(Bloomberg) — Swiss multinationals could soon face lawsuits at home on claims of environmental damage or human rights abuses anywhere in their vast global networks.
That’s if an initiative to radically boost corporate accountability set for a vote in the country on Sunday succeeds. If passed — and latest polls indicate a slim majority in favor of the proposal — the Swiss government would be required to draft legislation to realize the so-called Responsible Business Initiative that it opposes.
The prospect of scrutiny in a Swiss courtroom over accusations of child labor in the cocoa-bean supply chain in Africa or mining pollution in South America has some local companies alarmed. The wealthy country has a low tax, light-touch regulatory regime that makes it attractive as a base for commodity traders and other companies.
“A yes would be a landmark event as Switzerland has historically had a very business-friendly legal landscape,” said Alain Oberhuber, an analyst at Stifel in Zurich who covers Nestle SA and chocolate maker Barry Callebaut AG. While these companies have made progress in overhauling their governance, he said, they may not have done enough to communicate those changes to the Swiss public.
The initiative is limited to civil lawsuits and doesn’t allow for companies to be sued for criminal negligence over their operations abroad. Nor does Switzerland make it easy to bring a civil lawsuit.
Much legal wriggle room remains and conservative parliamentarians would likely seek to dilute the proposal in the drafting. The initiative also includes a clause that would limit liability where the company can prove it has taken steps to secure the rights of workers and protect the environment.
But just what constitutes enough due diligence is one of the key arguments still left open. Legal uncertainty plus the prospect of invasive scrutiny is what has produced a near-unanimous response against the initiative by corporate lobby groups.
‘Way too far’
“This initiative goes way too far,” said Florence Schurch, secretary-general of the Swiss Trade and Shipping Association which represents companies with a large presence in Geneva like Vitol Group, Gunvor Group and Mercuria Energy Group Ltd. It represents judicial overreach, a kind of legal “colonialism” she says, that could backfire for Swiss diplomacy.
Barry Callebaut, which produces a quarter of the world’s chocolate for brands including Ben & Jerry’s, says the law could mean constant litigation.
“When you work with millions of smallholder farmers, you know there are and there will be problems,” CEO Antoine de Saint-Affrique said earlier this month. “It exposes any company that’s open and transparent and trying to solve issues to the consequence of permanent court cases and liability.”
Plaintiffs must provide an advance on the legal costs of their case to discourage spurious claims and the courts don’t recognize the principle of ‘no recovery-no fee.’ In short, you can bring a case, win some damages and still be on the hook for your Zurich lawyer’s $400 an-hour legal bill.
“I don’t expect a large wave of lawsuits,” said Tanja Domej, a law professor at the University of Zurich. “Successful litigation in Switzerland is demanding” and lawsuits stemming from the initiative are “unlikely to be a very profitable business.”
LafargeHolcim Ltd., the world’s largest cement maker, says it has a globally applicable business code of conduct and a strong system to check compliance with local laws, and is “always trying to improve our existing system.” It’s too early to speculate on the impact of a law that has yet to pass, the company said.
While companies may squirm at the prospect, few are explicitly threatening to re-locate their headquarters if it passes.
Glencore Plc, for instance, won’t leave Switzerland if the initiative passes, CEO Ivan Glasenberg told the Swiss daily Neue Zurcher Zeitung. But the company would “spend a lot of time with legal cases,” Glasenberg was quoted as saying. “We would arguably need to hire more lawyers.”
The initiative is also seen as a chance for Switzerland to move to the forefront of corporate governance legislation in Europe, after decades of being seen as a safe-haven for dodgy money.
“This is not going to really hurt Swiss companies, but rather improve their compliance and incentivize them to improve their due diligence,” said Kern Alexander, the chair of law and finance at the University of Zurich.
Nestle, the world’s largest food company, is no stranger to controversies over its perceived human rights and environmental violations. More recently, it was sued in 2015 over claims its Fancy Feast cat food contains fish from a Thai supplier who used slave labor. Nestle has said slavery has no place in its supply chain.
Nestle Chairman Paul Bulcke told Swiss daily Blick that the initiative would make companies liable for the activities of their business partners as well. Nestle has 150,000 suppliers around the world.
“We do 2,500 to 3,000 audits per year, also of suppliers,” Bulcke said. “Nobody can constantly look over every business partner’s shoulder.”
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