The Swatch Group: Swiss Governance On Trial (SWGAY)

The following segment was excerpted from the GreenWood Investors First Half 2026 Letter.

Power tends to corrupt, and absolute power corrupts absolutely. — Lord Acton

While we believe in family and owner-controlled firms so much that we spent years of our free-time authoring a white paper on the behaviors and fundamentals of this class of securities — as asset managers we firmly believe in accountability. Our entire lives revolve around staying accountable to performance.

While constant accountability is demanding, we wouldn’t have it any other way. We learned this lesson the hard way when we invested in Sprint. While the outcome ended up highly profitable, thanks to the SoftBank (SFTBY) take-out, the experience taught us about the importance of firm cultures and the role it plays in determining outcomes. The zoned out “work-life balance” culture of Overland Park really couldn’t compete with the New-York-based culture of Verizon (VZ).

This is the same context of our efforts to improve the governance at The Swatch Group (SWGAY). We were truly humbled this year to have received 71% more votes than the prior year — with an increased bearer shareholder turnout, and a robust 80% support for us being the representative of this share class on the board.

The company’s own nominee failed to win support of this share class, in a sign that shareholders want better accountability. That accountability can’t be self-directed by a board that has answered only to one shareholder group. Instead of allowing us to participate in that accountability mission, the Board instead plucked a non-nominated director to serve as the class representative.

The company and its counsel are always tongue-tied when asked legally how it believes it can keep us off the Board. It used to be the directorship at Leonardo (FINMY), but now with that no longer being a factor, it’s truly at a loss. In Swiss courts, we have three ongoing actions against this demonstration of a cavalier disregard not just for shareholders, but for accountability. We can hardly wait for our next day in court, as we believe our chances of holding an unaccountable Board answerable to shareholders are very good.

As our last six years have shown, small changes in governance can have dramatic impacts in board rooms that have not had the sense of urgency, drive and accountability to results. Any progress we can achieve at Swatch couldn’t come at a better time.

Exhibit 4: Swiss Watch Fundamentals

Residual values of secondary watches have been improving for over a year, which is a forward-indicator for future demand. Although China’s recovery has taken longer than luxury bulls wanted, watch demand has been stable in the Middle Kingdom. As such, the industry’s secular growth drivers were able to overcome a major geopolitical event in one of its most important markets, and US-dollar based sales continue to compound in double-digit ranges.

With Gen Z 2-4x more likely to buy a traditional watch than other generations, and this demographic coming into higher earnings power, we like the secular and cyclical demand levers for Swiss watches.

With improving fundamentals, rock bottom margins that have a high sensitivity to incremental revenue growth, coupled with a very high short interest (at times, the most shorted in Europe) and conviction that the governance of the company — long the weakest part of the Swatch Group investment case — will evolve, we are encouraged by the impact that we can have in the coming months on top of the solidly improving industry dynamics.

Editor’s Note:

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