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In February 2008, Thomas Minder, a Swiss businessman whose family-owned company is best known for its old-fashioned herbal toothpaste, attacked his banker, UBS Chairman Marcel Ospel, as if he were a form of stubborn plaque. At a shareholders' meeting in Basel, he stormed the podium as Ospel addressed the crowd. Ospel's bodyguards grappled with Minder and wrestled him away before he could land his symbolic blow — he was trying to hand the embattled head of Switzerland's largest bank a bound copy of Swiss company law, which codifies corporate temperance.
"Gentlemen, you are responsible for the biggest write-downs in Swiss corporate history," Minder had railed just a few minutes before, referring to UBS's loss of $50 billion during the subprime meltdown that prompted it to seek a government bailout. "Put an end to the Americanization of UBS corporate philosophy!"
The bodyguards marched Minder out of the hall amid a chorus of boos and jeers. Two months later, Ospel was gone, taking the fall for UBS's recklessness, but Minder's campaign against big bonuses had only just begun; shortly after Ospel was ousted, Minder filed the 100,000 signatures needed to launch a referendum to impose some of the tightest controls on executive compensation in the world.
Of the top 100 Swiss companies, 49 give shareholders a consulting vote on the pay of executives. A few other countries, including the United States and Germany, have introduced advisory "say on pay" votes in response to the anger over inequality and corporate excess that drove the Occupy Wall Street movement. Britain is also planning to implement rules in late 2013 that will give shareholders a binding vote on pay and "exit payments" at least every three years. Minder's initiative goes further, forcing all listed companies to have binding votes on compensation for company managers and directors, and ban golden handshakes and parachutes. It would also ban bonus payments to managers if their companies are taken over, and impose severe penalties — including possible jail sentences and fines — for breaches of these new rules.
Despite strong opposition from the business elite, Minder's initiative is given a good chance of passing when it goes to a vote on March 2. Even if his referendum fails, the country will automatically adopt a counterproposal put forward by parliament that would compel companies to hold votes on executive pay, although the results would not be binding.
This is a stunning turn of events for the land of secret bank accounts and carefully calibrated neutrality. Even though most Swiss enjoy a very high standard of living, Minder's campaign has struck a chord in a proudly egalitarian country increasingly unhappy with a growing class of super-rich unafraid to flaunt their wealth. Combine that with an undercurrent of xenophobia — many of the top-paid executives in Switzerland are foreigners — and you have a volatile mix. In another sign of discontent, parts of the country are also considering scrapping the tax breaks that have lured wealthy foreigners such as Formula One driver Michael Schumacher, pop stars Phil Collins and Tina Turner, and Switzerland's richest man, Ingvar Kamprad, the Swedish founder of Ikea. "There is severe inequality that one really senses, even if there is no abject poverty in Switzerland," says economist Hans Kissling, former head of the Zurich statistics office, who has written a book warning that the growing influence of the super-rich carries the risk of turning Switzerland into a feudal state by undermining a tradition of direct democracy that dates back to the Middle Ages.
Statistics say the Swiss are the richest people in the world, with net financial assets of nearly $148,000 per capita. That is a third more than the average for the next two wealthiest nations—Japan and the United States. And when it comes to distribution of income, Switzerland is one of the most equal societies.
But the ownership of that wealth, including stocks or physical assets such as land and housing, is much more unequally shared in the nation, as is the trend elsewhere. The top 1 percent in Switzerland control more than a third of the nation's wealth, which is slightly larger than the share owned by the richest 1 percent in the United States. Switzerland also has the highest density of millionaires in the West, with 9.5 percent of all households having $1 million or more, and the greatest number of ultra-rich families — 366 households worth more than $100 million. Ten percent of all the world's billionaires live there.
This astounding concentration of wealth riles the Swiss, although their economy has held up relatively well through the financial crisis. For all its prosperity and success in international banking, Switzerland is a country still firmly rooted in its farming past, a nation with no history of monarchy or even aristocracy. "Even though Swiss people earn good money and have an average high salary, we also have a strong traditional feeling about what is good corporate governance," Minder says as he sucks one of his company's herbal throat lozenges. "You can have your second home, you can drive your Ferrari, you can eat your beef every day, but Swiss people are middle class, with no extreme highs or lows."
Minder is the epitome of the Swiss entrepreneurs whose small businesses are the backbone of the country's economy. They chide big banks and other homegrown multinationals — like Roche, Novartis, Nestle and ABB — for adopting an American-style get-rich-quick corporate culture. That, in their view, contrasts with a Swiss business ethos that favors sustainability and long-term relationships, one that has helped build a reputation for high-quality products like watches and other precision instruments. Minder took over the family business, Trybol, from his father in 1999; his grandfather bought the company in 1913. Founded by a dentist in 1900 in the northern town of Schaffhausen, Trybol produced one of the first toothpastes in Switzerland and is also known for its herbal mouthwash and natural cosmetics.
