Corporate governance and economic performance in Switzerland and Germany

In May 2003, this Swiss National Fund-supported project started out to investigate relationships between corporate governance and the performance of Swiss companies. It involves the construction of new, large-scale databases with information on the organisation of corporate governance arrangements. The work will allow for direct comparison of the Swiss experience with the state of existing knowledge, which is based on evidence predominately from the US and to a lesser extent the UK. This is particularly important in the Swiss context where new proposals for corporate governance have been developed and came fully into force in 2002. This project is targeted to generate unique evidence relating to a number of key corporate governance features:

1. The structural features of Swiss boards. To what extent do boards comply with best practice? Are there certain forms of board structure (CEO non-duality, nomination/remuneration committee, insider/outsider fractions) and composition (executive and non-executive age, gender, functional/educational diversity, national diversity) able to generate superior corporate performance?

2. The design of executive compensation contracts in Switzerland. What is the link between executive pay and performance? How does this compare with other countries and how has the introduction of remuneration committees affected top management pay?

3. The top executive turnover in Swiss boards. Are executives more likely to turnover or lose their jobs in the event of poor corporate performance? Do certain board structures make this event more likely? Do companies use top manager turnover as an opportunity to engage in other changes? We will provide evidence from using data on top executive turnover in Switzerland.

4. The applicability of corporate governance "substitution theory' to Switzerland. Is it possible to have diversity of optimal governance arrangements? Whilst the one share-one vote principle is favoured by most other economies, can other ownership structures be shown to consistently deliver value? This project will provide evidence on the nature of ownership structures in Switzerland and test for the ownership - company performance link.

This project is aimed to provide a new positivistic perspective on academic debates in Switzerland dealing with the efficacy of the current corporate governance reform. It is expected to provide the academic community, corporate management and public policy makers with information concerning optimal arrangements and implications for further reform.

The first part of the project has been devoted to setting up a unique and comprehensive database covering (1) team demography variables such as functional heterogeneity, educational heterogeneity, age heterogeneity, gender heterogeneity, national heterogeneity of over 1,400 top executives and board members (Geschäftsleitung and Verwaltungsrat) that steer the largest (by market capitalization) Swiss public enterprises; (2) CEO, executive, and non-executive compensation that includes base salary and annual bonus (equity-based remuneration is addressed separately); (3) ownership structure of the largest Swiss firms encompassing family ownership, industrial ownership, bank ownership, private ownership, and governmental ownership; and (4) dependent/mediator/moderator/control variables such as performance (accounting and stock-market based), international diversification, product diversification, R&D intensity, corporate size, company age, and industrial membership (data predominantly accessed through archival databases). By merging these four data bulks, we econometrically investigate the relationships briefly presented above for Swiss public companies. In 2004 and 2005, the research team develops first research papers to be presented at major international conferences. At the same time, several dissertations are prepared in the area of corporate governance and boards in Switzerland and Germany.