Switzerland: The Corporate Governance Review - Switzerland

Last Updated: 8 July 2016
Article by Rolf Watter and Katja Roth Pellanda

Most Read Contributor in Switzerland, July 2019


The main source of law for Swiss governance rules is the company law contained in Articles 620ss of the Swiss Code of Obligations (CO). In the course of the rather fundamental reform of 1991, corporate governance rules, in particular those relating to the improvement of shareholders' protection, became law. A further governance debate was triggered at the beginning of the last decade, in 2000/2001, inter alia, as a consequence of the Swissair Ltd bankruptcy. One of its outcomes was the issuance of the Swiss Code of Best Practice for Corporate Governance (SCBP) by Economiesuisse,2 first enacted in 2002 and revised in 2007 and 2014.3 It contains a range of guidelines and recommendations for boards of directors of listed companies (the board or boards) on how to organise themselves. Notwithstanding its rather far-reaching impact, it is not mandatory and represents a code of best practices, leaving leeway for specific adaptations and modifications by individual companies. On 1 July 2002, the Corporate Governance Directive issued by SIX Swiss Exchange Ltd (the DCG) entered into force; it was revised in 2008 and 2014.4 As stated in the introduction of the DCG commentary, the DCG 'has the objective of obliging issuers to make available to investors in a suitable form certain key information with regard to corporate governance practices within their company'. It applies to companies whose equity securities are listed on the SIX Swiss Exchange Ltd (the SIX) and is largely based on the principle of 'comply or explain'. The enforcement of the DCG lies in the responsibility of the SIX.

A rather fundamental revision of the company law is currently under review by the legislature. One of its main goals is to further strengthen corporate governance rules, in particular relating to shareholders' rights and board and management compensation. While a part of this revision (i.e., the accounting provisions) entered into force on 1 January 2013, the governance provisions are still controversially debated. A preliminary draft5 of the revised CO (the Preliminary Draft) has undergone a public consultation, which concluded on 15 March 2015; the results of this process were published in autumn 2015.

A major part of the revision is the implementation of the 'Ordinance against Excessive Compensation in Listed Companies' (the Ordinance) into formal law. The Ordinance is the result of a far-reaching popular initiative for a constitutional amendment in the area of compensation, colloquially called the 'Minder initiative against fat-cat salaries' (the Minder initiative),6 which was adopted in 2013 by a popular vote with a strong majority of 68 per cent. The transitional provision of the constitutional amendment provided that, until the statutory provisions come into force, the Swiss Federal Council had to issue implementing provisions within one year;7 this was done through the Ordinance, which applies to companies limited by shares with their seat in Switzerland and their shares listed in Switzerland or abroad.8 The Ordinance obliges such companies to annually submit the top management's compensation to the shareholders for a binding vote and contains far-reaching rules on corporate governance with direct effects on boards, executive management, shareholders, pension funds and independent proxies. It also outlaws certain payments, such as certain golden handshakes (but allows a new manager to be indemnified for losses suffered with the former employer) and severance payments. Moreover, the Ordinance implements the principle required by the Minder initiative that certain contraventions to the Ordinance are sanctioned by imprisonment of up to three years and a fine of up to the equivalent of six years' annual compensation. All offences have to be prosecuted ex officio.

On 4 December 2015, the Swiss Federal Council informed that it will submit to the Swiss Parliament a revision of the Preliminary Draft at the end of 2016. The most important changes by the Federal Council to the Preliminary Draft are: (1) no ban of prospective shareholder voting on variable compensation but duty to hold a consultative vote on the compensation report, (2) no duty to set the relationship between fixed and variable compensation in the articles of association; (3) no duty of establishing and operating an electronic shareholder forum and (4) no right for shareholders to institute legal proceedings at the expense of the company. The guidelines on gender representation at senior executive level remain in place but the Federal Council has lowered this requirement to 20 per cent, whereas the level for board of directors would remain at 30 per cent. If a company fails to meet these gender guidelines it will have to disclose the reasons for its non-compliance as well as current and planned actions to meet the targets.

Unlike the Minder initiative, the '1:12 initiative' was rejected by the Swiss voters in November 2013 by a large majority of 65 per cent. This initiative aimed at introducing a salary cap of 12 times the lowest salary within a company. The outcomes of the Minder and 1:12 initiatives show that Swiss voters require a tight corporate governance regime in respect of compensation but desire no governmental intervention regarding the amount of absolute level of compensation.


According to the CO, the board is the executive body of a company limited by shares (i.e., the one-tier board system is the default rule).9 The board is therefore responsible for the management of the company and represents the company in relation to third parties. The board may carry out any legal acts consistent with the company's purpose clause10 and may pass resolutions on all matters not reserved to the general meeting of shareholders (the shareholders' meeting) by law or by the articles of association.11 The relationship between the shareholders' meeting and the board is generally described as a relationship of parity rather than a hierarchy: both bodies have distinct responsibilities and competence by law.12 But Swiss law permits shareholders to dismiss board members in a general meeting at any time.

