Answer ... Corporate governance is governed by the following legislative and regulatory provisions and codes.

The Swiss Code of Obligations (Articles 620 and following) which governs stock corporations. These rules are partly mandatory and partly non-mandatory. They apply to private and listed stock corporations.

The Ordinance against Excessive Compensation in Listed Companies (Minder Ordinance) which, among other rules:

• introduces restrictions on several remuneration practices; and
• gives shareholders a binding say-on-pay vote on board and executive compensation, as well as the right to elect the chair of the board, the members of the compensation committee and the independent proxy.

In 2020, a general corporate law reform was adopted. They key changes with regard to corporate governance include:

• the incorporation of rules of the Ordinance against Excessive Compensation in Listed Companies (Minder Ordinance) into the Code of Obligations;
• the introduction of a target gender quota of 30% for the board and 20% for the executive committee of listed companies on a ‘comply or explain’ basis; and
• strengthened shareholders’ rights.

The new rules will likely enter into effect as per 1 January 2023, with transitional rules, including a two year-period to amend the articles of incorporation.

The Swiss Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading which provides, among other things, for the disclosure of significant shareholdings in listed companies (see question 6.7).

The Rules of the SIX Swiss Exchange which include, among other things:

• the Directive on Information Relating to Corporate Governance, which requires issuers to disclose, on a ‘comply or explain basis’, their corporate governance rules in a separate chapter of their annual report; and
• the Directive on Disclosure of Management Transactions, which requires issuers to disclose transactions by board and executive committee members in the shares of their company.

The Swiss Code of Best Practice for Corporate Governance (the Swiss Code) – issued by economiesuisse, an umbrella association that represents the interests of the Swiss business community – which sets out corporate governance recommendations for listed companies, on a comply or explain basis.

The Guidelines for Institutional Investors – issued by economiesuisse, institutional investors, proxy advisors and regulatory authorities – which govern the exercise of participation rights in public limited companies.

Sector-related rules – issued by the Swiss Financial Market Supervisory Authority (FINMA) and by the Federal Audit Oversight Authority (FAOA) – applying to the banking, insurance and auditing sectors, as well as to certain investment companies.

Finally, while these are not legislative or regulatory provisions or codes, the standards of big international institutional investors and proxy advisers – which are often more far reaching and more demanding than national rules – are widely followed by listed companies, and are an important source of corporate governance.

Answer ... The corporate governance rules in Switzerland are partly mandatory and partly non-binding best practice standards (for details, see question 1.1). However, in practice, non-binding rules – such as those of the Swiss Code of Best Practice for Corporate Governance – are widely followed by issuers, as non-compliance with these rules is not tolerated by institutional investors and proxy advisers.

Answer ... They key rules and codes that make up the Swiss corporate governance framework are issued by the following bodies:

• The Swiss Parliament and the Federal Council (government) enact binding (or non-binding) laws and ordinances, such as:
• • the Swiss Code of Obligations;
  • the Ordinance against Excessive Compensation in Listed Companies; and
  • the Swiss Federal Act on Financial Market Infrastructures and Market Conduct in Securities and Derivatives Trading.
• The SIX Swiss Exchange issues binding (but partly applying the comply or explain principle) directives, such as:
• • the Directive on Information Relating to Corporate Governance; and
  • the Directive on Disclosure of Management Transactions.
• Economiesuisse issues the non-binding Swiss Code of Best Practice for Corporate Governance.

The Swiss Financial Market Supervisory Authority (FINMA) and the Federal Audit Oversight Authority (FAOA) issue sector-related rules which apply in the banking, insurance and auditing sectors, among others, as well as to certain investment companies.

Answer ... The complete set of corporate governance rules and codes in Switzerland applies to listed stock corporations. However, certain corporate governance rules – such as those in the Swiss Code of Obligations – which focus on transparency and shareholder rights also apply to non-listed stock corporations. Moreover, while the Swiss Code of Best Practice for Corporate Governance is primarily addressed to listed companies, it is also used as a guideline for non-listed Swiss companies.

Answer ... For listed stock corporations, in principle, no exemptions are available from the key elements of the corporate governance framework. However, certain rules – such as those set forth in the SIX Swiss Exchange’s Directive on Information Relating to Corporate Governance and those set forth in the Swiss Code of Best Practice for Corporate Governance – are subject to the comply or explain principle. Moreover, the governance rules of the Swiss Code of Obligations are rather liberal and provide companies with flexibility as regards the set-up of their governance structure. To a lesser extent, the same applies to the Ordinance against Excessive Compensation in Listed Companies, which gives the companies options on the binding ‘say-on-pay’ vote on board and executive compensation, allowing the company to decide:

• whether the variable compensation is voted on separately;
• whether the vote is retrospective or prospective; and
• to which periods the vote relates.

