Horolonomics

In some ways, I could understand investor Steven Wood's debut gambit to join the Swatch Group's Board of Directors.

As near as I can tell, Wood appeared on the scene around eight months ago and began leveling a lot of criticism. He claimed that, in light of his concerns, the Swatch Group Board of Directors should change in composition. Wood's primary allegation seemed to be that the Swatch Group share price didn't grow at a reasonable rate.

Now, in those circumstances, the solution for any investor is straightforward: pull your money out or don't put your money there in the first place. Nobody is required to hold Swatch Group shares. But for Wood, the solution seems to be a type of slow-motion managerial coup attempt, one that I find bizarre for many reasons. I'd like to outline those here.

First is the fact that this really does seem like a quixotic effort. The founding Hayek family controls something like 44% of the votes when it comes to Swatch Group governance. When I asked Swatch Group if they'd like to comment for this post, they provided exensive remarks, one of which was: "You are asking whether we want to comment on a pamphlet by an activist shareholder in the United States, who holds 0.28% of the share capital and claims to have 0.5%, but who has not yet been able to prove that he is in possession of these shares?" (I provide the full text of Swatch Group's response below, I reached out to Wood's firm to see if he wanted to comment but he has not replied as of this moment). Clearly, Wood does not have direct control of anything near what would be required to win votes during shareholder meetings. Careful observers may note that if Wood can persuade 51% of the outstanding 56% non-Hayek votes then he can start changing things. But Wood's lobbying effort is far more difficult than what the Hayeks face. They only need to convince 7% of the votes in order to deny Wood's efforts. The Hayeks' project is about 8X easier than Wood's.

Persuasion is not the only option for the Hayeks, they could also simply acquire additional shares that end up giving them 51% of the controlling votes. That would be expensive but not impossible (some have even asked about taking the company private again, a much larger project but one I wouldn't rule out). Indeed, the most recent Swatch annual report indicates that the family lately increased, by a small amount, their ownership share of the company. But I'm not certain the Hayeks face any real risk from Wood's efforts. In a press release after Wood failed at his first attempt to alter the board, the Swatch Group stated "We recall that the candidacy of this American activist investor to the Board of Directors was rejected by the shareholders at the Annual General Meeting 2025 with over 79.2% of votes against for important reasons." A bit of math shows that the Hayeks recruited five times the number of votes they needed in order to turn Wood away.

But my real confusion about Wood comes from the fact that I'm not certain that his critiques have much merit. First, he seems to point at LVMH and Richemont as two publicly-traded, watch-producing, companies that are somehow outperforming Swatch Group. I just don't see it, particularly when we consider this year.

To illustrate my point, I'm presenting a time series graph of four share prices, year-to-date: Swatch Group, Tesla, LVMH and Richemont.

In terms of capital gains (share price increases) Tesla beats all the watch producers. The car manufacturer's stock price has increased 12%. But this is where one aspect of equity performance is completely missing from Wood's critiques: risk. Tesla has been a far riskier asset this year. Its coefficient of variation is .2 (in essence, it showed a $73 fluctuation on an average price of $360). All the watch producers under consideration have lower risk than Tesla, with LVMH coming in second, Richemont coming in third, and Swatch Group showing the lowest volatility of the four. In his critique of Swatch Group, Wood doesn't seem to consider the fact that the company offers more stable shares. Some Swatch shareholders may be perfectly happy to accept more modest capital gains in exchange for less risk.

Relatedly, and this is something CEO Nick Hayek has mentioned in recent interviews, Swatch pays a dividend. Since 2017, the yield on that dividend payment averages to 2.4%. Tesla doesn't pay a dividend. Over the same period, LVMH had a dividend yield of 2.07%, just under Swatch's. Richemont's was 2.055%, also just below Swatch Group. There is a second reason shareholders may prefer Swatch Group shares: they provide an income stream through competitive dividend payments.

Wood's main critique of how Swatch Group's shares have performed seems to come from the "long-term" price pattern established over more than a decade. It's certainly true that other publicly traded watch producers saw a more pronounced uptick in share prices over that long horizon. But in the past year, Swatch Group has basically kept pace with LVMH and Richemont (see the chart above). It is also worth noting that numerous watch brands have struggled in the past decade. I can think of three brands in particular: two were spun off from a group, basically for free, and in the third case the brand's founders had to give up managerial control. Swatch Group isn't even close to these outcomes.