However, the legal default concept of the board directly managing the company no longer corresponds to the reality of today's medium-sized to large companies, and in particular of listed companies. As Swiss company law is very flexible, different governance structures are possible, as will be explained below.

i Board structure and practices

In terms of board structure, Swiss company law allows the board to delegate significant parts of its responsibilities to the senior management. However, certain responsibilities cannot be transferred and are considered inalienable duties of the full board.13 Depending on the size and the needs of the company, the board may therefore assume the entire responsibility for management (this system is adopted predominantly by smaller non-listed companies) or it may delegate all transferable responsibilities to one or several board members or the senior management, subject to an authorisation by the shareholders in the articles of association and the establishment of organisational regulations by the board.14 Thus, it is possible to create a two-tier structure, which is what listed companies typically do and which the SCBP recommends, by requesting a majority of non-executive board members. Such a two-tier structure is mandatory for banks and insurance companies.

A board must consist of at least one individual.15 In reality, most companies have several board members. Where there are different classes of shares, the articles of association must stipulate that the holders of each share class are entitled to elect at least one representative to the board.16

The board is responsible for the representation of the company towards third parties. Unless the articles of association or the organisational regulations stipulate otherwise, all the members of the board have an individual authority to represent the company.17 It is, however, common practice, at least in medium-sized to large companies, that only joint signatory power, of any two board members, is granted. The board may also delegate the authority of representation to members of management or to other employees. At least one member of the board, or two board members in cases of joint signatory power, must always be authorised to represent the company and at least one authorised representative, either a board or a management member, must be domiciled in Switzerland.18

The CO provides the following catalogue of non-transferable and inalienable duties that cannot be delegated to the management (but for which the management often does the preparatory work):19

  1. determination of the strategy and the definition of the means to implement it (e.g., budget process, establishment of a business plan, issuance of all necessary directives and establishment of a risk control and management system);
  2. determination of the organisation (e.g., decision on the governance structure of the board and management and the organisation of the business along business lines);
  3. structuring of the accounting system, the financial controls and the financial planning (including monitoring the liquidity of the company);
  4. appointment, removal and succession planning of the members of the management team and the persons authorised to sign on behalf of the company (the appointment of the top executive management must remain with the board, whereas the appointment of the lower hierarchical levels may be delegated);
  5. supervision of management (including, inter alia, the implementation of a state-of-the-art internal control system and clear reporting lines), in particular with respect to compliance with the law, the articles of association and the directives issued by the board;
  6. preparation of the annual report consisting of the financial statements (which have to include, inter alia, the significant shareholders and their shareholdings)20 and a narrative business report;
  7. preparation of the shareholders' meeting (which has to be held within six months after the end of each business year)21 and the implementation of its resolutions; and
  8. notification of the court in the event that the company is over-indebted. The Ordinance requires the board to prepare a compensation report that replaces the disclosure of board and senior management remuneration in the notes to the statutory financial statement.22 The preparation of the compensation report is also a non-transferable and inalienable duty of the board.23

Where there are several board members the organisation of the board requires the nomination of a chair and of a secretary, but the latter does not have to be a board member.24 The chair was customarily appointed by the board; however, the articles of association could also provide for a direct appointment by the shareholders' meeting.25 Now, the Ordinance provides that, in listed companies, the shareholders' meeting has to elect and dismiss him or her.26 The role of the chair is not defined in detail by Swiss company law and few duties are explicitly assigned. In reality, the chair's function is key to the proper functioning of the entire board and to an adequate working relationship between the board and the management. The chair, inter alia, (1) keeps direct contact with the senior management (typically represented by the CEO), (2) communicates and engages with important shareholders and stakeholders (in general together with the CEO), (3) organises and conducts the board meetings and sets their agendas, (4) is, together with or subsidiarily to the CEO, the outside 'face' of the company and (5) takes the lead in crisis situations. The chair has a deciding vote if not prohibited by the articles of association. Cumulative voting within the board is not possible under Swiss law.

The question of combining the roles of the chair and the CEO in the same person has been the subject of significant debate in Switzerland. Although not explicitly excluded by the SCBP, the majority opinion nowadays, voiced in particular by proxy advisers, is that such a concentration of power does not represent best practice. However, a certain tradition of these combined roles exists,27 which is in general justified by efficient communication and faster decision-making that might be particularly important in crisis situations. The SCBP provides that, as a principle, 'a balance between direction and control should apply to the top of the company' and if the board decides that the roles of the chair and the CEO are combined, adequate control mechanisms should be implemented, including the appointment of an experienced non‑executive board member as independent lead director. One of the roles of an independent lead director is to convene and chair meetings of the board without the chair when necessary.