Answer ... The non-binding recommendations of the Swiss Code of Best Practice focus on:

• shareholders’ meetings;
• shareholders’ rights;
• rights and obligations of the board;
• board composition and structure;
• the role of auditors; and
• board and executive compensation.

The core objective is to ensure transparency and checks and balances between shareholders, board and management.

Answer ... Typically, non-listed private companies are held by a small number of shareholders and in many cases by one dominant shareholder.

In contrast, publicly listed companies have thousands of shareholders. The vast majority of the shareholders are private investors that typically hold a small number of shares. Institutional shareholders hold big numbers of shares, with the top 30 institutional shareholders often controlling up to 50% or more of the total number of shares issued. The majority of the biggest institutional shareholders are domiciled outside of Switzerland. As a consequence, a relatively small number of big institutional shareholders together ‘control’ most of the biggest publicly listed companies in Switzerland.

Answer ... Legally, a Swiss stock corporation is ‘controlled’ by one or several shareholders that together control more than 50% of the total number of shares issued, as – unless the law or the articles of incorporation provide otherwise – the general meeting passes resolutions by an absolute majority of the voting rights represented. Shareholders owning more than two-thirds of the shares can ‘dominate’ a company, as Swiss company law requires two-thirds of the voting rights represented and an absolute majority of the nominal value of shares represented for certain important matters, such as:

• the amendment of the purpose of the company;
• the restriction of the transferability of registered shares; or
• the dissolution of the company.

In practice, however, and with regard to big publicly listed companies, shareholders that control more than 30% of the total number of shares issued de facto dominate the company: Most companies have issued so-called registered shares, which can be voted only if the owner of the shares ‘registers’ the shares with the company. However, many shareholders do not bother to register their shares, as they are not interested in voting their shares and will still receive dividends if they do not register their shares. Therefore, in a typical publicly listed company, only approximately 60% to 70% of the total issued shares are registered and hence can be voted. Of the shareholders that have registered their shares, only 50% to 60% typically actually vote their shares. As a consequence, shareholders that control 30% of the total number of shares issued will often de facto dominate the company, as their 30% of shares will often represent the absolute majority of the voting rights represented at the shareholders’ meeting.

Moreover, as discussed in question 3.1, as the top 30 institutional shareholders often control up to 50% or more of the total number of shares issued, in practice, a relatively small number of big investors together can de facto control a company.

Answer ... The default board structure of a stock corporation is a one-tier board. However, to the extent that board responsibilities are not reserved to the board by law (see question 5.1), they may be delegated by the board to a CEO or a management board (executive committee), which is the standard set-up at listed companies. Therefore, in practice, a de facto two-tier structure is the predominant board structure of a Swiss listed company, where the day-to-day management of the company is delegated to the CEO or the executive committee.

Banks and insurance companies are required by law to establish a two-tier structure, with a functional and personal separation of operative management and supervision.

Answer ... Non-listed companies are not required to establish any board committees. The Minder Ordinance (see question 1.1) mandates that a listed company have a compensation committee whose members are elected by the general shareholders’ meeting. Other board committees are not required by law.

The Swiss Code of Obligations (see question 1.1) recommends the establishment of:

• an audit committee;
• a compensation committee; and
• a nomination committee.

Other than as set out above, neither Swiss law nor stock exchange rules require mandatory board committees (except for banks and insurance companies that, for example, must have an audit and risk committee and an appointment (nomination) committee).

Answer ... Generally, there is no legal requirement to appoint independent board members.

The Swiss Code (see question 1.1) recommends that the majority of the board member be independent. ‘Independence’ is defined rather generally as a non-executive member of the board (ie, the board member not having an executive function in the company) who has never been a member of the executive board, or was a member thereof more than three years ago, and who has no or comparatively minor business relations with the company. The code provides that the board may define further criteria of institutional, financial or personal independence.

In contrast to the rules of certain institutional investors and proxy advisers, under the Swiss Code, a long board tenure (eg, 9 or 12 years) does not destroy independence. In practice, however, most listed companies follow the more far-reaching independence definitions of the big institutional investors and proxy advisers.

In boards of banks and insurance companies, at least one-third of the board must consist of non-executive and independent board members.

Listed stock corporations must disclose whether their directors are executive board members or are otherwise not independent.

Answer ... Currently, there are no legal diversity requirements with regard to board composition. However, in 2020 a general corporate law reform was adopted, introducing a target gender quota of 30% for boards and 20% for the executive committee of listed companies on a ‘comply or explain’ basis (see question 1.1).