But my main confusion about Wood's allegations relates to his remarks about product. He seems to think that Swatch Group should be more focused on the "high end" segment and move resources in that direction.

Back in April, he was quoted as saying "Breguet, my favorite brand, is celebrating its 250th anniversary this year. When Vacheron Constantin celebrated the same anniversary twenty years ago, there was a jubilee of product launches. Breguet just announced one basically identical classique for their anniversary, that’s it."

I'm not certain this is actually an accurate critique. First, the dismissive "that's it" is kind of wild considering the fact that the watch design in question, the Breguet Classique 2025 reference 2025BH/28/9W6 took home the GPHG Aiguille d'Or prize this year (akin to the Oscar for Best Picture). And, according to Breguet sales staff, the watch sold quite well. I'm not certain I would describe this result using the phrase "that's it."

Breguet also released two Type XX chronographs in precious metal as part of the 250th celebration.

In addition to these releases, Breguet very recently announced the Tradition Seconde Rétrograde 7035m, a minute repeater version of the aforementioned GPHG-winning classique, and the Breguet Expérimentale No. 1, a technically fascinating watch which has received plaudits from at least one fairly discerning and very knowledgeable collector. Breguet also provides a counterpoint to Wood's allegation that the Swatch Group struggles to recruit executive talent. They recently added an extremely knowledgeable and well-respected member to their exective team.

Swatch Group's compelling entries to haute horology go beyond Breguet and the year 2025. Omega's Speedmaster Chrono Chime, released in 2022 and priced at over $500,000, made quite a splash when it was announced. This week's release of the Blancpain Grand Double Sonnerie shows the Swatch Group's ability to innovate with some of the most challenging complications in watchmaking.

But what's truly unique and impressive about the Swatch Group is their recent effort to develop complementarities between their most accessible product line, Swatch, and their higher-priced brands. I am convinced that Swatch's release of the MoonSwatch will be taught as a business school case study in coming years. It was a bold move that carried some risk (the largest concern seemed to be that Omega's brand would be diminished somehow). But there is no doubt that the risk paid off. It is rare that any company is able to "catch lightning in a bottle" and introduce a product that creates the fervor and high demand we saw with the release of the MoonSwatch.

The recent "tariff Swatch" is similar in this regard, when I was in Switzerland and visited a few Swatch stores, these watches were inevitably sold out. Also of note: the success of the Tissot PRX.

These kinds of wins don't happen by accident, they require an understanding accumulated over many years of experience in the watch industry. My overarching point is not that Wood's critiques are completely invalid. Instead, it is that the Swatch Group can point to a number of hard-fought successes which should not be overlooked as part of a balanced assessment of the firm's performance. With this post, I've attempted to bring that balance to the discussion.

As noted above, Swatch Group offered an extensive comment on Wood's activism which covers certain allegations I didn't delve into above. I reproduce the Swatch Group response, unedited, below.

Dear Mr. Cunningham,

Thank you for your message.

You are asking whether we want to comment on a pamphlet by an activist shareholder in the United States, who holds 0.28% of the share capital and claims to have 0.5%, but who has not yet been able to prove that he is in possession of these shares? In your opinion?

The allegations by this American activist investor GreenWood that Swatch Group is violating Swiss law are completely false and Swatch Group reserves all rights in this regard. Swatch Group acts in compliance with all applicable laws and regulations.

We recall that the candidacy of this American activist investor to the Board of Directors was rejected by the shareholders at the Annual General Meeting 2025 with over 79.2% of votes against for important reasons, in accordance with the case law of the Swiss Federal Supreme Court, which states that the Annual General Meeting has the right to reject the election of a representative of a class of shares to the Board of Directors for important reasons. GreenWood Investors' assertion that the rejection by the Annual General Meeting is "illegal" is simply false.

A vote of the bearer shareholders on the election of Mr. Steven Wood as representative of the bearer shareholders was also held at the 2025 Annual General Meeting and the result was published. How this vote must be conducted is demonstrably not prescribed by law. GreenWood Investors' assertion that such a vote must be held in a separate voting round is therefore also incorrect.

Swatch Group is domiciled in Switzerland and therefore Swiss law applies to the company, which Swatch Group has complied with from the beginning - regardless of false claims by an American activist investor.

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