Minder blames bankers like Ospel, a Swiss national who spent several years in investment banking in London and New York, for infecting Swiss business with a high-pay culture. "He was working for Merrill Lynch in New York — Wall Street — and there is where the music was playing. (Big bonuses) came over, and now (they're) not only in the financial industry: (They're) also in productive industry, pharma, Nestle and others. There's a lot of bullshit coming from America. There's no sustainable feeling of how managers lead a company. It shouldn't be for the money, it shouldn't be personal gain — it should be for the customer."
In 2001, just two years after Minder took over at Trybol, it was threatened with ruin when Swissair reneged on a $530,000 contract. In a blow to national pride, the debt-ridden airline had to ground its fleet for two days in October 2001. That same year, Swissair paid Mario Corti $13.4 million, even though he had failed to keep the company aloft. "It was nearly the grounding of Switzerland, not only of Swissair," says Minder, who saved his company by begging the new head of the airline, which was taken over by Lufthansa, to honor the contract. But his rage over Conti still burns. "That guy is now in America. He has not given back any money. He was working for one year. I would say it is even criminal."
Minder spent several years venting his outrage to newspapers before deciding to go to war. He spent two years raising funds to force a referendum on executive compensation and another two years gathering signatures. It took him another five years to actually put the issue to the people as the Swiss Parliament wrangled over alternative proposals and tried to get Minder — elected to parliament as an independent in 2011 — to drop his initiative.
The influential business federation Economiesuisse, which represents 100,000 companies, says Minder's proposals could undermine Switzerland's position as the world's most competitive economy, a title awarded to it this year for the fourth year running by the World Economic Forum because of its low taxes, stable politics and business-friendly laws. Swiss companies accounted for five of the top 10 best-paid chairmen in Europe in 2011, but only the heads of Novartis and Roche made it into the continent's top 10 for chief executives.
While Minder expects Economiesuisse to spend up to $16 million to defeat his referendum, a poll conducted in May showed that 77 percent of Swiss voters back his proposals. Even the Swiss monthly business magazine Bilanz has criticized high pay for CEOs and chairmen. "Too powerful, too expensive," it scolded in a recent cover story, noting that the board presidents of Novartis and Roche earn more than 10 times the compensation of their counterparts at British pharma companies.
Few top executives have dared speak out on this land-mine issue. Nestle Chairman Peter Brabeck, an Austrian who has accumulated a fortune of up to $215 million, is one of the few. "If the Minder initiative were to be adopted, Switzerland would unnecessarily give up one of the world's best company laws," he wrote in an opinion piece in the Neue Zürcher Zeitung daily. "No well-advised company would chose to set up headquarters in a country where an infringement of corporate government rules can lead to imprisonment."
Many believe support for Minder's initiative is driven by a national allergy to high achievers. The Swiss seem to feel the need to cut their stars down to size, such as former Swiss central bank chief Philipp Hildebrand, who was long vilified as too proud even before a currency-trading scandal forced him to resign in January 2011. One exception to that aversion is tennis player Roger Federer, who has managed to stay popular, in part by retaining a down-to-earth image despite his wealth and success with a racket.
Experts attribute the Swiss aversion to star culture to a long history of consensus building between the German-speaking majority and French- and Italian-speaking minorities, and between Protestants and Catholics. Apart from folk hero William Tell, Swiss history is thin on great figures, perhaps because, having stayed out of the continent's major wars, the country has not needed strong leaders. "Switzerland has no kings, no emperors, no preeminent president, no one person upon whom everything is focused," says Karin Frick, an economist at the Gottlieb Duttweiler Institute, an independent research body. "Egalitarian thinking and behavior is in the DNA of Switzerland, which means that people who are richer or more successful than others tend not to show it. The name of the game is understatement."
Communicaid, a London-based business consultancy specializing in cross-cultural awareness, cautions executives visiting Switzerland that its business leaders tend to be modest about their role and discreet in their exercise of authority. "People expect others to be on an equal level, and from someone in leadership or senior management they expect a certain amount of modesty and frugality in the way they approach money or material goods," says Cora Malinak, an intercultural specialist from Communicaid.
In his campaign, Minder, the vice president of his local soccer club and a keen birdwatcher and Alpine sports enthusiast, has repeatedly jabbed at the growing number of foreign CEOs, tapping into simmering resentment of outsiders in this tight-knit nation of just eight 8 million. The highest-paid chief executives in Switzerland in 2011 were all foreigners: Americans Joe Jiminez and Joe Hogan at Novartis and ABB, Roche's Severin Schwan from Austria, and Nestle's Paul Bulcke from Belgium. Minder regularly pillories Credit Suisse's American CEO, Brady Dougan, who has drawn fire for the $75 million stock windfall he received in 2009. "The moment you have the guys like Brady Dougan and all the foreigners, if it's not working, they're on the next plane back to New York," Minder says. "Swiss guys in my position, usually they're accepted in the village. They don't only have their work, but they have something besides their work — they cannot manage a company the same way as Brady Dougan." (The ill will is compounded by the fact that Dougan still can't speak German, even after five years leading Switzerland's second-biggest bank.)
