Corporate Governance 2024

Law and Practice

1. Introductory

1.1 Forms of Corporate/Business Organisations

The principal forms of corporate organisations in Switzerland are the stock corporation (Aktiengesellschaft(AG)) and the limited liability company (Gesellschaft mit beschränkter Haftung(GmbH) or LLC). The stock corporation is the most important company form; it is suitable for all sizes and types of business and is the only company form that can be listed on a stock exchange. Both the AG and LLC feature a separate legal personality, a predetermined capital divided into shares or quotas and a limitation of liability to their own assets.

1.2 Sources of Corporate Governance Requirements

Primary Sources

The primary sources of law relating to corporate governance are the Swiss company law (Article 620 et seq of the Swiss Federal Code of Obligations (CO)) and, for listed corporations, the Swiss Federal Act on Financial Market Infrastructure and Market Conduct in Securities and Derivatives Trading (the "Financial Market Infrastructure Act" or FinMIA).

Swiss Company Law

Swiss company law has undergone a comprehensive revision, which came into force on 1 January 2023 (for a summary of the new provisions, see 2.1 Hot Topics in Corporate Governance).

FinMIA

The FinMIA regulates the organisation and operation of financial market infrastructure, and the conduct of financial market participants in securities and derivatives trading.

The FinMIA is further specified by three ordinances on stock exchanges and securities trading:

• the Financial Market Infrastructure Ordinance (FinMIO) is issued by the Swiss government (Federal Council) directly;
• the FINMA Financial Market Infrastructure Ordinance (FinMIO-FINMA) is issued by the Swiss Financial Market Supervisory Authority (FINMA); and
• the Takeover Ordinance (TOO) regulating public takeovers is issued by the Swiss Takeover Board (TOB).

In addition to the issuance of ordinances in its field of competence, the regulatory body FINMA also has the authority to issue directives (circulars). The following are relevant:

• the FINMA circular "Remuneration schedules" (2010/01, as amended 4 November 2020), addressing the minimum standards for remuneration schemes of financial institutions; and
• the circulars "Corporate Governance – insurers" (2017/02, of 1 January 2017) and "Corporate Governance – banks" (2017/01, as amended 4 November 2020), both addressing corporate governance, risk management and the internal control system at insurance companies and banking institutions, respectively.

Listing Rules

The two Swiss stock exchanges, SIX Swiss Exchange AG (SIX) and the smaller BX Swiss AG (BX), are both self-regulatory organisations under the FinMIA, and have issued listing rules with specific reporting and disclosure requirements, partially amended by the new Financial Services Act (FinSA) as of 1 August 2021. To improve transparency on corporate governance, SIX Exchange Regulation, the regulatory division of SIX, has enacted the "Directive on Information Relating to Corporate Governance" ("SIX Directive Corporate Governance"), as last amended on 1 January 2023. It requires issuers with a main Swiss listing to disclose, in a separate chapter of their annual report, important information on the management and control mechanisms at the highest corporate level, or to give valid reasons for not doing so ("comply or explain").

In addition, the SIX "Directive on the Disclosure of Management Transactions", as amended 1 May 2018, obliges issuers with a main Swiss listing and (indirectly) their members of the board of directors and of the executive management, to disclose and report transactions in their respective securities.

Furthermore, the former Ordinance against Excessive Compensation in Listed Companies (OaEC), which had introduced a binding say-on-pay regime back in 2014, was comprehensively integrated into revised Swiss company law, while the OaEC was formally repealed on 1 January 2023. As a consequence, the statutory say-on-pay provisions continue to apply solely to members of the board of directors, executive management and advisory board (if any) of public Swiss companies – ie, stock corporations incorporated under Swiss company law whose shares are listed, either on a stock exchange in Switzerland or abroad. The statutory provisions do not apply, in particular, to Swiss companies that have solely listed debt securities or non-voting participation certificates outstanding, and, in general, not to any privately held companies.

