The agenda for the annual meeting 2024 of Novartis contains an unpleasant surprise for shareholders: the vote on the sustainability report, which is mandatory for Swiss listed companies as of this year, will be consultative rather than binding. For Ethos, this decision is contrary to the spirit of the law and the interests of shareholders. Another issue: executive remuneration is on the rise again.
The season of general meetings (AGMs) of listed companies is about to begin. This year, the invitation cards of the major companies listed in Switzerland will include a major new feature: a vote on the sustainability report, as required by the new provisions of the Swiss Code of Obligations.
As it does every year, Novartis will kick off the AGM season in Switzerland on Tuesday 5 March in Basel. However, the company's agenda, published this week, contained an unpleasant surprise for its shareholders. The company's sustainability report will be subject to a consultative vote rather than a binding vote. For the Ethos Foundation, this decision is hard to understand. “A consultative vote does not carry the same weight or have the same significance as a binding vote”, emphasises Vincent Kaufmann, CEO of Ethos. “This decision is totally incomprehensible and goes against the spirit of the law, Novartis' articles of association and the interests of shareholders.”
According to various legal opinions gathered by Ethos, there is little doubt that the sustainability report must be submitted to a binding vote, unlike, for example, the remuneration report, for which the law provides for an advisory vote. The new article 964 of the Swiss Code of Obligations stipulates that the report on non-financial matters must be approved by the same body responsible for approving the annual financial statements. In other words, the general meeting of shareholders. There is no reference to an advisory vote.
When contacted by Ethos, Novartis considers that the sustainability report documents the company's sustainability strategy, which is part of its overall strategy and, as such, is one of the inalienable duties of the board of directors that cannot be delegated to the shareholders' meeting. For Ethos, this argument is wrong. For instance the annual report and financial statements, which also give an account of the measures taken by the board of directors in relation to the company's strategy, are also submitted to a binding shareholder vote. This is the case for all listed companies in Switzerland. Moreover, Article 17 of Novartis' Articles of Association clearly states that approval of the report on non-financial “shall be vested exclusively in the General Meeting of Shareholders”.
The Ethos Foundation therefore calls on Novartis to rectify this situation, if not for this year, then at least for next year, by submitting its sustainability report to a binding vote of its shareholders. It also urges all companies affected by the new provisions of the Swiss Code of Obligations to respect the spirit of the law.
Return of excessive remuneration
The vote on the sustainability report is not the only surprise awaiting Novartis shareholders. While Novartis has been more reasonable in recent years, surrendering the number one spot for excessive pay to its neighbour Roche, executive remuneration is on the rise again. For the year 2023 and taking into account the long-term plans that have vested for the period 2021-2023, the CEO's total remuneration now exceeds CHF 16 million. Unfortunately, this trend shows no signs of abating. In fact, the changes to the remuneration system will in fact allow the CEO to receive in the future a total variable remuneration of up to 11 times his base salary.
As usual, Ethos publishes all its voting recommendations for listed companies on its website five days before the general meeting.