The Swiss Code (see question 1.1) recommends that there be “appropriate diversity” among the board members, including that both genders be represented. Moreover, if a significant part of a company’s operations is abroad, persons with longstanding international experience or foreign members should also be board members.

In practice, many listed companies already have 25% to 30% percent female representation on their boards and some disclose not only this, but also a detailed diversity matrix of their board composition.

Answer ... Board members are appointed and removed by the shareholders’ meeting, normally upon a proposal of the board, which is based on a recommendation of the nomination committee. In listed companies, board members must be elected individually and on an annual basis; and the chair must be elected by the shareholders’ meeting. Boards cannot fill vacancies by themselves.

Answer ... Board members can be removed from office by the shareholders’ meeting at any time without cause.

In listed companies, the shareholders’ meeting can also remove the chair and the members of the compensation committee.

Answer ... Company law provides for a term of office of three years, unless the articles of incorporation state differently (up to a maximum of six years). In listed companies, there is a mandatory one-year term; hence, staggered boards are not permissible.

Board members can be re-elected without limitations, unless the articles of incorporation provide for an age or term limit.

Answer ... The Swiss Code(see question 1.1) recommends the following:

• The board should plan its succession and determine the criteria for selecting candidates.
• The size of the board should match the needs of each company and be:
• • small enough for efficient decision making; and
  • large enough for members to contribute experience and knowledge from different fields, and to allocate management and control functions among themselves.
• The majority of the board members should be independent.
• The board should be comprised of male and female members with the necessary abilities to ensure an independent decision-making process in a critical exchange of ideas with the executive management.
• The chair and chief executive roles should be separated, subject to exceptions warranted by specific circumstances, in which case adequate control mechanisms must be put in place (eg, appointment of a ‘lead director’).

Compared to internationally accepted best practices relating to board composition, certain best practices are not explicitly recommended by the Swiss Code, including:

• broader diversity standards (including gender, age, culture, sexual orientation, ethnicity);
• stricter independence rules (eg, tenure, term or age limits);
• gender quotas;
• skills and qualification standards and related disclosure (‘skills matrix’); and
• a maximum board size.

However, listed companies generally do follow these more far-reaching internationally accepted best practices – in particular, those of proxy advisers and those of their biggest institutional investors.

Answer ... The board is responsible for the ultimate management and representation of the company. Its core duties include:

• setting the corporate strategy;
• appointing, supervising and, if necessary, replacing the chief executive officer (CEO) and the executive committee; and
• allocating resources.

The board can decide on all matters that:

• are not reserved to the shareholders’ meeting or to the auditors by law or by the company’s articles of incorporation; and
• are not delegated to the executive committee based on the organisational regulations (board regulations).

The board must personally and mandatorily execute the following responsibilities, which cannot be delegated downwards to the executive committee or upwards to the shareholders’ meeting:

• the ultimate management of the company – in particular, the duty to determine the corporate strategy and to allocate the corporate resources (although the day-to-day management can be – and in big companies regularly is – delegated to the executive committee);
• definition of the fundamental organisational structure of the company;
• the establishment of an accounting and financial controlling system (including an internal control system) and the execution of key financial planning;
• the appointment, removal and supervision of the executive committee members;
• the grant of signing authority to managers, authorising them to act on behalf of the company;
• preparation of the annual report, including the corporate governance and compensation reports, and the general shareholders’ meeting; and
• notification of the courts if the company is over-indebted.

The board can delegate the preparation and execution of these responsibilities to a board committee or to the executive committee, but must retain decision-making power.

Answer ... The law requires that at least one board meeting per year be held for the purpose of preparing for the annual general shareholders’ meeting. In addition, each board member may request that a board meeting be convened at any time. The Swiss Code(see question 1.1) recommends at least four board meetings per year.

In practice, the boards of listed companies typically hold five to eight standard meetings throughout the business year. In addition, most boards hold a special one or two-day strategy meeting each year to review and approve the company strategy. In case of urgency, additional meetings may be held to deal with special situations such as major transactions or investments – often in the form of telephone or video conferences or decisions being taken without a formal board meeting as ‘circular resolutions’, either via written or electronic exchange or on a dedicated board portal (website).

Board meetings of listed companies typically take one to two days, starting with the meetings of the board committees on the first day and followed by the meeting of the full board on the second day.

At board meetings, boards:

• are regularly informed by management of the business of the company;
• decide on major transactions or investments; and
• are debriefed on the business of the board committees.

Further topics addressed at board meetings include:

• review of the annual business performance of the company (and its divisions);
• approval of next year’s business targets;
• review of board and executive committee member performance;
• board and executive committee succession planning;
• board and executive compensation;
• the annual report; and
• the agenda of the general shareholders’ meeting.