Corporate Governance Standards

Moreover, the Swiss Code of Best Practice for Corporate Governance as amended on 6 February 2023 (SCBP), following the entry into force of the revised Swiss company law and issued byeconomiesuisse, the most important association of Swiss businesses from all sectors of the economy, sets corporate governance standards in the form of non-binding recommendations ("comply or explain"). The SCBP primarily addresses Swiss public companies, but also serves as a guideline for non-listed Swiss companies and organisations of economic significance. Being an effective instrument of self-regulation, it structures, integrates and reflects various Swiss law provisions on corporate governance and accepted corporate practice and sets corporate governance standards which are, while only soft law, accepted and observed by many companies in Switzerland (see2.1 Hot Topics in Corporate Governance).

Guidelines for Institutional Investors

In addition, an important group of representatives of Swiss institutional investors (such as the Swiss Association of Pension Fund Providers and the Federal Social Security Funds), Swiss businesses (including the Swiss Business Federation,economiesuisse) and proxy advisers (Ethos) have issued the "Guidelines for institutional investors governing the exercising of participation rights in public limited companies". Unlike the SCBP, which primarily addresses listed companies, these non-binding guidelines are directed towards institutional investors and aimed at enhancing good corporate governance by describing best practices for the exercise of participation rights in Swiss-listed companies. The Guidelines' importance increased when Swiss pension funds became obliged to exercise their voting rights and to disclose their voting decisions under the former OaEC on 1 January 2014. Upon the repeal of the OaEC, this obligation continued to apply, newly integrated into the Federal Act on Occupational Old Age, Survivors' and Invalidity Pension Provision (OPA).

1.3 Corporate Governance Requirements for Companies With Publicly Traded Shares

Companies with publicly traded shares have to comply with additional corporate governance requirements. In particular, the election and remuneration of the board of directors is more strictly regulated. The chairperson, as well as each member of the board of directors, the members of the compensation committee and the independent proxy, have to be appointed individually and annually by the shareholders' meeting.

The board's proposal on the compensation of directors and of the executive management (and, if any, of an advisory board) has to be submitted annually to the shareholders for a binding vote (binding say-on-pay). Further, the Listing Rules of the SIX and BX provide for specific reporting and disclosure requirements. In addition, the SIX Directive Corporate Governance requires SIX-listed companies to disclose, in annual business reports, important information on the management and control mechanisms at the highest corporate level, or to give valid reasons for not doing so ("comply or explain").

2. Corporate Governance Context

2.1 Hot Topics in Corporate Governance

The main hot topic of 2023 was the enactment of the revised Swiss company law on 1 January 2023.The revised company law includes the following corporate governance-related key changes:

• shareholders' meetings may be newly held virtually or in a hybrid form (see5.3 Shareholder Meetings);
• a new concept of a capital band was introduced;
• the former OaEC was formally integrated into statutory company law (see1.2 Sources of Corporate Governance Requirements); and
• various ESG reporting obligations were introduced (discussed in2.2 Environmental, Social and Governance (ESG) Considerations).

Further points of the revision are addressed throughout the guide.

Moreover, the revised SCBP (see1.2 Sources of Corporate Governance Requirements) emphasises the importance of sustainability and sustainable growth as a guiding principle of corporate governance: "Good corporate governance therefore serves the goal of the sustainable interest of the company". Other key additions relate to the role of compliance, corporate culture, the regulation of conflicts of interest and greater specificity with regard to the composition and diversity of boards of directors.

2.2 Environmental, Social and Governance (ESG) Considerations

According to the Swiss Corporate Social Responsibility Action Plan, the Swiss government's approach focuses on:

• sensitising domestic companies to ESG;
• offering support to companies seeking to address relevant issues;
• promoting transparency; and
• establishing a best practice based on international standards.

At the same time, the following ESG-related legislative changes were recently introduced, taking into account the respective international legislative developments.

