Swiss Corporate Allure Ebbs as People Power Deters Companies

Photographer: Fabrice Coffrini/AFP via Getty Images

Shareholder Peter Christoph Lampart, left, protests against executive bonuses towards UBS CFO Tom Naratil, left, Group General Counsel Markus U. Diethelm, CEO Sergio Ermotti and Chairman Axel Weber during the annual meeting of Swiss banking giant UBS on May 2, 2013, in Zurich. Close

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Photographer: Fabrice Coffrini/AFP via Getty Images

Shareholder Peter Christoph Lampart, left, protests against executive bonuses towards UBS CFO Tom Naratil, left, Group General Counsel Markus U. Diethelm, CEO Sergio Ermotti and Chairman Axel Weber during the annual meeting of Swiss banking giant UBS on May 2, 2013, in Zurich.

Switzerland’s liberal tax and labor laws made it a magnet for companies. Now the country’s open approach to politics is making it a repellent.

In the past 15 months, Swiss voters have approved a proposal to curb the inflow of foreigners and backed an initiative to limit executive pay including severance packages. In the latest referendum, on May 18, they will decide whether to introduce the world’s highest minimum wage, paying workers at least 22 francs ($25) per hour or 4,000 francs a month.

“It’s democracy at its best, but the multiplication of initiatives after a while has created chaos and nobody knows how to manage it,” said Michel Demare, chairman of Syngenta AG (SYNN), the world’s largest maker of crop chemicals. He also leads Swiss business lobby SwissHoldings. “There are very few large companies that moved to Switzerland in the last two to three years. Some decided to move out.”

The Swiss take direct democracy seriously, holding more plebiscites than anywhere else in Europe. What’s more, they are legally binding, giving the government little or no choice but to implement the will of the people regardless of pressure from companies or other European governments.

The number of national initiatives since 2000 is higher than in the 80 years after they first began in in 1891.

The number of national initiatives since 2000 is higher than in the 80 years after they first began in in 1891.

Voters in the Alpine nation have decided on at least 60 initiatives since 2000 and at least 20 more are in the pipeline, including ballots on agricultural commodity trading and another one on even stricter immigration limits.

Moving Out

“This is the first time in Swiss history that initiatives that are business unfriendly have been accepted,” Michael Hermann, a lecturer at the University of Zurich said. “Switzerland right now is not on top of the list of companies that are thinking about moving to another location.”

Switzerland traditionally allows multinational companies to pay less tax on income from outside the country.

Direct Democracy in the Home of Nestle and Novartis

While the government last year announced plans to change those rules to mollify the European Union, it plans to introduce new tax exemptions to stay competitive. Its labor laws meanwhile enable companies to fire employees more easily than in neighboring Germany or France.

Demare, 57, a Belgian who came to Switzerland in the early 1990s to work at the European headquarters of Dow Chemical Co., said Switzerland’s stable politics lured investment from multinationals. Now the 123-year-old tradition of referendums is putting that at risk, he said.

Itchy Feet

“We’re seeing a decline in the number of foreign companies” Swiss State Secretary Jacques de Watteville said of the country’s negotiations with the EU on corporate taxation, speaking at a conference in Lausanne today. “There’s a real pressure to keep companies.”

Weatherford International Ltd. (WFT), an oilfield services company, said in April that it plans to move its legal domicile to Ireland from Switzerland, where it located to in 2009.

Changes to Swiss law “would limit Weatherford’s ability as a multinational company to retain and attract key executive talent and directors,” Weatherford said in the invitation to its June 16 shareholder meeting to sign off the move. “A successful business requires a supportive and stable pro-business and regulatory environment.”

Kuehne & Nagel International AG, the world’s biggest sea-freight forwarder, also may consider transferring parts of its headquarters, currently in Schindellegi near Zurich, out of Switzerland should immigration curbs limit recruitment, according to majority shareholder Klaus-Michael Kuehne.

Insecure CFOs

A study of 111 Swiss chief financial officers by Deloitte & Touche LLP showed that 88 percent of them see the February vote on curbing immigration as having a negative effect on the country as a business location.

The recent votes have also made it more difficult for headhunter Philippe Hertig to fill board positions in Switzerland.

“Candidates we are approaching for open board positions are becoming more skeptical,” Hertig, a Zurich-based consultant at Egon Zehnder International, said in a phone interview.

The immigration vote was put forward by the Swiss People’s Party, or SVP, which has tapped into rising resentment toward immigrants. SVP Vice President Christoph Blocher last week announced he was giving up his seat in parliament to focus on referendums.

There’s “a certain feeling of insecurity among CFOs,” said Michael Grampp, an economist at Deloitte in Zurich. “Especially if you consider the likelihood of voters accepting more initiatives that have a political or economic impact.”

Pro-Business View

That’s not to say voters always cast their ballots in an unfavorable way for companies.

The Swiss have almost always taken a pro-business view in ballots about taxes and in 2012 rejected a proposal for six weeks of statutory vacation. The nation also remained the most competitive economy globally in the World Economic Forum’s annual ranking published in September.

The minimum wage proposal was opposed by 64 percent of respondents in a May 7 poll by researcher gfs.bern. The survey of 1,413 people had a margin of error of plus or minus 2.7 percentage points, the company said.

“Switzerland, within Europe, is still a bit of a haven,” Adecco SA (ADEN) Chief Executive Officer Patrick De Maeseneire said. “Don’t fix it if it’s not broken and Switzerland is for sure not broken, it has never been.”

The number of national initiatives since 2000 is higher than in the 80 years after they first began in in 1891. They first started proliferating in the 1970s as a wave of political activism in Europe continued in Switzerland.

Risk to Investment

A plebiscite on almost any topic can be called by collecting 100,000 signatures from the country’s 8 million people. As well as the new minimum wage, the Swiss also will decide on May 18 whether the country buys 3.1 billion francs worth of Saab AB (SAABB) Gripen combat jets.

The advent of the Internet and social media has made that task a lot easier and one way to reduce the number of votes would be to double the threshold, said Patrick Schellenbauer, a researcher at Avenir Suisse in Zurich, a research firm sponsored by companies including Nestle SA (NESN) and Philip Morris SA.

“If the political system isn’t adjusted the attraction of Switzerland as a place for business will be affected and investments will decline,” Schellenbauer said.

To contact the reporters on this story: Jan Schwalbe in Zurich at jschwalbe6@bloomberg.net; Patrick Winters in Zurich at pwinters3@bloomberg.net

To contact the editors responsible for this story: Rodney Jefferson at r.jefferson@bloomberg.net Zoe Schneeweiss, Albertina Torsoli

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