Board meetings are typically structured as follows: the board starts (and often ends) with a closed meeting (ie, without any non-board members present); then there is a session with the CEO alone, followed by a session with the CEO and all members of the executive committee.

Answer ... (a) Strategic planning?

Strategic planning is a core responsibility of the board. The preparation of the strategy and its execution can be delegated to the executive committee and this is standard practice, but decision-making power must be maintained by the board.

(b) Risk management?

The board is responsible for ensuring that an effective enterprise risk management system is in place. In addition, the board must, on a regular basis, assess key risks of the company, making sure that these are identified and managed appropriately. There is no obligation to establish a dedicated risk management committee of the board. Risk management is typically allocated to the audit committee and it is considered best practice for the internal risk management function to (functionally) report to the audit committee.

(c) Major and related-party transactions?

While the board is entitled to delegate major transactions to the executive committee, in practice, boards retain decision-making power for major transactions.

While related-party transactions need not be approved by the board (or even the shareholders’ meeting), it is common practice that these are reported to the board or the chairman of the board, who may assume decision-making power for the board on a case-by-case basis.

(d) Conflicts of interest?

Companies normally do address conflict of interest situations of employees, managers or board members in internal organisational regulations, and provide for appropriate rules and measures in case of a conflict of interest, which typically includes disclosure of the conflict and abstention from debating and voting.

Answer ... All board members have one vote. The chairman has the casting vote, unless the company’s articles of incorporation provide otherwise. Board resolutions are taken by majority of the votes cast, unless the articles of incorporation or organisational regulations provide otherwise. There is no requirement for a minimum number of board members to be present, unless this is required by the company’s internal regulations. Board decisions can be taken at meetings (including meetings held by telephone, video or computer conference or other means of direct communication) or by way of a circular resolutions, unless a member requests oral deliberation.

Answer ... In fulfilling its tasks, the board must observe:

• the duty of care (complying with expected standards of care);
• the duty of loyalty (placing the interests of the company ahead of the interests of board members);
• the duty of confidentiality; and
• the duty to treat shareholders equally (ie, treating shareholders in comparable circumstances equally).

The duties of care and loyalty are owed to the company and not to its shareholders.

Moreover, the board must always act in the company’s best interests, which are understood to encompass not only the interests of the shareholders, but also those of other stakeholders, including employees, suppliers, customers and communities affected by the operations of the company.

Answer ... Civil liability: Board members (as well as members of the executive committee and other managers with significant decision-making influence) are jointly and severally liable with their entire assets for damages caused by intentional or negligent breach of their duties.

Civil liability claims can be brought by:

• an individual shareholder;
• the company itself; or
• in the case of the company’s bankruptcy, a creditor (or its representative).

If successful, damages are paid to the company and not to the shareholders or creditors that have brought the liability claim, which in practice is a major deterrent from bringing a liability claim in the first place.

Board members can protect themselves from liability through the following measures:

• adherence to the business judgement rule (ie, taking decisions with due care, based on sound information, considering risks and alternatives, and acting without bias and in good faith, free from conflicts of interests – even if the related decision proves to be wrong retrospectively);
• directors’ and officers’ (D&O) insurance (which is standard practice in Switzerland, following the general view that companies are permitted to maintain D&O insurance in favour of their board and management members, and to pay for such insurance);
• the provision of an indemnity by the company (although the enforceability of this is not guaranteed in each situation and in most cases it is limited to costs incurred in connection with a lawsuit unsuccessfully brought against a board member); and
• the grant by the general shareholders’ meeting of a discharge from liability (which will prevent those shareholders that supported the discharge from bringing a liability action against board members for facts that were known – or should have been known – to them when they voted in favour of the discharge).

Criminal liability: There are no criminal liability provisions that specifically target board members – except for a criminal liability provision set out under the Minder Ordinance (see question 1.1), under which non-compliance with certain rules of the ordinance is subject to criminal liability (in particular, the grant of certain forms of severance pay, certain advance compensation or incentive payments for deals and restructurings).

Answer ... Shareholders have financial and non-financial rights, as follows:

• Financial rights include the right to receive dividends and, if the company is liquidated, liquidation proceeds; and
• Non-financial rights include:
• • the right to elect the board members and the auditors;
  • the right to vote on certain matters;
  • the right to propose certain matters for decision by the shareholders;
  • the right to call shareholders’ meetings; and
  • the right of information.

Right to elect the board members and auditors: The general shareholders’ meeting is responsible for the election of the members of the board of directors and of the auditors. In listed companies, the general shareholders’ meeting is also responsible for the election of the chair of the board and of the members of the compensation committee.