Gender Representation on the Board of Directors and in the Executive Management

Swiss-listed companies which meet a certain threshold in terms of balance sheet total exceeding CHF20 million, revenues exceeding CHF40 million, and the number of employees (at least 250 FTE in an annual average) for the last two business years are required to implement certain gender quotas for the board of directors (at least 30% of each gender) and the executive management (at least 20% of each gender) under a "comply or explain" concept (Article 734f CO).

The threshold is calculated on the group level. Any company that does not meet the mentioned provisions will be required to state in its remuneration report the reasons for such imbalance, and the actions that are being taken to improve the situation. Privately held stock corporations may voluntarily submit to the gender quotas (opt-in). The introduction of the quotas is subject to multi-year conformance periods (2026 for boards of directors and 2031 for executive managements) but in practice significant changes in the composition of boards and senior managements are underway.

Disclosure Obligations Relating to Raw Material Companies

The provisions regarding transparency in raw material companies have been in force since 1 January 2021, and require major companies (ie, those which have to undergo an ordinary audit by law) that are either themselves or through a company that they control involved in the extraction of minerals, oil or natural gas, or in the harvesting of timber in primary forests, to issue a yearly report on any payments made to state bodies (Articles 964d–964i CO).

Non-financial Reporting Obligations

As of 1 January 2022, the Swiss Parliament implemented new rules regarding "transparency on non-financial matters" encompassing new respective reporting obligations for non-financial matters (Articles 964a–964c CO).

The reporting obligations apply to Swiss "companies of public interest" – ie, Swiss-listed companies and certain FINMA-supervised financial institutions – if they meet certain thresholds on annual average in two successive financial years:

• regarding the number of employees (at least 500 FTE); and
• with either a balance sheet total exceeding CHF20 million or revenues exceeding CHF40 million.

If within scope, the respective companies are obliged to report on the risks of their business activities in the areas of the environment (in particular, CO2 targets), social concerns, labour concerns, human rights and the fight against corruption, as well as on the measures taken against these risks. Violations of these reporting duties are punishable by criminal sanctions (fines). The newly introduced rules are largely based on known international provisions, such as Directive 2014/95/EU (the "Non-Financial Reporting Directive") concerning non-financial reporting.

The first report for non-financial matters needs to be published with respect to the financial year 2023.

In this context and against the background of the EU's revised Corporate Sustainability Reporting Directive (CSRD) (Directive (EU) 2022/2464), it is worth mentioning that the Swiss Federal Council considers that there is already a need to adapt the newly introduced Swiss regulation. A consultation draft also examining the consequences for the Swiss economy is supposed to be prepared by July 2024 at the latest.

In order to further specify the environmental aspects of the reporting obligations on non-financial matters, on 23 November 2023, the Swiss Federal Council adopted the Implementing Ordinance on Climate Disclosures, which will enter into force as of 1 January 2024. The Ordinance provides for the mandatory implementation of the internationally recognised recommendations of the Task Force on Climate-related Financial Disclosures (TCFD). Qualifying Swiss companies must report on:

• the financial risk that a company incurs through climate-related activities; and
• the impact of the company's business activities on the climate and the environment.

This so-called double materiality perspective also corresponds to the approach of the EU.

Due Diligence and Disclosure Obligations Regarding Minerals and Metals From Conflict-Affected Areas and Child Labour Companies whose registered office, head office or principal place of business is in Switzerland and whose business involves so-called conflict minerals or that offer products/services that are prone to child labour must further comply with special and far-reaching due diligence and reporting obligations (Articles 964j–964l CO). In particular, the due diligence and reporting obligations in the supply chain arise if a company:

• imports minerals or specific metals containing tin, tantalum, tungsten or gold from conflict-affected and high-risk areas into or processes them in Switzerland; or
• offers products and services in relation to which there is a reasonable suspicion that they have been manufactured or provided using child labour.

