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March 26, 2013

How to Tame those Fat Cats up There

As popular distaste of corporate excess sweeps the West, the Swiss response to it has been remarkably emphatic. In a triumph of shareholder activism, a recently-held referendum in Switzerland has given shareholders of Swiss listed companies a binding say on executive compensation. The vote was an exercise in ‘direct democracy’, and the proposition was approved by 68 per cent of all eligible Swiss voters. According to Brigitta Moser-Harder, one of the initiators of this referendum, the outcome also bans “golden hellos” and “golden parachutes” for incoming and outgoing executives. Among those affected will be Swiss sworn-to-secrecy banks such as UBS and Credit Suisse. Other European banks, meanwhile, may be affected by a separate European Parliament proposal to cap banker bonuses to curb excessive risk-taking.

Shareholder-imposed caps on executive remuneration have been mooted in the US as well, but America’s new rules do not force companies to accept the ‘say on pay’ of those who own shares. This does not really empower them, which is why Dennis Kelleher, president of Better Markets, a Washington-based investor advocacy group, describes the Swiss referendum as “a step forward”.

The Great Recession has revealed shocking excesses in America Inc, he says, with top decision-makers and directors taking self-serving decisions with almost no oversight or accountability. “So restoring some balance by meaningfully empowering shareholders is reasonable and long overdue,” Kelleher says.”

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