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Activist investor Steven Wood has accused Swatch Group of “worst-in-class governance” as he proposes a raft of changes to the Swiss watchmaker’s board and abandons hopes of a constructive relationship with the controlling Hayek family.
Wood, whose Greenwood Investors fund owns Swatch shares that carry about 0.5 per cent of total voting rights, has ditched plans to gain a board seat and is now pushing the board to adopt a package of governance reforms.
“I no longer think of the primary goal as going on the board and having a constructive relationship. These are new moves to force them to evolve their worst-in-class governance,” Wood told the Financial Times.
The Hayek family owns a quarter of Swatch’s shares but controls 44 per cent of the voting rights. The watchmaker — which owns 16 brands including Omega, Longines and Tissot — has been run by chief executive Nick Hayek for 22 years. His sister, Nayla, has chaired the board since 2010.
While Swatch shares have risen by 3 per cent this year, they are still trading near lows last reached in the aftermath of the 2008 financial crisis.
In the first half of the year the watchmaker’s operating profit slumped by two-thirds to SFr68mn and revenue fell 7.1 per cent to SFr3.06bn amid weak demand in China.
Greenwood has formally submitted six proposals to be included on the agenda for the next AGM, most likely to be held in May.
They include giving bearer shareholders, whose shares carry lower voting rights than the so-called registered shares held by the Hayek family, the right to elect three board members. The investor is also pushing for the introduction of a mandatory rotation of auditors and a shareholder-elected independent chair for the board compensation committee.
Three of Swatch’s seven board directors are Hayek family members.
“The company needs more than just one new board member, the board needs total change,” Wood said.
Holders of so-called bearer shares represent 55 per cent of Swatch’s share capital but carry a minority of voting rights. Wood’s effort to gain a board seat this year was in effect blocked by the Hayek family despite gaining the support of more than 60 per cent of bearer shareholders.
Swatch’s board recommended shareholders vote against Wood’s resolution for several reasons, including that he is not Swiss and does not live in the country. The company told the FT that 79 per cent of shareholders rejected Wood’s candidacy at the previous meeting.
Wood maintains he has plentiful backing. “Many investors have told me they are supportive. We are encouraging them to also express to the company their support for change,” he said.
One major institutional investor in Swatch said it was supportive of Wood’s ideas to drive governance improvements.
“We think this could unlock much more value in such a strong Swiss brand,” they said.
Swatch said that while Greenwood has informed the company it would provide evidence it fulfils the legal requirements for placing motions on the agenda for the AGM, it has “not yet received any such evidence.”
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