Requirement to put certain matters to a shareholders’ vote: In publicly listed companies, the following matters must be put to a shareholders’ vote:

• adoption and amendment of the company’s articles of incorporation;
• election of the board members and the auditors;
• approval of the annual financial statements and profit distribution;
• discharge of the members of the board;
• adoption of other decisions reserved for the shareholders’ meeting by law or the articles of incorporation;
• election of the chair of the board;
• election of the members of the compensation committee;
• election of the independent proxy; and
• approval of the compensation of the board members and of the executive committee members.

Certain important matters require a super-majority of two-thirds of the voting rights, including:

• changing the company’s purpose;
• restricting the transferability of shares;
• introducing shares with preferential voting rights;
• granting special privileges;
• restricting or cancelling the subscription right; or
• dissolving the company.

Right to propose certain matters for decision by the shareholders: Shareholders (or groups of shareholders) with shares of a total par value of CHF 1 million or, if lower, 10% of the share capital may put an item on the agenda with a related proposal. The company’s articles of incorporation may provide for a lower threshold.

Right to call shareholders’ meetings: Shareholders (or groups of shareholders) with 10% of the share capital may call a shareholders’ meeting. Again, the company’s articles of incorporation may provide for a lower threshold.

Right of information: The most important rights of information of shareholders include:

• the right to receive a copy of the annual report (audited financial statements, management report, compensation report and auditors’ report);
• the right to ask questions to the board members and the auditors at the general shareholders’ meeting – although this is limited to information that is necessary to execute shareholders’ rights and that does not jeopardise business secrets or other legitimate interests of the company. However, in practice, boards do answer questions that are not necessary to execute shareholders’ rights and questions put to them outside of the general shareholders’ meeting;
• the right of shareholders holding at least 10% of the nominal value of the share capital or CHF 2 million in nominal value to request a special investigation in court; and
• the right of the shareholders’ meeting to demand access to the company’s books and files to the extent required for the exercise of shareholders’ rights, and provided that no vital interests of the company are endangered.

Answer ... Shareholders exercise their rights predominantly at the shareholders’ meetings. Shareholders (or groups of shareholders) with 10% of the share capital may call a shareholders’ meeting. The company’s articles of incorporation may provide for a lower threshold (see question 6.1).

Answer ... The shareholders, at the general shareholders’ meeting, elect the board members, the chair of the board and the members of the compensation committee. While shareholders may propose a board member for election (see question 6.1), in listed companies these elections are normally based on proposals from the board.

Legally, shareholders have little influence on the operations of the board. They cannot instruct the board on how to exercise its responsibilities. In particular, the shareholders’ meeting may not instruct the board on:

• the strategy of the company (as long as it is within the company’s business purpose, which is determined by the shareholders in the company’s articles of incorporation); or
• the appointment of the executive committee (to which boards of listed companies normally delegate the day-to-day management of the company.

Likewise, the board is not allowed to delegate its responsibilities (see question 5.1.) ‘upwards’ to the shareholders’ meeting (except for questioning the shareholders in the form of a non-binding shareholders’ resolution).

However, a relatively small number of big institutional shareholders together ‘control’ most of the biggest publicly listed companies in Switzerland (see question 3.1). This gives them de facto the possibility to influence the operations of the board as they re-elect (or not) the board members. They express their views and expectations and concerns about the company, and gain insight into the company’s strategic plan and operations, through regular bilateral ‘shareholder engagement’ meetings with the board and executive committee meetings that take place throughout the year.

However, the board cannot disclose non-public price-sensitive information in such shareholder engagement meetings.

Answer ... In unlisted companies, shareholders have only two obligations:

• the obligation to fully pay to the company the issue price of subscribed shares; and
• the obligation of shareholders reaching or exceeding the threshold of 25% of the share capital or voting rights to report to the company the identity of the natural person for which they are ultimately acting (ie, the so-called beneficial owner).

Also, shareholders have:

• no fiduciary duties to the company or other shareholders;
• no duty of loyalty (they can place their interests ahead of those of the company); and
• no duty of care.

Moreover, shareholders may not be held responsible for their acts or omissions, except in exceptional cases where:

• they acted as founder, in a management capacity or as an agent of the company;
• they – as controlling shareholder – intermingled their assets with those of the company or disregarded corporate formalities; or
• the company was substantially severely underfunded.

In listed companies, shareholders have (only) two (additional) obligations:

• If shareholders (or groups of shareholders) reach, exceed or fall below a threshold of 3%, 5%, 10%, 15%, 20%, 25%, 33.33%, 50% or 66.66% of all voting rights, they must inform the company and the stock exchange; and
• Shareholders (or groups of shareholders) that reach or exceed the threshold of one-third of the voting rights must make an offer to all other shareholders to acquire their shares at a certain minimum price.

