The Swiss pension fund backed Ethos Foundation is recommending its members apply stringent rules when voting on the capital increase of firms at annual general meetings (AGMs), to limit the power given by new company governance law in Switzerland, to the board of directors.
Under the new rules, which come into effect on 1 January, a company’s board of directors can increase or decrease the capital within a certain range – so called fluctuation margin or Kapitalbande – for a maximum period of five years, up from two allowed previously.
The boards will have the leeway to conduct a capital increase of up to 50% above the share capital of a company, and to reduce capital by not less than half.
In the new guidelines, Ethos is recommending to oppose capital increases without pre-emptive rights exceeding 10% and 20% of the issued capital, and oppose capital reduction of maximum 5% without adequate justification.
According to Ethos, shareholders may still hamper the ability of the board of directors to continue capital increases under the governance rules of a company by granting authorisation for a shorter period than five years and a shorter amount, or increase capital under conditions.
The foundation is trying to protect the values of shares of pension funds in companies by recommending to vote against a dilution due to the capital increases without pre-emptive and without a specific purpose, it said.
Members have also requested Ethos to vote in favour of a maximum term in office for directors of 16 years, instead of 20, to reflect best practices in corporate governance.
Shareholders should oppose reports on sustainability going against standards of best practices, or in case of shortcomings on statement of accounts, or if the board refuses to disclose essential information.
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