Swiss Firms Contort to Fit Shareholder Law
Several Companies Delisted to Sidestep New Rules
ZURICH—Few Swiss companies have gone as far as railroad operator Berner Oberland-Bahnen AG in response to a new law that gives shareholders a sweeping say over how firms conduct their business.
After months of deliberation, the board of the 126-year-old railway decided that rather than pay accountants, lawyers and investor-relations specialists to help it comply with the law, it would delist from the Bern stock exchange, where its stock had traded for more than a century.
"We've been listed on the stock exchange for longer than I can remember," said Christoph Seiler, chief executive at the company whose distinctive blue-and-yellow trains have ferried tourists and skiers to the Bernese Alps since 1890. "But the costs and effort of implementing the new rules are too much for a small company like ours," he said.
Across Switzerland, publicly traded companies are struggling to adapt to the law, which requires binding shareholder votes on executive pay and greater transparency over loans and retirement packages. The law, which is on the books but won't be enforced until Jan. 1, 2016, also requires annual elections of individual board members rather than the common practice of full-slate elections every three years
The Swiss government wrote the law after voters overwhelmingly approved the so-called Minder Initiative last March. The initiative, named after businessman and parliamentarian Thomas Minder, was widely seen as a popular referendum on excessive corporate pay. It applies to all publicly traded companies based in Switzerland that are listed on either of the country's two stock exchanges.
Companies say complying with the law is driving up administrative, legal and accounting costs, as well as eating up time. Compensation reports now need to be audited, forcing up accounting costs. Companies are hiring consultants to advise them on new pay structures to ensure compliance. Almost all Swiss companies are rewriting their corporate bylaws.
Robert Kuipers, a Zurich-based partner at PricewaterhouseCoopers which is advising roughly 30 companies on compliance with the law, said figuring out how much companies are spending is tricky but it will likely cost some millions of Swiss francs. A PwC survey of 57 large and midsize companies found nearly two-thirds said implementation of the rules would likely mean a significant jump in expenses.
Some companies have already phased in elements of the law.
Pharmaceutical giant Roche Holding AG ROG.VX -0.66% introduced annual elections for its chairman and a binding vote on executive pay at this year's annual meeting. Zurich Insurance Group AG ZURN.VX -0.31% 's shareholders approved revised bylaws that include provisions on the number of activities board members and executive committee members may assume. Shareholders of Nestlé SA, NESN.VX +1.79% the world's biggest food company, will vote on new bylaws at their general meeting on Thursday and binding votes on pay are expected in 2015.
The new law has generated criticism from corporate Switzerland about everything from the administrative and legal costs to concerns the rules will encourage short-term thinking if they prompt a faster turnover of corporate boards.
"Does it improve the business or profitability?" asked Thomas Aebischer, the chief financial officer of Jona-based cement maker Holcim Ltd. HOLN.VX -1.41% , which earlier this week agreed to merge with France's Lafarge SA LG.FR +0.08% . "I don't think so."
Others point to bloat caused by the rules. The invitation to telecommunications giant Swisscom AG SCMN.VX +0.09% 's shareholder meeting ballooned to 40 pages from 12 last year because of a detailed explanation needed of its new bylaws.
Meanwhile, the costs are too much for some firms to shoulder. Five companies have given up their listing on the Bern stock exchange in the past year, in part because of the law, according to the exchange. They have included railway operators Gondelbahn Grindelwald-Männlichen and BLS AG.
Mr. Seiler, the CEO of another railway operator, Berner Oberland-Bahnen, said the cost of an electronic voting system required by the new law was part of the reason the company decided to delist. It currently conducts its shareholder votes by a show of hands.
"It's just not worthwhile for a company like ours," Mr. Seiler said.