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March 03, 2013 2:47 PM Occupy the Shareholders Meeting

By Samuel Knight

There was an interesting development in Switzerland today for those concerned with rising inequality at home: voters there passed a set of ballot initiatives designed to control executive compensation.

The government said 67.9 percent of voters had backed allowing shareholders to veto executive pay proposals as well as banning big rewards for new and departing managers, one of the highest approval rates ever for a popular initiative.

[HT: Reuters]

According to the Financial Times, violating the new rules could lead to imprisonment, too.

This vote — and the margin by which it passed — shows the power of referenda and horizontalist forms of governance. Direct democracy in Switzerland — Reuters noted that it holds four national referenda every year — provides an outlet for popular anger.[Side note: Iceland — a country once synonymous with scandalous executive behavior, now known for righteous populist indignation — is playing host to a movement toward more direct democracy.] There had been a “fierce campaigning by corporate lobby group Economiesuisse,” but individual voters can be harder to sway than legislators.

Put forth by a former businessman turned politician, the reforms are designed to end “a culture of short-termism and rewards for managers of badly-run companies.”

They gained popularity after it was revealed, just before the vote, that Basel based pharmaceutical company Novartis had planned on paying its departing chairman $78 million to consult the company and keep his mouth shut. The golden parachute was withdrawn in the wake of a public outcry.

But even if shareholders in Switzerland do manage to use their power to veto outrageous pay packages, the ability to do so might only close the executive pay gap on paper. There are ways that managers can bestow benefits upon themselves creatively. They can enjoy luxuries on behalf of the company and claim that it’s all a part of doing business - lavish corporate retreats, fancy dinners, flashy company cars etc. (economists call this the gold-plated water cooler effect).

More effective at abating executive plundering than any regulation would be the widespread prevalence of worker-run cooperatives — direct democracy at the workplace — even if it can’t necessarily be legislated into existence.

Samuel Knight is a freelance journalist living in DC and a former intern at the Washington Monthly.

Comments

  • Andrew on March 03, 2013 4:09 PM:

    Sam,
    You mention that mangers could still find creative ways to compensate themselves with lavish corporate retreats, fancy dinners etc. That's probably true, but it would be really hard to come up with $78 million in such perks. In addition those perks could not come as part of a pay package, lest they be scrutinized by shareholders. So once the executive is gone, so too are the perks. It may not be perfect, but it seems a lot better.

  • c u n d gulag on March 03, 2013 4:53 PM:

    And this, folks, is why our Founding Fathers made this country a "Representative Democracy."

    They were, for the most part, wealthy, and didn't want us 'riff-raff' from having TOO much say.

    And, to be fair, it's worked fairly well, for years.

    Until now, when the rich, and corporations, have, for the last 30+ years, been given cart blanche to take-over the whole system.

  • neil b on March 03, 2013 7:51 PM:

    I don't really get this stuff about "allowing shareholders", why can't they already vote to do whatever is legal? Oh, I can imagine why, I'm just pressing the point ... And since shareholders are like "voters" in a nation, same question: who really runs the show?

  • ChristianPinko on March 04, 2013 12:08 AM:

    I'm glad you mentioned worker-run cooperatives, Samuel. Lately I've been thinking that labor needs to emphasize such ideas in order to revive itself in the United States.

  • jpeckjr on March 04, 2013 10:33 AM:

    @neil b. My speculation (cause I don't actually know) is that some aspect of Swiss law made it illegal for shareholders to take action regarding compensation. It's just a guess, but if it wasn't illegal why would the law need to be changed.

    More general comment: Direct democracy in California in 2008 gave us Proposition 8 so, yeah, it's always a wonderful thing that should be expanded endlessly because the voters always know what's best for everyone.