SWITZERLAND – The Swiss pensions industry is trying to convince the government that pension funds should be allowed to abstain from exercising their voting rights under new shareholder engagement rules.
In March, nearly 70% of the Swiss electorate voted in favour of the so-called 'minder initiative', a motion tabled by an MP to curb "excessive" manager wages at listed Swiss companies.
The referendum included an obligation for Pensionskassen to exercise their voting rights actively – a stipulation now set down in the constitution.
But questions remain over how these new rules will be implemented, and whether abstinence is a form of active shareholder engagement.
At a recent debate on the new legal framework in Zurich, Simon Heim, legal expert at Towers Watson Switzerland, said: "Abstaining at an annual general meeting is effectively a no-vote, as an absolute majority is needed under Swiss shareholder law."
All parties – including the Swiss pension fund federation Asip, worker and employer representatives, asset manager and pension funds – agreed that abstaining from voting or even not taking part in an AGM should be allowed under the new rules, set to be published as a draft in mid-June and come into effect from 2014.
Another question concerns whether pension funds or trustees can be punished for not voting, as the official legal text only states that Pensionskassen must "vote in their members' interest".
Doris Bianchi from the association of Swiss unions demanded an exemption for smaller pension funds.
Thomas Schönbächler, head of the public pension fund for the canton of Zurich (BVK), warned that an obligation to exercise voting rights on all of its Swiss holdings would increase costs to 12% of assets.
At present, the BVK actively votes only on its holdings in the SMI, which contains the largest listed Swiss companies, or 20% of its total domestic equity share.
Another major concern aired the debate was the future role of proxy voting and shareholder engagement services.
Schönbächler argued that pension funds needed a proxy-voting adviser, but that trustees should set the framework for voting rules.
As a "simple and pragmatic solution", he suggested pension funds choose a provider but ensure they have a voting right.
Similarly, Asip director Hanspeter Konrad said Pensionskassen should "discuss openly" which provider to choose.
"Shareholder engagement services will become a new field of business," he added.
Herbert Wohlmann, former pension fund head and now independent consultant at law firm Baker & McKenzie, demanded shareholder service providers strictly separate this part of their business from any asset management activity.
He added that those companies might have an unfair advantage over other shareholders by regularly meeting with company representatives.
Bianchi said she was concerned that if the new rules only covered direct holdings, more and more pension funds would invest into funds, thereby increasing asset managers' influence.
"But also," she added, "if indirect holdings are included, we fear larger fund providers will dominate the market, as they can afford to offer funds with included shareholder engagement."
For more on the ramifications of Switzerland's 'minder initiative', see the June issue of IPE magazine.