remarks Vincent Kaufmann.

New external auditor’s report

The 2017 annual general meeting season was also the occasion for Ethos to take a closer look at the new information published in the annual reports of Swiss listed companies: the key audit matters. Since this year, the auditors are obliged to present key matters addressed in the framework of their audit and to describe them so as to allow for the reader to know the associated risks.
However, one fourth of the audit reports have identified a single key audit matter, which seems insufficient. Moreover, Ethos regrets that only 40% of these reports mention the materiality threshold used by the audit firm in the framework of its audit. The two pieces of information are nonetheless important for the shareholders when they approve the annual report and accounts.

Ethos’ legislative expectations

In its most recent session, the Parliament began to discuss the draft revision of company law prepared by the Federal Council. This project aims to adapt company law to the market reality, in particular, following the implementation of the Minder initiative. In this context, Ethos has formulated several recommendations which aim to increase shareholder rights, in particular, regarding capital structure, the remuneration and the board of directors. For Dominique Biedermann, chairman of the Ethos Foundation board “this revision of the law is particularly important in order to guarantee to shareholders the application of the rules of good governance by Swiss companies”.

In particular, Ethos demands that the prohibition on voting in a prospective manner on the variable remuneration of the executive management be re-introduced, as was the case in the preliminary draft. In fact, to allow for shareholders to better control the excesses it is indispensable that they are called to approve the variable remunerations paid out in relation to the results of the company. In the case of the Credit Suisse annual general meeting for example, it was the mobilisation of the shareholders against the 2016 bonus voted retrospectively, following the company’s massive losses, which lead to the executive management voluntarily cutting its bonus by 40%. A prospective vote at the annual general meeting before the fact would have amounted to a blank check which shareholders could not have opposed.
Ethos study 2017 "Annual general meetings, remuneration and corporate governance of the SPI-companies”

Ethos expectations regarding the amendment of company law (in French)

Ethos expectations regarding the amendment of company law (in German)

Ethos proxy voting guidelines