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01-02-2015 | Research Article

Culture and Corporate Governance: The Influence of Language and Religion in Switzerland

Author: Christophe Volonté

Published in: Management International Review | Issue 1/2015

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Abstract

We investigate the effect of culture on corporate governance using the extraordinary opportunity that the corporate landscape of Switzerland provides. Within a single institutional framework (e.g., Swiss federal corporate law), we use language (German and French) and religion (Roman Catholicism and Protestantism) as proxies for culture. These groups share a distinct set of values particularly in their tolerance for hierarchical structures. We observe that firms in Swiss–French areas and firms in Roman Catholic cantons are more likely to have one-tier boards, whereas two-tier boards are more prevalent in Swiss–German areas and Protestant cantons. Furthermore, board composition is significantly driven by language. In contrast, ownership and equity structure are not significantly related to culture.

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We restrict our analysis to Swiss–French and Swiss–German areas, because there are only four listed firms in the Italian-speaking area of Switzerland and none in the Rhaeto-Romanic area.

In a similar setting, Belgium’s two important language regions, Flanders and Wallonia are culturally influenced by The Netherlands and France. However, unlike Switzerland, most firms are located in the bilingual Brussels area, and corporate governance does not seem to differ significantly between the two regions. In addition, Belgium has only one predominant religion which is Roman Catholic. We are grateful to Stijn De Dier (KU Leuven) for pointing us out the situation in Belgium.

To our knowledge, no empirical studies have used Hofstede’s cultural dimension scores on the different Swiss regions other than the two language regions.

Cantonal (state) law differs in some cases (e.g., tax law) and law enforcement is usually delegated to Switzerland’s 26 cantons. The Securities Exchange Act (SEC) of 1934 is an example of a federal law in the United States.

As a matter of fact, many French Protestant Huguenots fled from France and established the watch-making industry in the Swiss Jura mountains.

In democracies, the governance of the state is characterized by a separation of powers between the legislature, the executive, and the judiciary.

These characterizations are provided by Hofstede (2013) (http://geert-hofstede.com). Hofstede’s basic framework measures cross-cultural differences assigned to four dimensions of national culture (power distance, uncertainty avoidance, individualism, and masculinity). Here, it should be noted that both the Swiss–Germans and the Swiss–French share an equally individualistic character (in contrast to collectivist), both believe in competition as a valid means to achieve merited job promotions (believed to a lesser extent in French-speaking Switzerland), and share a preference for avoiding uncertainty (more so in the French-speaking areas).

Since 2001, French firms have been able to choose between a one-tier board structure (“conseil d’administration”) and a two-tier structure (“conseil de surveillance” and “directoire”); nevertheless, only 23 % of French firms have opted for the two-tier board structure (Heidrick and Struggles 2011).

For instance, there are relatively more Germans in the German-speaking towns of Basel and Zurich, and there are relatively more French in the French-speaking town of Geneva (see Table 12 in “Appendix”).

All three countries’ (Switzerland, Germany, and France) legal system is based on civil law (in contrast to common law).

Firms can thus be defined as Swiss-French and Protestant, Swiss-French and Roman Catholic, Swiss–German and Protestant or Swiss–German and Roman Catholic.

The two-sample Wilcoxon rank sum-test (or Mann–Whitney-test or U-test) verifies the null hypothesis that the true location shift of two distributions is equal to zero. Following a number of other studies, we verify the equality of medians using this test (e.g., Fahlenbrach et al. 2010).

CIA––The World Factbook: https://www.cia.gov/library/publications/the-world-factbook/index.html

(access on 12/09/2012).

Official webpage of the Federal Department of Foreign Affairs: http://www.eda.admin.ch/eda/en/home/doc/infoch/chcul.html (access on 12/09/2012).

“Röschti” is a famous Swiss potato dish. “Graben” is the German word for ditch.

Johannes Calvin’s (1509–1564) doctrines were proclaimed from Geneva in the French-speaking part of Switzerland. At about the same time, another important reformer Ulrich Zwingli (1484–1531) was teaching in German-speaking Zurich.

In 2005, the threshold for “significant” (large) shareholders was 5 %. However, this change had no particular influence on cumulated voting rights in any of the cultural areas.

We investigated the 36 firms that changed their board structure (41 board changes) in 2005, 2007, and 2009. 24 board changes were from one-tier to two-tier and 17 from two-tier to one-tier. Only 3 board changes occurred in the Swiss-French area. Boards of the 15 newly listed firms were mostly one-tiered.

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Title: Culture and Corporate Governance: The Influence of Language and Religion in Switzerland
Author: Christophe Volonté
Publication date: 01-02-2015
Publisher: Springer Berlin Heidelberg
Published in: Management International Review / Issue 1/2015
Print ISSN: 0938-8249
Electronic ISSN: 1861-8901
DOI: https://doi.org/10.1007/s11575-014-0216-5

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