Answer ... There are no specific civil or criminal liability provisions targeted at shareholders.

Answer ... Upon the issuance of further securities, shareholders have a pre-emption right, which can be limited or excluded by a resolution of a two-thirds super-majority of the shareholders if there are valid reason to do so. Valid reasons include financing an acquisition or an employee stock option plan, but not, for example, defending against an unsolicited tender offer.

Answer ... In listed companies:

• if shareholders (or groups of shareholders) reach, exceed or fall below a threshold of 3%, 5%, 10%, 15%, 20%, 25%, 33.33%, 50% or 66.66% of all voting rights, they must inform the company and the stock exchange; and
• shareholders (or groups of shareholders) that reach or exceed the threshold of one-third of the voting rights must make an offer to all other shareholders to acquire their shares at a certain minimum price (see question 6.4.).

Answer ... Institutional investors play a key role in shaping the corporate governance of listed companies in Switzerland, for the following reasons:

• As the biggest institutional investors together often have de facto control over Swiss companies (see question 3), companies are forced to follow their corporate governance standards; and
• The institutional investors’ corporate governance standards are often more far reaching than the ‘official’ corporate governance standard in Switzerland as set out in the Swiss Code of Obligations (see question 1.1).

The world’s two biggest proxy advisers – ISS and Glass Lewis – play an equally important role in shaping corporate governance in Switzerland, as each is believed to get up to 20% or more of the shareholder votes behind their voting recommendations. These voting recommendations are based on their voting policies, which – like those of the international institutional investors – are often more far reaching than the ‘official’ corporate governance standards of Switzerland as set out in the Swiss Code of Obligations (see questions 1.1 and 4.5).

Answer ... There is no legislation that specifically applies in general to institutional shareholders.

As discussed in question 6.4, institutional investors, being shareholders, have:

• no fiduciary duties to the company or other shareholders;
• no duty of loyalty; and
• no duty of care;

Moreover, in principle, they may not be held responsible for their acts or omissions. They have only two obligations:

• If they reach, exceed or fall below certain thresholds of voting rights, they must inform the company and the stock exchange; and
• If they reach or exceed the threshold of one-third of the voting rights, they must make an offer to all other shareholders to acquire their shares at a certain minimum price.

However, there are binding regulations that apply to certain institutional investors. Swiss pensions funds must:

• formulate regulations that are to be applied in exercising shareholders’ rights;
• vote all shares in Swiss listed companies that they directly own and vote these in the interest of their beneficiaries; and
• disclose how they voted.

Moreover, the codes of conduct of the Association of Swiss Pension Fund Providers and of the Swiss Funds Association also address the exercise of shareholders’ rights.

Finally, the Guidelines for Institutional Investors constitute a non-binding code of best practice applicable to institutional investors, setting out best practices for institutional investors in the form of principles without specifying detailed requirements, and recognising the ‘comply or explain’ principle. They provide that institutional investors should:

• assume certain responsibilities in the exercise of their participation rights;
• exercise their participation rights insofar as this is deemed appropriate and feasible in the interests of their clients;
• take due account of the interests of their clients when exercising their participation rights;
• assume responsibility for exercising the participation rights to which they are entitled;
• communicate the principles and processes involved in exercising their participation rights to their clients; and
• once a year, disclose the manner in which they have exercised their participation rights.

Answer ... The approach and methods applied by activist shareholders to exert influence on listed companies in Switzerland are not substantially different from those applied in other jurisdictions. They:

• attack companies by criticising the governance, executive compensation, management, strategy or business of the company, presenting their own solutions to the identified issues;
• propose alternative board or executive committee members and try to get them elected by requesting a related item on the agenda of the general shareholders’ meeting or calling an extraordinary shareholders’ meeting;
• try to enforce a sale of a division/business or the whole company by:
• • spreading rumours;
  • taking positions in the company; and/or
  • partnering with a hostile acquirer to build a substantial equity position to facilitate a takeover;
• try to rally institutional investors and analysts to support their case;
• use options and derivatives to accumulate positions secretly or to increase their voting power;
• obtain due diligence and consulting services to analyse the company;
• try to create divisions within the board or between the board and the executive committee;
• approach the shareholders with regular mailings or via newspaper advertisements; or
• hire private investigators to create dossiers on board and executive committee members.

The process normally starts with the activist shareholders building up a small stake of shares. They then contact the company to present and discuss their criticisms and related solutions. If they are unsuccessful, typically the next step is to go public with their case, trying to secure support from institutional investors and proxy advisers to enforce their demands in or outside the shareholders’ meeting. If they are unsuccessful or to support their demands, they may try to employ legal measures such as:

• enforcing information;
• freezing entries in the commercial register;
• challenging shareholders’ resolutions; or
• starting civil litigation or bringing criminal charges.

