The battle royal for control of SGS may not be the best way to reform Swiss corporate governance. But it’s a start.
By Andrew Capon
July 2001
Institutional Investor Magazine
The battle royal for control of SGS may not be the best way to reform Swiss corporate governance. But it,s a start.
On May 10, at the annual meeting of SGS Société Générale de Surveillance Holding, a famously secretive old Swiss company that expedites imports and exports, the agenda contained four extraordinary items. Shareholders were asked to approve three new directors; replace privileged voting classes with a one-share, one-vote system; abolish two-thirds-majority voting in favor of a simple majority; and banish Elisabeth Salina Amorini, a former chairman and a granddaughter of the founder, from the board.
All but majority voting passed.
This seeming exercise in corporate democracy was a partial but significant victory for Swiss shareholder rights. But the board vote actually had more to do with a bitter, long-running contest for control of SGS, waged between an heiress and a baron, each with wealthy partisans. Voting authority has now been spread more equitably at SGS, but corporate clout remains as concentrated as ever.
As it struggles with corporate governance reform, Switzerland is in the midst of several boardroom rows , at Kuoni Travel Holding, Swissair Group and engineering group Sulzer , but few match SGS for sheer corporate soap opera.
On one side is Salina Amorini, 46, whose grandfather, Jacques Salmanowitz, founded the company in 1878. No idle heiress, she speaks six languages, holds a law degree from the University of Geneva and worked briefly as an investment banker at S.G. Warburg & Co. in London, where she met her husband, Count Gianluca Salina. When he was appointed head of Soditic Warburg in 1981, she moved to Geneva to join him.
A SGS shareholder since childhood, Salina Amorini became a board member in 1982 and served as chairman from 1989 through most of 1998. In 1993 she orchestrated Switzerland’s first share buyback. The next year she gained de facto control of SGS when she became president of the management board after the dismissal of a short-lived CEO.
Until this May’s board meeting changed the terms of share ownership, Salina Amorini owned about 6 percent of the company and controlled a further 13 percent for the founding families. After the vote her stake was worth the same $160 million, but her voting share had been reduced to 3 percent. “I would rather have a good share,” asserts Salina Amorini, “even if it means the dilution of my voting rights.”
Under the old capital structure, registered shares, which were held only by the core stockholders, had one vote each and a par value of Sf20 ($11.19), while bearer shares had one vote but a par value of Sf100. Thus for the same investment, core holders nominally had five times the voting rights of those who held bearer shares.
Pitted against Salina Amorini was a faction headed by German billionaire Baron August von Finck. A resident of the Swiss canton of Thurgovie, the shy septuagenarian is a scion of a founder of Merck Finck & Co., a 131-year-old Bavarian private bank bought by Barclays Bank in 1990. Von Finck also owns sizable stakes in German insurer Allianz, Mövenpick Holding and Homestake Mining Co. He owns 6.5 percent of SGS capital and is backed by Swiss Life Insurance and Pension Co., a 16 percent shareholder. The baron is aligned with SGS chairman Max Amstutz, whom he parachuted into the company in 1998.
A relative newcomer to the SGS squabble is Worms & Cie, the venerable French holding company controlled by Ifil Finanziaria di Partecipazioni, the principal investment group of Italy’s Agnelli family, owners of Fiat and Ferrari. An activist investor, Worms currently holds 20 percent of SGS, giving it considerable clout in the boardroom. Courted by Salina Amorini, Worms’s investment bankers reportedly shifted their allegiance to the baron in return for two seats on the board.
THE OBJECT OF THIS ARISTOCRATIC altercation is a curious, reclusive company. Geneva-based SGS has 850 offices around the world and facilitates trade in everything from oil to consumer goods. It tests, verifies and certifies goods for importers, helps exporters comply with trade rules and collects payments for exporters shipping goods to troubled countries. The company has a 70 percent market share in such cross-border dealings. (Its global contacts are the envy of intelligence agencies.) Even after going public in 1981, SGS maintains an ultra-low profile for a $5 billion company, and the very public board flap purportedly has many staffers seething.
The heiress and the baron have been skirmishing since late 1998. That year Swiss authorities investigated SGS for allegedly paying bribes in the mid-1990s to Pakistan’s political leaders, including former prime minister Benazir Bhutto, to obtain a customs and excise contract. At the time, Salina Amorini was chairman as well as president of the management board.
SGS denied the allegations, and no charges were ever filed. But the threat of scandal coincided with deteriorating results. SGS was hurt by the intensifying Asian financial crisis. Operating profits dropped 45 percent in 1998, to Sf155 million. Making a bad situation appear worse, the company took several exceptional charges that year, including a provision for future restructuring costs, and wound up reporting a pretax loss of Sf289.7 million (in contrast with a Sf128.7 million gain in 2000). SGS’s share price plummeted from a high of Sf620 in March 1997 to Sf300 in October 1998. Its shares were trading last month at Sf370, well down from a peak of Sf720 last year.