In these cases, companies are obliged to set up an adequate management system and stipulate their supply chain policy and a system by which the supply chain can be traced, in order to identify and assess the risks of harmful impacts in their supply chain. In addition, these companies must draw up a risk management plan and take measures to minimise the risks identified. The report on the company's compliance with the due diligence obligations must be approved and signed by the board of directors. The board of directors must ensure that the report is published electronically immediately after approval and remains publicly available for at least ten years.

The Federal Council has additionally issued an Implementing Ordinance on Due Diligence and Transparency for Minerals and Metals from Conflict-affected Areas and Child Labour (DDTrO), which also entered into force on 1 January 2022.

Reporting Obligations on Wage Inequality

In July 2020, the Federal Act on Gender Equality was modified to include reporting obligations on wage inequality. In broad terms, companies with 100 or more employees will be required to complete an equal-pay analysis every four years. The analysis must be audited by an independent, approved third party. The results of the analysis must be shared with the workforce and, if the company is listed, with its shareholders (in the appendix to the annual report).

Private Sector ESG Disclosure Directives and Initiatives

Since 2017, SIX Swiss Exchange offers listed issuers the opportunity, by means of opting in, to publish an issuer's commitment ESG principles by way of an annual sustainability report in accordance with an internationally recognised standard either in their annual report or a separately published report. Currently, issuers may use as a reporting standard the Global Reporting Initiative, the Sustainability Accounting Standards Board, the UN Global Compact and the EPRA (European Public Real Estate Association) Sustainability Best Practices Recommendations.

In practice, the number of companies listed on the SIX which do not report on responsibility or sustainability in their annual report is decreasing. In addition, there are several initiatives from the private sector, such as from the Swiss Bankers Association, which has declared sustainable finance as one of its strategic priorities. Among other things, this led to the development of guidelines for the advisory process for private clients. In addition, certain Swiss proxy advisors have developed corporate governance and responsibility guidelines in connection with their voting guidelines.

3. Management of the Company

3.1 Bodies or Functions Involved in Governance and Management

In a Swiss stock corporation, three bodies are involved in the governance and management:

• the shareholders' meeting;
• the board of directors; and
• the statutory auditors.

Shareholders' Meeting

The shareholders' meeting is the supreme body. It decides the fundamental organisation of the company, elects the board of directors and takes the fundamental decisions.

Board of Directors

The board of directors is the executive body. Swiss company law provides that the board may pass resolutions on all matters not reserved by law or the articles of association to the shareholders' meeting and shall manage the business of the company to the extent it has not delegated such management to individual members or to an executive management in accordance with organisational regulations.

Statutory Auditors

The statutory auditor is a controlling body, elected by the shareholders' meeting. However, in small companies with less than ten full-time employees, shareholders may unanimously decide not to appoint an auditor. The scope of an auditor's duties depends on the nature and size of the enterprise; listed, large and mid-sized corporations are subject to an ordinary audit, while smaller corporations may be subject to a more limited financial audit only.

3.2 Decisions Made by Particular Bodies

Shareholders' Meeting

The shareholders' meeting defines the framework of the company's business activities. In doing so, the shareholders' meeting has to decide upon the following matters, as they are fundamental, non-transferable competences conveyed to the shareholders' meeting by law:

• adoption and amendment of the articles of association, including changes in the share capital, issuance of preferred shares, approval of mergers and changes in the company's corporate structure;
• approval or rejection of the annual business report, including the consolidated financial statements;
• approval or rejection of the use of the balance sheet profit and, in particular, the declaration of dividends;
• election of the members of the board of directors;
• removal of the members of the board;
• election of the external auditors;
• release of the members of the board of directors from liability (discharge);
• passing of the resolution on repaying the statutory capital reserve; and
• all other matters that are by law or by articles of association reserved to the shareholders' meeting (special audit pursuant to shareholders' information rights, liquidation of the company, etc).

For listed companies, the following additional non-transferable competences are conveyed to the shareholders' meeting:

• direct election of the chairperson or the board of directors;
• election and removal of the members of the compensation committee and of the independent proxy;
• delisting of the company's equity securities; and
• approval or rejection of the compensation of the board, the executive management and, if any, the advisory board.

