Investors in leading Swiss companies are increasingly prepared to vote against management, particularly over executive pay, according to research by the Ethos Foundation.

Ethos, a pension fund-led responsible investment foundation shows that amongst the 200 companies comprised in the stock market index SPI, the average approval rate for items put to a shareholder vote reached 95.4% in 2017 compared with 96.3% in 2016.

Overall, 14% of the resolutions received less than 90% support from shareholders, compared to 12% last year and 7% of resolutions (4% in 2016) received less than 80% support.  There were 27 resolutions that were rejected by shareholders at company AGMs. In addition, Ethos found that around 30 propositions put to vote at companies with a controlling shareholder (holding at least one third of voting rights) would not have been approved when counting only the votes of the other shareholders.

Vincent Kaufmann, Ethos chief executive, said: “The increase in opposition shows that shareholders have realised that they have the right to be heard”.

Resolutions related to the remuneration of the board and executive management were particularly contested with 21% of the consultative votes on remuneration reports receiving less than 80% support from shareholders, compared to only 16% in 2016. The average opposition to the remuneration report was 13.3% up from 11% in 2016 Ethos said.

The research found that while executive remuneration remained more or less constant there were some large differences between sectors, with the financial sector seeing increased levels of pay. Ethos said that the average remuneration of the executive management of financial companies among the 100 largest Swiss listed companies increased by 4% even though, for the same period, profits decreased by 16% and this resulted in opposition by shareholders. At GAM, for example, the variable remuneration of the executive management was rejected by investors while at Credit Suisse shareholder pressure led to a 40% reduction of the executive management’s bonus.

Kaufmann said: “This disconnect between levels of executive remuneration and company performance is rightfully sanctioned more and more by the shareholders.“

Ethos provides voting recommendations for investors and it had advised that shareholders oppose 18% of company resolutions this year at SPI-companies compared with 15% in 2016. This was partly due to its proxy voting guidelines being amended to oppose the election of board members holding executive functions in the same company and also to oppose the re-election of auditing firms which have served for more than 20 years in line with new European requirements.

For the first time this year Swiss listed companies were obliged to present key matters addressed in the framework of their audit and to describe them so as to allow for the reader to know the associated risks. Ethos analysed the disclosures made in the annual reports and found  that one quarter of the audit reports identified a single key audit matter, which it said seemed insufficient. Ethos also regretted that only 40% of these reports mentioned the materiality threshold used by the audit firm in the framework of its audit.

Separately Ethos has commented on the draft revision of company law prepared by the Swiss Federal Council which its Parliament began to discuss in its most recent session. The company law changes aim to reflect changes since the implementation of the Minder initiative - which was a major overhaul of Swiss executive remuneration practices which was backed by the Swiss public in a referendum in 2013.

With this in mind Ethos has produced recommendations which aim to increase shareholder rights, in particular, regarding capital structure, the remuneration and the board of directors. Among its demands is that the prohibition on voting in a prospective manner on the variable remuneration of the executive management that was included in the preliminary draft be re-introduced.

Dominique Biedermann, chairman of the Ethos Foundation board said: “This revision of the law is particularly important in order to guarantee to shareholders the application of the rules of good governance by Swiss companies”.