In a historic vote, the Swiss will determine if multinationals should be held liable for global abuses

November 27, 2020, 2:22 PM UTC

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For decades, Switzerland has been a favorite headquarters for global corporations, and for good reason: It transformed its tiny Alpine country into an economic powerhouse, in good part by keeping business secrets and asking few questions.

But that could be about to change—as soon as this weekend.

In a nationwide referendum on Sunday, Swiss voters will decide whether companies headquartered there should be held legally liable for whatever environment wreckage and human rights abuses occur as a result of their operations, no matter where. The so-called Responsible Business Initiative, or RBI as the Swiss call it, has been nearly a decade in the making, and would compel companies to report on non-financial aspects involved in every part of their global supply chain—a potentially mammoth undertaking for giants like pharmaceutical manufacturer Novartis or oil trader Trafigura. Those are just two of the 29,000 or so companies headquartered in Switzerland. In the future, all would be held accountable under Swiss law for transgressions across the world.

Depending on who you are, the idea is either long overdue, or a catastrophe in the making.

Human-rights advocates, trade unions and NGOs argue that the RBI would finally force companies to make sure that their suppliers and sub-contractors do not use child labor, expel people from their land, or pollute local rivers and air; those are among the accusations leveled against Nestlé (headquartered in Vevey, Swizerland), commodities trading house Glencore (headquartered in Zug, Switzerland) and cement giant LafargeHolcim (also in Zug).

“If we can only be competitive by ignoring human rights, by ignoring the basic laws of environmental protection, that means our country has really lost all dignity,” Dick Marty, the former Swiss Senator who spearheaded the proposal, told a local journalist earlier this month. He says that by far the majority of Swiss-based businesses are good global citizens, but that the abuses committed by a small number of them are “damaging to the local population and environment, as well as to the image of Switzerland and its economy.”

“Change is coming”

Surprisingly, Switzerland’s business organizations largely agree with that sentiment, saying that clearly something needs be done about the human-rights violations, corruption, and environmental problems in global supply chains. For years, multinationals have been able to wash their hands of such issues, arguing that they lie beyond the control, and too remote from their corporate decision-makers.

But that argument is unlikely to survive much longer.

“I completely agree that change is coming,” Erich Herzog, executive board member of Switzerland’s umbrella business federation economiesuisse, told Fortune by phone on Friday. “There are some very sensitive areas into which companies have to make specific efforts.”

Beyond that broad agreement, however, lies deep division over how to compel companies to change, and most Swiss-based businesses and Swiss politicians have rejected the RBI proposal in Sunday’s referendum as putting much too big a burden of proof on companies.

“The RBI is dangerous,” says Herzog, who heads the organization’s competition and regulation department. “Swiss companies have to do vast due diligence on its whole supply chain,” he says. “It is something that companies cannot really work with. There might be a withdrawal of investments in countries where the risks are too high.”

It could, say some execs, even lead companies to move countries. “It will perhaps drive businesses not to install themselves in our home [Switzerland],” Beat Hess, President of LafargeHolcim told the Swiss paper Le Temps this month. “This will cause us to spend a lot more money to lawyers and communications people.” He calls the RBI “a gigantic absurdity.”

What the polls say

Even so, recent polls show wide support among Swiss voters for the RBI proposals—a sign that Sunday’s referendum could pass. In Herzog’s opinion, that is because many voters believe companies are likely committing abuses elsewhere in the world, yet they do not realize how arduous it will be to enforce the law. “We are in a very ambiguous and very toxic environment, which companies, even if they try to do good, they cannot cope with,” he says.

Predicting that the referendum could well succeed, the Swiss parliament has drafted an alternative proposal that it would try to pass during the coming months—stopping the RBI measures from being turned into law.

The politicians’ counterproposal would still force companies to monitor human-rights and environmental issues across their global supply chains, and issue regular due diligence reports on a range of non-financial factors. But crucially, it does not threaten legal action against Swiss-based companies for any violations they find.

That, says Marty, the former senator who drafted the RBI, gives companies complete protection from the law. “It does not give the injured party which suffers damage any opportunity to assert its rights,” he told the news site SwissInfo. “It is total impunity.”

In recent note earlier this month, the accounting firm EY says parliament’s proposed law would nonetheless compel Swiss-based companies to hugely increase its due-diligence reporting (a service, it adds, that EY would be happy to offer prospective clients). If the parliament’s new law is approved, “the according nonfinancial report would need to be approved and signed by the highest management and administrative body, and approved by the body responsible for annual accounts,” EY says. Companies would also need to monitor all minerals and metals in conflict zones and audit its suppliers for child labor.

Either way, as Herzog says, change is coming in Switzerland—no matter what Swiss voters decide in Sunday’s referendum.

Correction and update, November 27, 2020: This post has been updated to clarify that the proposal on the referendum is called the Responsible Business Initiative, or RBI.

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