The Board of Directors

The board of directors is responsible for the ultimate management and representation of the company. Its main duty is to determine the corporate strategy and allocate corporate resources (strategic governance). In general, the board is authorised to decide all matters that are not reserved to the shareholders' meeting or to the auditors by law or by the articles of association, or that are delegated to the executive management based on organisational regulations.

Statutory law enumerates certain fundamental matters specifically reserved to the board. The following board responsibilities are non-delegable and inalienable:

• the ultimate management of the company – in particular, the duty to determine the corporate strategy and allocate the corporate resources (strategic governance);
• defining the fundamental organisational structure;
• setting up an accounting and financial control system (including an internal control system for medium-sized and larger businesses) as well as financial planning as far as necessary to manage the company;
• appointing and removing the management as well as granting of signing authority to the individuals authorised to act on behalf of the company;
• ultimately monitoring the individuals entrusted with management responsibilities, in view of compliance with the applicable law, the articles of association, regulations and directives;
• preparing annual business reports and shareholders' meetings as well as implementing their resolutions;
• issuing the annual compensation report on the board's and executive management's compensation (only for listed companies); and
• filing an application for a debt restructuring moratorium and notifying the bankruptcy court if the company's liabilities are no longer covered by its assets (over-indebtedness).

Notwithstanding the non-delegable and inalienable nature of these responsibilities, the board of directors may delegate the preparation and execution of its resolutions to committees, but not the decision-making itself ("delegation of decision-shaping but not decision-making"). Listed companies often establish an audit committee, a compensation committee and/or a nomination committee.

Statutory Auditors

The statutory auditors serve as a controlling body by reviewing the annual accounts and the motions made by the board to the shareholders' meeting on the allocation of the balance sheet profit and by reporting to the shareholders' meeting whether the annual accounts comply with the statutory provisions, the articles of association and the applicable financial reporting standards.

3.3 Decision-Making Processes

The shareholders' meeting is convened by the board of directors. The notice must include the agenda items and the boards' motions (and shareholders' motions, if any). The board of directors is required to briefly explain its proposals. In the case of shareholders' motions, there is an option, but not an obligation, to provide a brief explanatory statement. Resolutions can only be made on motions relating to agenda items that were duly notified (see5.3 Shareholder Meetings). In general, the absolute majority of the votes represented is necessary to pass a resolution and conduct elections.

Resolutions

For certain important resolutions (such as the amendment of the company's purpose, the introduction of conditional capital or of a capital band, and of transfer restricted shares, etc), the law requires a qualified majority – ie, two thirds of the voting rights represented and the absolute majority of the nominal value of shares represented. A requirement for a qualified majority may also be increased for other matters by a resolution of the shareholders' meeting which satisfies the proposed majority requirement.

With the entry into force of the company law revision, resolutions of the shareholders' meeting may also be passed in writing or by electronic means, unless a shareholder or its representative requests oral deliberation. In addition, the owners or representatives of all the company's shares may, if no objection is raised and provided that the owners or representatives of all the shares participate, hold a plenary meeting – ie, a shareholders' meeting without complying with the applicable regulations on convening meetings.

In most companies, the principle of "one share, one vote" applies. The articles of association may, however, also provide for voting shares. These can often be found in family-controlled companies, both private and listed.

According to Swiss company law, the board of directors' resolutions may be made by a (relative) majority of the votes cast at the meeting. However, the articles of association and the organisational regulations may also require a quorum regarding the presence of a minimum of board members as well as a specific vote of the board. It is important to note that in the case of a tie, the chairperson has a casting vote, unless the articles of association provide otherwise.

Resolutions of the board of directors may be passed in writing by way of circular resolution or electronically (without signatures), provided that no member of the board requests oral deliberation.

To view the full article please click here.

Originally published in Chambers.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.