Answer ... In particular, the following areas are currently in the focus of institutional investors:

• corporate social responsibility (CSR) – in particular, how boards oversee and report on CSR;
• climate change – in particular, whether boards are managing the risks of climate change to their companies and how they manage their own climate footprint;
• executive compensation – in particular, the impact of the COVID-19 crisis on executive compensation;
• diversity – demanding a female representation on boards of 30% or more;
• cyber risk – demanding strong board oversight of cyber risk management; and
• over-boarding (maximum of five board seats in listed companies).

Answer ... There have been several prominent shareholder activism cases in recent years, including:

• hedge funds Corvex and North attacking Clariant (successfully stopping a planned merger);
• Freenet and Active Ownership Capital attacking UPC (successfully stopping a planned merger with Sunrise);
• hedge fund Third Point attacking Nestlé (strategy);
• activist investor Cevian attacking Panalpina (trying to enforce a takeover);
• RBR Capital Advisors attacking Credit Suisse (strategy); and
• Veraison attacking a number of companies for various reasons, including Comet and Aryzta (board composition and strategy).

Answer ... There has been a significant increase in shareholder activism in recent years. The focus has been on:

• board composition;
• profit distribution;
• strategy;
• executive compensation; and
• change of control (mostly public tender offers).

This trend will likely continue and will be fostered by the strengthened shareholders’ rights in the recent general corporate law reform (see question 1.1).

Answer ... Stakeholders – other than shareholders – have no direct influence on shaping corporate governance in Switzerland and there is no formal employee representation on the board. Nevertheless, their interests must be taken into consideration by the board, as boards must always act in the company’s best interests, which are understood to encompass not only the interests of the shareholders, but also those of other stakeholders, including employees, creditors, customers and suppliers (see question 5.5).

Answer ... The primary sources regulating executive compensation in Switzerland are the Minder Ordinance and the Swiss Code of Obligations (see question 1.1).

The Minder Ordinance determines in particular:

• which compensation elements are permitted, which are not (eg, severance payments and M&A transaction bonuses are not permitted), and which elements are permitted, but only if there is a corresponding basis for this in the company’s articles of incorporation (eg, loans, performance-based compensation and the grant of shares); and
• how executive compensation must be disclosed.

It also provides for a shareholders’ ‘say on pay’ on executive (and also board) compensation. In the finance industry, additional regulations apply.

As regards the say on pay on executive compensation in listed companies, the following applies: the shareholders’ meeting approves, annually and bindingly, the maximum aggregate executive compensation amount. The shareholders of each listed company decide (in the company’s articles of incorporation) whether their say-on-pay vote is:

• a retrospective vote on the actual compensation paid;
• a prospective ‘budget vote’; or
• a combination of both methods.

In practice, many companies applying the prospective ‘budget vote’ combine this with a (voluntary) non-binding vote on the compensation report.

For non-listed companies, executive compensation is not regulated and there is typically no shareholders’ say-on-pay vote.

Answer ... The board determines the executive compensation within the framework of the law.

In listed companies, while the board decides on the individual compensation of the executives, the aggregate amount of executive compensation is decided by the shareholders (see question 9.1).

Moreover, the board must establish a compensation committee, whose members are individually elected by the shareholders’ meeting.

Answer ... Listed companies must, in an annual audited compensation report, disclose:

• the executive compensation on an aggregate basis and for the highest-paid executive on an individual basis;
• the main principles of their compensation system; and
• how and by whom executive compensation is determined.

All elements of executive compensation must be so disclosed, including any fees, bonuses, benefits in kind or loans.

Answer ... The Swiss Gender Equality Act requires companies with 100 or more employees to publish a gender pay gap analysis, which must be audited by a qualified specialist and communicated to the employees and, if the company is listed, to the company’s shareholders.

Any company that is found to have an unequal pay system in place must undergo this analysis every four years.

Answer ... Executive performance is monitored and managed by the board. The boards of listed companies must establish a compensation committee, whose members are individually elected by the shareholders’ meeting (see question 9.2).

Answer ... It is considered best practice in Switzerland that executive compensation consists of:

• a fixed compensation element, typically paid in cash (base salary);
• a variable short-term compensation element that is based on the past year’s individual and/or company performance, typically paid in blocked shares (short-term incentive plan); and
• variable long-term incentive performance elements that are, for example, based on value added and/or (relative) share performance, typically paid in blocked shares, with a performance test at vesting (long-term incentive plans).

