Responsible Entrepreneurship is the Future

The article The Principles of Embedded Liberalism: Social Legitimacy and Global Capitalism and especially the chapter Embedding the Activities of Transnational Corporations, written by Rawi Abdelal and John G. Ruggie, reminded me strongly of discussions about a referendum in Switzerland in the year 2020. Abdelal and Ruggie draw attention in the article to the fact that that subsidiaries of parent companies act as distinct legal entities. It has the consequence that the parent companies do not get held accountable for the wrongdoings of their subsidiaries. The referendum on which Switzerland voted in November 2020 wanted to change that and introduce extended liability for Swiss companies. Abdelal and Ruggie would have been big supporters of this initiative.


An alliance of aid agencies and environmental organizations, including UNICEF, Amnesty International, and Greenpeace, launched the initiative back in 2015 by collecting the necessary 100’000 signatures to let the Swiss people vote on it. The referendum calls for companies to be held liable for human rights abuses and violations of environmental protection abroad, including wrongdoings of subsidiaries. Suppose it can be proven that the company has acted wrongly and that damage has been incurred. In that case, this should not only be actionable locally but now also in Switzerland, where the group has its headquarters. The bill was heavily debated and the campaign became the most expensive ever in Switzerland.


The supporters of the referendum argue similarly to Abdelal and Ruggie. They see it as natural that companies with headquarters in Switzerland have to follow human rights in foreign countries. Otherwise, they should feel legal consequences. Like Abdelal and Ruggie, they claim that many developing countries lack the institutional capacity to prosecute those international companies and enforce the law. In those cases, Switzerland should take on this role and charge the companies.

Furthermore, many global business groups have already committed to taking responsibility for the environment and human rights; they will not be affected by that changed legal situation. As Abdelal and Ruggie also argue, the voluntary acts of companies would be a good development. However, it would not replace governmental action to punish unscrupulous examples. Today, companies could gain a competitive advantage through irresponsibility. The initiative would put a stop to this behavior.


On the other hand, both the Swiss parliament and the Federal Council recommended rejecting the referendum. Large Swiss companies, such as the banks UBS and Credit Suisse, the world’s biggest food group Nestlé and the controversial commodities trading company Glencore, were all actively involved in the debate and brought arguments why the referendum should be rejected. They argued that the initiative would significantly harm Switzerland as a business location. Because of potential lawsuits, cooperation would change their headquarters to another country, which could not be in the interest of the Swiss people. They also argued that it would be neo-colonialist if the Swiss court judges over action in a foreign country. Furthermore, the risks for a company to do business in a foreign country, specifically in a developing country, would increase. Therefore, many companies would withdraw from the country, which would also not be in the interest of indigenous people who are dependent on jobs.


In the end, a narrow majority of 50.7% voted in favor of the referendum, which proposed tougher responsibility for companies. However, a majority of cantons (cantons are comparable to states in the U.S.) and a majority of the population must support a referendum for it to pass. The initiative did not achieve this. A majority, including mainly more conservative cantons, rejected the initiative.

Even if it was ultimately a failure at the ballot box for the alliance that supported the initiative, it was a considerable success in general. Rarely a proposal achieves the absolute majority of the swiss voting population when the parliament and the federal council recommend rejecting it. They have created awarenessand have held companies that claimed they were complying with the rules even without new regulations to account. It shows that the demand for sustainable and socially just companies, which Abdelal and Ruggie call for, has become widespread.

Nicolas Grünig