Pension funds flex their shareholder muscles

Ethos director, Dominique Biedermann, was taking no prisoners at Nestlé's general meeting Keystone

Ethos, a foundation representing 83 Swiss pension funds, made headlines by challenging the double mandate of Nestlé CEO Peter Brabeck.

The foundation wants more transparency and accountability at board level and, unlike many institutional shareholders, has no compunction about opposing management decisions.

Pension funds traditionally have not exercised their substantial clout as shareholders. But concerns about corporate governance have prompted many shareholders to take a more active interest in board appointments, and other controversial issues such as executive pay.

Ethos has become the fund of choice for a growing number of Swiss funds, which need to protect their members’ interests, but for practical reasons cannot always participate in shareholders’ meetings.

Ethos made its presence felt most recently at mighty Nestlé’s annual general meeting, where it led a shareholder revolt against the decision to hand the job of chairman to Chief Executive, Peter Brabeck.

Five pension funds backed Ethos’s opposition to Brabeck being given a double mandate, which is increasingly seen as contrary to good corporate governance.

Thumbs down

Brabeck clinched both jobs in the end, but thanks to Ethos’s example, 36 per cent of shareholders gave the decision the thumbs down.

On Friday, Credit Suisse faces similar tough questions from Ethos over board appointments, including that of Brabeck, who is seeking a seat as a non-executive director. (He decided last week not to seek re-election as vice-president of the CS board.)

Ethos was set up in 1997 by two Geneva pension funds, and since then it has expanded its membership to 85 funds (83 of which are Swiss).

Ethos maintains a diversified portfolio, and seeks to invest its customers’ money in companies with good records in transparency and corporate governance. The foundation manages around SFr1 billion worth of pension fund money, which is invested in about 250 companies.

According to Ethos, Switzerland’s largest firms score well in international comparisons when it comes to management, control and efficiency. The foundation’s findings are the result of its own investigations into the country’s 100 largest firms.

Transparent

The majority, it says, run their operations in a transparent manner, and those quoted on the Zurich stock market’s blue chip index, the SMI, have better corporate governance records than smaller firms.

Companies with only one major shareholder – the case in a third of Swiss firms – are the least transparent, says Ethos.

Top of the corporate governance list are Switzerland’s banks and (re-)insurers. UBS is top followed by reinsurer Converium, Credit Suisse, Swiss Re and Zurich Financial Services.

Ethos says credit for improving governance should be given to fashion retailer, Jelmoli, Ems Chemie (formerly owned by Christoph Blocher, and now by his daughter), and Nobel Biocare.

swissinfo

Key facts

There are some 11,000 pension funds in Switzerland.
They manage SFr400 billion in investments.
The 100 largest funds hold the pension assets of 70% of the insured population.