The board is required when fulfilling its tasks to observe the duty of care and loyalty, the duty of confidentiality and the duty to treat shareholders equally.28 The principle of equal treatment of shareholders does not require the board to provide identical treatment to all shareholders; it must, however, make sure that shareholders are treated equally in comparable circumstances. This principle is of particular significance in relation to the communication with and information provided to shareholders. Therefore, Swiss company law provides for relative rather than absolute equality, meaning large shareholders might under certain circumstances receive more information than small investors. Whereas company law specifically takes into consideration the circumstances of the specific case, capital market law and stock exchange regulations, namely rules prohibiting insider dealing and ad hoc publicity rules, provide for a stricter understanding of a 'level playing field' and aim to ensure that price-sensitive information is disseminated on an equal basis; but even there, large (institutional) shareholders often get more information than retail shareholders, which is permissible as long as this information is not price-sensitive or is mitigated by confidentiality undertakings and contractual agreements not to trade on information received.

The organisational flexibility of the board is rather far-reaching; it may allow for executive and non-executive board members, committees, delegation of management duties, etc. Furthermore, the CO provides for the possibility of assigning responsibility for preparing and implementing resolutions of the board, or monitoring transactions, to board committees or individual board members. As a matter of principle and according to the SCBP, the overall responsibility for non-transferable and inalienable duties delegated to committees or third parties remains with the board. In all instances, appropriate reporting to the (full) board has to be ascertained. Under the previous law the creation and revocation of board committees was in the sole discretion of the board. Article 7 of the Ordinance now provides that the members of the compensation committee, who need to be members of the board, have to be elected by the shareholders' meeting. Even though the wording of the Ordinance does not explicitly state that a compensation committee is required for listed companies, there is, according to legal scholars, an affirmative duty to establish one. This view is confirmed by Article 733 I of the Preliminary Draft, which states that the shareholders' meeting has to elect a compensation committee. The basic principles of the duties and responsibilities of the compensation committee have to be determined by the articles of association and, therefore, by the shareholders; still, details may be stipulated in the organisational regulations (i.e., by the board). The SCBP also recommends the creation of an audit and a nomination committee. It is recommended that the audit committee should consist of non-executive, preferably independent members only, and that a majority of its members should be financially literate, whereas a majority of the members of the compensation committee should consist of non-executive and independent members. No independence requirements are provided by the SCBP for the nomination committee. Other committees, such as a finance committee, a strategy committee, a risk committee, an independent committee consisting of independent board members and established for special situations where a conflict of interests arises (for example, in the event of going private or takeover situations), or other ad hoc committees may be constituted when needed for an efficient functioning of the board.

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1 Rolf Watter is a partner with Bär & Karrer AG and Katja Roth Pellanda is head of corporate law at Novartis AG.

2 Economiesuisse is the largest umbrella organisation representing the Swiss economy (www.economiesuisse.ch/en/pages/default.aspx).

3 Available at www.economiesuisse.ch/en/Documents/swisscode_e_web.pdf.

4 Available at www.six-exchange-regulation.com/admission_manual/06_16-DCG_en.pdf. See also the DCG commentary available at www.six-exchange-regulation.com/download/ admission/regulation/guidelines/swx_guideline_20070820-1_comm_en.pdf.

5 Available at www.admin.ch/ch/d/gg/pc/documents/2499/OR-Aktienrechte_Entwurf_de.pdf.

6 Available at www.admin.ch/ch/d/ff/2006/8755.pdf.

7 See Article 197 X of the Federal Constitution.

8 Article 1 I of the Ordinance.

9 See Article 716 II of the CO.

10 Article 718a I of the CO.

11 Article 716 I of the CO.

12 See, inter alia, the decision of the Swiss Federal Supreme Court BGE 100 II 384, consideration 2.a).

13 Article 716a I of the CO.

14 Article 716b I of the CO; Article 6 of the Ordinance.

15 See Article 707 I of the CO.

16 Article 709 I of the CO.

17 Article 718 I of the CO.

18 Article 718 II, III and IV of the CO.

19 Article 716a of the CO.

20 Article 663c of the CO.

21 Article 699 II of the CO.

22 Article 13 I of the Ordinance.

23 Article 5 of the Ordinance.

24 Article 712 I of the CO.

25 Article 712 II of the CO.

26 Article 4 I and III in connection with Article 29 I of the Ordinance; boards could also suspend a chairman but then have to call a shareholders' meeting (Article 726 of the CO).

27 The CEO is in seven out of 20 SMI® companies a member of the board.

28 Article 717 of the CO.

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.

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