Von Finck blamed Salina Amorini for the share price collapse in 1998. She decided to resign as chairman and president of the management board because, she says, she accepted that SGS needed major restructuring and a fresh perspective. Indeed, the entire board stepped down, including John Craven and Peter Spira, two prominent bankers fromWarburg, Salina Amorini’s old firm. Salina Amorini was one of only two board members to be reelected at the next annual meeting.
With von Finck’s backing, Amstutz took over as chairman. He,d been chairman of Swiss engineering firm Von Roll Holding, in which von Finck is a significant shareholder. Most of Amstutz’s experience, though, was as a midlevel executive at Swiss cement giant Holderbank Financière Glaris.
But ousting Salina Amorini from power didn,t go far enough to suit Amstutz. The board, which he now dominated, voted to deny her the usual release from the 1998 accounts. This formality means that the board accepts legal responsibility for the results. By not releasing the former chairman, SGS’s board implied that she had been involved in impropriety. Such a drastic move, unheard of in Switzerland, exposed her to shareholder lawsuits. Not until KPMG performed an independent audit , without Salina Amorini’s knowledge , was she cleared of wrongdoing and granted the release.
Relations between Salina Amorini and the board continued to deteriorate. She contends that between 1999 and the May meeting, the board denied her information she needed to do her duty as a director of a public company. The charge has a particular resonance in Switzerland because Swissair’s former directors are under criminal investigation for being negligent in their oversight and letting the airline’s management run up E1.9 billion ($1.6 billion) in losses in 2000.
Last October lawyers for Salina Amorini sued SGS in a Geneva civil court to enforce her right to receive all relevant company information. Her lawyers filed an additional action on her behalf in December after the SGS board passed a resolution further restricting her access to corporate material.
Meanwhile, von Finck was readying his response. His lawyer wrote Salina Amorini a blunt letter on March 26. “Your activities are in violation of your duties as a director of a Swiss corporation,” he warned, referring to her lawsuit. “You thereby become liable for the damage that you do the company. As a significant shareholder, Mr. von Finck will not hesitate to take recourse to the legal remedies available to him in order to establish your responsibilities and financial liability for these damages.”
Salina Amorini dismisses the document as “sheer threats.” Jean-Luc de Buman, SGS board spokesman and head of investor relations, sees things differently. He says the company accepts that board members have a right to differing opinions, but he charges that Salina Amorini’s requests for information on such incidental matters as changes to accounting procedures, termination of contracts and minutes of audit committee meetings amounted to a campaign of harassment against Amstutz.
“Mrs. Salina thinks this is still her company, but this is no longer the case,” de Buman says. “She has a theological difficulty adapting to her new position as an ordinary board member.”
Matters came to a head in May when Salina Amorini lost her board seat. Worms sided with von Finck, after a reshuffling of board seats favorable to the French company. Says a Worms spokesman: “It is clear there is an irreconcilable breakdown in relations between Salina Amorini and the board. This [annual meeting] seemed a good point at which to break with the past.”
For her part, Salina Amorini is anything but chastened. “In Zurich the directors of Swissair are reproached for not asking the right questions,” she says, “yet in Geneva I can be voted from the board of SGS for trying to enforce my rights. There is an important principle at stake here.”
Although she may have lost the war, Salina Amorini did win a symbolic victory in persuading the board to approve one-share, one-vote. Ironically, as de Buman notes, “traditional shareholders were not keen to lose control. The introduction of the single share was only possible with the support of Mr. von Finck.”
Nevertheless, the board rejected her accompanying resolution to elect directors by a simple majority rather than a two-thirds vote. This means that shareholders controlling large blocs, such as von Finck and his family in alliance with Swiss Life, can still exert disproportionate sway over the composition of the board.
“The board has gone for the glory of creating the unitary share,” contends Salina Amorini, “but has defeated its purpose by keeping in the company bylaws a supermajority for the election of directors.”
All of the SGS board seats come up for a vote next year, and Worms is sure to press for greater control. The agenda of Baron von Finck is less clear. A highly private individual, he is thought to be uncomfortable as a board member of a public company. Although he is likely to remain a significant shareholder, he will probably wield his considerable power behind the scenes.
As for Salina Amorini, she says she is content for the time being to remain a mere shareholder but will continue to fight for her rights. For now she simply wants to take time off before deciding on a course. Activism can be exhausting for all involved.
