Mar 012013

The European Union seems close to making a law that limits excessive bonuses. Few will disagree that the finance industry needs to be curbed, and the intention is good. The problem is in the method proposed; no matter how carefully it will be worded (the text apparently runs to over 1’000 pages), they’ll always be someone smarter to find a work-around.

The wiser and far more concise solution problem was proposed by the Swiss entrepreneur Thomas Minder in the initiative he made back in 2008. Here is an English translation, which I made from the official German and French texts:

Federal Peoples’ Initiative “against Rip-off”[1]
The Swiss Federal constitution of 18 April 1994 is completed as follows:

Article 95, alinea 3 (new)

In order to protect the economy, private property and shareholders and to ensure sustainable management of businesses, the law requires that Swiss public companies listed on stock exchanges in Switzerland or abroad observe the following rules:

  1. Each year, the Annual General Meeting votes the total remuneration (both monetary and in kind) of the Board, the Executive Board and the Advisory Board. Each year, the AGM elects the President of the Board or the Chairman of the Board and, one by one, the members of the board, the members of the Compensation Committee and the independent proxy voter or the independent representative. Pension funds vote in the interests of their policyholders and disclose how they voted. Shareholders may vote electronically at a distance; proxy voting by a member of the company or by a depositary is prohibited.
  2. Board members receive no compensation on departure, or any other compensation, or any compensation in advance, any premium for acquisitions or sales of companies and cannot act as consultants or work for another company in the group. The management of the company cannot not be delegated to a legal entity.
  3. The company statutes stipulate the amount of annuities, loans and credits to board members, bonus and participation plans and the number of external mandates, as well as the duration of the employment contract of members of the management.
  4. Violation of the provisions set out in letters a to c above shall be sanctioned by imprisonment for up to three years and a fine of up to six years’ remuneration.

Article 197 chapter 8 (new)

Pending implementation of the law, the Federal Council shall implement legal provisions within one year following the acceptance of article 95 alinea 3.

The genius of Minder’s text is that instead of setting limits on bonuses, it simply forces shareholders to approve them every year, whilst ensuring that it’s the real shareholders that vote.

We’ll be voting on it this weekend (I already voted for) and it seems that it has a good chance of passing. If it does,

Minder’s text was passed on the 3rd of March 2013 by all the counties and an astonishing 67.9% of the voters. Of the 183 initiatives submitted to the vote in Switzerland since 1893, only 21 (8.7%) have been accepted. 67.9% is the 3rd highest score ever obtained by a popular initiative. The highest score, 83.8%, was obtained in the 1993 initiative to make the 1st of August a National holiday; hardly ground-breaking. The 2nd highest score, 71.4%, was for the 1921 initiative on international treaties.

I predict that the concept will gradually be adopted globally and Thomas Minder will be recognised as the father of a new era in corporate governance.

1. It is difficult to find an exact translation of Abzocker. Cheater, swindler, deceiver and liar are all close. Abzockerei literally means rip-off, but Abzockerei isn’t slang. Scam is another synonym.

Aug 142012

So S&C get a huge fine for having traded with Iran. Naughty boys. In our capitalist society, nobody will question that banks are there to make money, which by definition is odourless. Punishing a bank for dealing with X is morally identical to punishing Smith and Wesson when a gun they manufactured is used to kill X. If a criminal steals a gold ingot and buries it, are you going to take the soil to court? Going after banks is no more than a short-cut to apprehending the criminal in the first place. Much easier of course, but fundamentally incorrect.

Lest I be misunderstood, I have not the least sympathy for bankers and their ilk, but “money-laundering” is a euphemism for “finding the criminal is too much effort”; there’s nothing wrong with looking after X’s money; if X got it illegally, then have him punished for his crime. Smith and Wesson anybody?

May 262007

Another interesting conversation with A. the other day. He married a Maroccan woman, converted to Islam and observes muslim tradition carefully. I always enjoy our discussions; born and raised Christian, A. understands my skepticism and is remarkably candid in explaining how Islam functions.

A. is a jovial chap and can share any joke. He’s also playful and joined his buddies in the latest fad of playing poker. Of course, the fun is betting and it only works with real money. Their stakes are minimal, 5 francs (about 4 US$) for a pile of tokens which usually last the evening. Problem: gambling is forbidden to muslims. A. resolved the issue very elegantly: he pays his 5 francs like the others, but if he has winnings at the end of the evening, he puts them in a pot, which buys dinner for the group when it’s full enough. (He admitted sheepishly that he had taken it on himself not to check with the imam if this way of avoiding betting was legal.)

We worked together for several years and once took a taxi on a business ride. I paid the driver, on expenses. Walking away I noticed that A. had returned to the taxi. “A problem?” I asked, not realising that he had tried to be discreet.
A. explained that it was Zakat. Muslim law dictates that you must give a small percentage of your income (some 2.5%) to the needy. From a philosophical standpoint, this strikes me as rather an intelligent idea; if everyone were to give a little to the poor, there would be less hardship (and less likelyhood of the poor revolting). I have no way of obtaining  the figures but the apparent balance of wealth in the Middle-East suggests to me that zakat isn’t as prevalent as it should be.

This brings me to another discussion we had, where I had asked about the charia, in particular the stoning of adulterers. A.’s explanation was not quite the one I expected. In a nutshell, the reasoning he had been taught was this: The laws of Islam can only be fully applied when all of them are applied simultaneously. These laws stipulate that everyone in society must be provided for (food, clothing, lodging etc), must observe all the laws, care for his family, etc (we agreed that this description has many parallels with communism). Such a society doesn’t exist anywhere in the world, thus if all the laws are not applied, then not all the laws necessarily apply. The tricky bit is deciding what is applicable in a given situation. For example, in an extremely poor, under-developed country, perhaps the only workable method of dissuading robbers is to cut off one of their hands. In a more modern (or moderate) country, such practices would be unthinkable. Of course, if everyone had been cared for as the law mandates, then there wouldn’t be any stealing to punish and amputation would only be a theoretical threat.

A lot of this makes sense to me and the aims, at least in theory, are laudable. The difficulty I have is that nothing is black or white, just shades of grey according to who’s judging what and when. Perhaps it’s just that I’m too cartesian?