Regardless of which reform plan the Swiss adopt, David Roth, the leader of the youth wing of the Social Democrats, says it won't do much to address Switzerland's deep inequality of wealth. Roth, 27, who organized the "Occupy Davos" camp of igloos in Davos in 2011, is pushing for a much more radical reform: Limit the annual compensation of top executives to just 12 times that of their lowest-paid worker. Both World Economic Forum founder Klaus Schwab and French President Francois Hollande have called for top pay to be capped at 20 times that of the lowest pay-tier. "If the shareholders vote on executive pay, it is still the rich voting about the rich," Roth says. "This whole cartel needs to be broken." His initiative is likely to be put to a vote in late 2013.
A separate campaign to end special tax deals for wealthy foreigners who live but don't work in Switzerland has also been driven by the growing wealth divide and taps into Swiss hostility to immigrants. The annual list of Switzerland's wealthiest 300 people published by Bilanz names 131 foreigners, with Ikea founder Kamprad in first place, at $38 billion.
Special tax deals for foreigners were first introduced in 1862 by the canton of Vaud along Lake Geneva (where Kamprad lives) in a bid to boost the tourist industry in poor rural regions by encouraging wealthy pensioners to move there. The deals were later adopted nationwide in rules dubbed Lex Chaplin after Charlie Chaplin moved to Switzerland in 1953, having fled the United States as a suspected Communist during the McCarthy witch hunt.
The number of super-wealthy foreigners lured to Switzerland has doubled in the last decade, to more than 5,000. Their taxes are based on the rental value of their property rather than their income or wealth, on the condition that they do not work in the country. The influx is blamed for pushing up housing prices, particularly in desirable areas around Lake Zurich and Geneva as well as the more glitzy Alpine resorts. Many of the tax exiles come from neighboring France, and more French could be scuttling across the border soon due to a 75 percent super-tax on income above 1 million euros ($1.29 million) proposed by Socialist President Hollande. Bernard Arnault, France's richest man, was pilloried last year for his decision to seek Belgian nationality.
The cantons of Zurich, Basel, Schaffhausen and Appenzell Ausserrhoden have already scrapped their special deals for foreign tax exiles, but others have upheld the current system, albeit raising the taxes levied on foreigners. Roth's Social Democrats are campaigning to force a national referendum on this issue too. "The system has an extremely damaging impact on the housing market, on Switzerland's image, and international tax justice," he says.
The Swiss government, which saw revenues of $716 million in 2010 from the special taxes on foreigners, is seeking to head off the Social Democrat campaign by increasing those taxes by about 40 percent. Economiesuisse is campaigning to uphold the current system.
Both Minder and Roth fear their campaigns could be scuppered. "It is going to be a battle of money," says Minder. "It's the classic battle between the small guy and the huge Economiesuisse establishment."
He's right to be worried. Zurich economist Kissling says money has increasingly determined the outcome of Swiss referenda, especially since billionaire industrialist Christoph Blocher started funding campaigns by the right-wing Swiss People's Party. He argues that the only way to tackle wealth inequality is to increase the inheritance tax, another issue the Social Democrats want to put to a vote, although that would likely face even more entrenched opposition. Swiss inheritance tax varies from canton to canton but is generally low — another draw for foreigners.
The 1 percent may be outraged by these assaults on their wallets, but they are already adjusting. Back at that UBS shareholder meeting from which Minder got the bum's rush, another chiding stockholder offered Ospel a string of sausages. "In the future you will have to live a little more modestly," he told the UBS chairman. Forewarned of the stunt, Ospel whipped out a tube of mustard, as though he were ready to tuck into them right then. But he got the message. Later that year, Ospel and other ex-board members agreed to return $35 million in bonuses and other payments from the bank. Credit Suisse has not paid top executives any cash awards for the last four years, in favor of stock-based schemes linked to the bank's share price. Dougan's pay was cut in half in 2011 as the bank's stock tumbled, although he still took home $6.2 million.
Ethos, an influential group of shareholders that makes recommendations to Swiss pension funds, says managers' total pay at financial firms dropped 23 percent in 2011, although remuneration in other sectors rose 5 percent.
UBS drew howls of outrage again last year over the $4 million signing-on fee for new chairman Axel Weber, prompting more than a third of its shareholders to reject the bank's pay plans. Weber, who is German, refuses to comment publically on the debate around the Minder proposals. That might be caution, or it might be a smart tactical decision. "It is a matter for the Swiss people," he told the SonntagsZeitung newspaper. "At the moment, we generally see that the more bankers publically wish for something, the less likely it is to be fulfilled politically."
(Editing by Jonathan Oatis and Prudence Crowther)
* Higher December Fed rate hike expectations lift dollar index
NEW YORK, Sept 29 The cost to borrow three-month U.S. dollars in the currency market jumped to its highest levels in almost two months on Thursday as concerns grew about Deutsche Bank's stability.
FRANKFURT The European Union should take its fiscal rules seriously and end its leniency for privileged countries, Bundesbank President Jens Weidmann said on Thursday, adding that calls for Germany to spend more to help Europe's recovery are misguided.