Answer ... All companies must file basic corporate information and changes thereto with the Commercial Register, including the articles of incorporation and the board membership. This information is publicly available.

In addition, listed companies are subject to:

• the Directive on Information Relating to Corporate Governance of the SIX Swiss Exchange, which requires companies to disclose, on a ‘comply or explain’ basis, their corporate governance rules in a corporate governance report, being a separate chapter of their annual report (see question 1.1); and
• the Minder Ordinance (see question 1.1), which requires the companies to produce a compensation report.

The information to be published in the corporate governance report includes, among other things, details of:

• significant shareholders;
• board and executive committee members; and
• shareholders’ rights.

The information to be published in the compensation report includes, among other things, information on:

• the main principles of the compensation system;
• the amount of compensation paid to the board and executive committee members; and
• the shares in the company held by them (see also question 9.3).

Answer ... The boards are ultimately responsible for the disclosure obligations of the company.

Answer ... The auditors of the company must audit the compensation report, but not the corporate governance report (see question 10.1).

Answer ... Some listed Swiss companies go beyond the applicable Swiss disclosure requirements for the corporate governance and compensation report, meeting additional disclosure expectations of institutional investors and proxy voting companies. These include, among other things:

• sending letters to the shareholders of the chairs of board committees, explaining what the committee did throughout the year, the issues it faced and the solutions it found;
• disclosing the skills matrix of the board;
• disclosing the board and executive succession process; or
• disclosing the results of the board evaluation and actions taken to address shortcomings.

Answer ... The auditors are appointed (or removed) by the shareholders’ meeting. The tenure is between one and three years. Re-election is permissible. While there is no tenure limit for the audit company, the lead audit partner must be replaced after seven years (where a full audit is required; see question 11.2).

Whether an auditor is required depends on the size of a company. Listed public companies that trade their shares at the stock exchange must have an auditor. Small non-listed companies may elect not to have an auditor if certain conditions are met and all shareholders agree.

Answer ... There are rules that limit the scope of services as regards the provision of non-audit services by an auditor, depending on whether a full audit is required:

A full audit is required for:

• listed companies;
• companies which are indebted for more than CHF 2 million; or
• companies which meet two of the following criteria:
• • total balance sheet of at least CHF 20 million;
  • turnover of CHF 40 million; or
  • at least 250 full-time employees.

Auditors performing a full audit cannot perform non-audit work for the company that is incompatible with their auditing mandate (in particular, they cannot provide services, such as accounting, that might result in the auditor auditing its own services). Auditors of small, non-listed companies where only a limited audit is required can provide accounting and other services. If there is a risk that the auditors will audit their own services, appropriate measures must be put in place to restrict the flow of information (‘Chinese walls’).

Auditors of financial institutions and securities dealers are subject to separate rules.

Answer ... There are no rules or recommendations which cap the remuneration of an auditor as regards payment for the provision of non-audit services. However, listed companies and big non-listed companies (where a full audit is required; see question 11.2) must disclose in the notes to their annual accounts the audit fees, separated for audit and non-audit services.

Answer ... In general, the corporate governance standards of Swiss (listed) companies are high. This is due to:

• legal binding obligations – in particular, the Minder Ordinance (see question 1.1);
• the high equity stakes of big institutional investors; and
• the strong influence of the two international proxy voting companies, ISS and Glass Lewis, which enforce their high governance standards (see question 7.1).

This will continue in the years to come: as international best practice standards further evolve, they will be implemented in Switzerland. Typical examples of this are the increasing diversity expectations for boards, in particular in relation to gender diversity, as well as more stringent board independence expectations.

Finally, while Switzerland currently has very liberal investment control legislation in place, this might change going forward, as related political initiatives are underway which could indirectly impact on the corporate governance regimes of companies.

Answer ... In 2020, a general corporate law reform was adopted. They key changes with regard to corporate governance include:

• incorporating rules of the Minder Ordinance into the Swiss Code of Obligations;
• introducing a target gender quota of 30% for boards and 20% for the executive committee of listed companies on a ‘comply or explain’ basis; and
• strengthening shareholders’ rights.

The new rules will likely enter into effect as per 1 January 2023, with transitional rules, including a two year-period to amend the articles of incorporation (see question 1.1).

Answer ... Companies that wish to implement an effective corporate governance regime should look beyond the Swiss legal, regulatory and best practice standards and consider implementing higher standards applied elsewhere (eg, in the United Kingdom) as well as those of big institutional investors. However, they should not blindly implement any foreign best governance standards, but always assess first whether this will improve their governance. The test for this is whether the potential governance best practice to be implemented will support the company in achieving sustainable long-term value for its shareholders and other stakeholders.