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Swissair collapse raises profound questions for boardrooms

Many SAirGroup board members had other preoccupations Keystone Archive

The Swissair Group crisis is likely to increase pressure for fundamental changes to the way Swiss companies appoint managers.

When the SAirGroup, as it was known, announced in March that it had suffered its biggest net loss in the company’s history, many people were astounded that things had become so serious.

With many of the country’s top executives represented on the board, there was disbelief that none had questioned the empire-building strategy of investing in loss-making European airlines.

All but one of the board resigned after taking responsibility for bringing the national airline to its knees, but it seems the episode may be the last straw for a public that was already showing a lack of confidence in the economic elite.

Public anger against the banks over their role in the airline’s fall from grace and very public rows at companies like Roche, Kuoni and Sulzer have exposed rifts in the traditional Swiss consensus.

“Good old boys” approach

The cosiness in the upper echelons of Switzerland’s political and business arenas long held responsible for the country’s prosperity, is now being blamed for a series of embarrassing corporate mishaps.

Like many other companies, the Swissair Group’s board was drawn from talent that sat on the boards of the country’s other top companies.

Thomas Schmidheiny from the cement firm, Holcim, Lukas Muehlemann from Credit Suisse, Eric Honegger from UBS and Vreni Spoerry from Nestlé were just some of those at the controls of the national airline.

Concerns over possible conflicts of interest were scarcely raised as friends and colleagues shared the spoils. Many foreigners were amazed at how incestuous Switzerland’s business community had become but there is a simple reason behind it.

Looking inward, not outward

“One issue is the scarcity of managerial talent in Switzerland,” says Reto Jauch, the managing director of management consultancy, Harvey Nash. “With a population of roughly 7 million, Switzerland has a greater number of large international and multinational companies and it has not yet tapped into the market for board membership outside its borders.”

Some analysts put the malaise at the core of the Swiss business world down to a consensual, collective approach reflected throughout society. It’s argued that this encourages efficiency but not individualism.

And this has been linked with the military system that considers every male aged 20 to 40 as being a member of the army.

“I think the whole issue of consensus-driven politics is linked to the deep-rooted militia system which you see at different levels in Switzerland,” says Jauch. “The militia system has helped restrict power to rather a small circle whether it be in the army, politics or business.”

Tough for women

This has also made it difficult for women to break into the boardroom.

“The pool of qualified women is rather small,” says Beth Krasner, the vice-chairman of the Swiss Federal Railways and head of a global software company. “And I guess the culture for many years didn’t allow women to have very visible careers.”

“It’s difficult to get ahead as well because of the old military system which saw women excluded from officer school and therefore not recruited to the inner circles of a company.”

Such social inequalities are being broken down but their influence continues to be felt.

Switzerland’s insulation from the rest of the world is also being eroded and shareholders are increasingly holding Swiss managers to account and not always liking what they see.

All this is leading to radical changes in executive recruitment.

Opening up recruitment

“In the recent past I’ve had two or three experiences where companies have been much more diligent in selecting board members,” says Jauch. “So they look first at the competencies they want and then look for candidates that match the requirements.”

It may seem astonishing that such a meritocratic system has not always been the norm, but Jauch says it has not been so until fairly recently.

There is an argument that the Swissair Group’s failure may not have happened had the board reflected a more diverse and critical range of opinion.

“It was a case both of a lack of control and diversity,” argues Jauch, “But better diversity in the boardroom could have led to more constructive criticism and a better review of policy.”

It may be too late for the Swissair Group but its legacy to Swiss business may be to accelerate the boardroom revolution already underway but, apparently, long overdue.

by Michael Hollingdale

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SWI - a branch of Swiss Broadcasting Corporation SRG SSR