Sources of corporate governance rules and practices
1 Primary sources of law, regulation and practice
What are the primary sources of law, regulation and practice relating to corporate governance?
The primary sources of law relating to corporate governance are the Company Law (article 620ss of the Swiss Federal Code of Obligations, CO) and the Federal Stock Exchange and Securities Trading Act (SESTA), which regulates exchanges, securities trading, disclosure of shareholdings and public takeover offers relating to public companies. The SESTA is further specified by the ordinance on stock exchanges and securities trading, issued by the Swiss Financial Market Supervisory Authority (FINMA, see question 2), and the ordinance on public takeovers, issued by the Swiss Takeover Board (TOB, see question 2). In addition, FINMA has the authority to issue directives. A first directive relates to corporate governance, risk management and the internal control system mandatory for all insurance companies under Swiss supervision. In response to the financial crisis of 2008-2009, a further FINMA directive, 'Minimum standards for remuneration schemes of financial institutions', became effective on 1 January 2010 and must be fully complied with by the affected financial institutions since 1 January 2011. Currently, FINMA conducts a review of its preexisting circulars relating to corporate governance and further tries to identify other opportunities to harmonise and optimise its approach to corporate governance.
In addition, SIX Swiss Exchange AG (SIX) and to a lesser degree the BX Berne exchange (BX), both self-regulatory organisations under the SESTA, have issued Listing Rules with specific reporting and disclosure requirements. In 2002, SIX enacted its 'Directive on Information Relating to Corporate Governance' (SIX Corporate Governance Directive), the current version dating from October 2008. Its purpose being the overall improvement of corporate transparency, the SIX Corporate Governance Directive requires SIX-listed issuers 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'). The reviewed and simplified SIX 'Directive on Disclosure of Management Transactions' entered into force on 1 April 2011, obliging all issuers whose equity securities are primarily listed on SIX Swiss Exchange to disclose and report a wide range of management transactions.
Moreover, in 2002, the Swiss Code of Best Practice for Corporate Governance (SCBP) was issued by Economiesuisse, the most influential association of Swiss businesses from all sectors of the economy. The SCBP sets corporate governance standards in the form of non-binding recommendations. It primarily addresses Swiss public companies, but also serves as a guideline for non-listed Swiss companies and organisations of economic significance. It integrates and reflects various provisions of Swiss legislation dealing with corporate governance aspects and also seeks to embody a high standard of corporate practice already being observed by many companies in Switzerland. SCBP recommendations cover, for instance, the definition of corporate governance, general shareholders' meetings, shareholders' rights to information and inspection, the composition of the board of directors and of board committees, the role of auditors, etc. In late 2007, the SCBP was amended by a new appendix with recommendations on the compensation for boards of directors and executive boards of public companies. Considering the recent developments in international corporate governance, Economiesuisse has recently established a working group to evaluate whether and how the SCBP needs to be further developed. As a preliminary conclusion, the working group held that the SCBP on the whole is still up-todate and the need for revision is surprisingly small. Nevertheless, the working group initiated a review of the SCBP. The main topics of this current review are the establishment of guidelines for the exercise of voting rights of institutional shareholders, the definition of minimal standards of effective compliance programmes in order to ensure legal certainty in this field as well as various issues concerning the board of directors, such as its role in the conflict between the shareholders' and stakeholders' interests or its composition, in particular the proportion of male and female directors. Currently, it is not yet clear when the adapted or revised provisions of the SCBP will enter into force.
2 Responsible entities
What are the primary government agencies or other entities responsible for making such rules and enforcing them? Are there any well-known shareholder activist groups or proxy advisory firms whose views are often considered?
The most important regulators are the Swiss government, ie, the Federal Council, and two government agencies, the Swiss Financial Market Supervisory Authority (FINMA) and the Swiss Takeover Board (TOB). FINMA is the new Swiss 'super-regulator' after the consolidation of the Federal Banking Commission, the Federal Office of Private Insurance and the Anti-Money Laundering Control Authority in 2009.
The most important non-governmental organisation is the SIX Swiss Exchange. It issues and enforces the SIX Listing Rules which, however, are subject to approval by the FINMA.
Judging from the many hotly debated shareholders' meetings in recent years, shareholder activism has become a known phenomenon in Switzerland. For various reasons, an increasing number of institutional investors, and some minority shareholders' groups, have initiated shareholders' motions. Nonetheless, by international comparison, Switzerland still does not qualify as a country with strong shareholder activism. Although a growing number of Swiss pension funds have mandated active corporate governance protagonists such as the Ethos Fund to represent their votes and question the management at shareholders' meetings, a majority still does not seek an active role regarding the exercise of shareholders' rights. A recent high-profile example is the UBS shareholders' meeting in May 2012, where the shareholders rejected a contingent capital increase and more than one-third of the shareholders supported a recommendation by the Ethos Fund and other shareholders' associations to reject the 2011 remuneration report for the board of directors and the management.
The rights and equitable treatment of shareholders
3 Shareholder powers
What powers do shareholders have to appoint or remove directors or require the board to pursue a particular course of action?
The shareholders may vote on the appointment or the removal of any of the directors whenever a shareholders' meeting is held and its agenda provides for the respective election or removal. Significant shareholders are also entitled to request the board to convene a shareholders' meeting and put the requested items on the agenda (see question 7).
Generally, shareholders have rather limited powers. Shareholders may therefore try to indirectly influence the decision-making process and actions of the board, for example by formally requesting a nonbinding vote in a shareholders' meeting on a specific issue that falls within the competence of the board, or by threatening or bringing removal motions or shareholders' suits against the company to protect their rights, or against liable directors or officers to penalise non-compliance with statutory duties and recover damages. More and more, individual shareholders are organising themselves via the media as well (see question 7).
4 Shareholder decisions
What decisions must be reserved to the shareholders? What matters are required to be subject to a non-binding shareholder vote?
Based on fundamental non-transferable competencies conveyed to the shareholders' meeting under Company Law, the following decisions are reserved to the shareholders (article 698 of the CO):
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 form; election and removal of the members of the board of directors; 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; release of the members of the board of directors from liability; And matters that are by law or by articles of association reserved to the general meeting of shareholders (special audit pursuant to shareholders' information rights, liquidation of the company, etc). Under Swiss law, there is no requirement to hold a non-binding shareholder vote on any matter. This notwithstanding, non-binding shareholder votes do occur rather frequently in practice. In the majority of cases, these purely consultative votes relate to the issue of remuneration or compensation of managers: in recent years several companies (including, but not limited to ABB, Credit Suisse Group, Nestlé, Roche, Swiss Re, UBS and Novartis) have held such votes, usually in line with the recommendations of the SCBP (see questions 1 and 28).
5 Disproportionate voting rights
To what extent are disproportionate voting rights or limits on the exercise of voting rights allowed?
Companies may issue different classes of shares, including voting shares. Voting shares also grant the right to one vote per share, but their par value is a fraction of one of the other classes of shares, the maximum ratio being 1:10 among the par value of all classes of shares. Thus shareholders with voting shares receive more voting rights for their capital investment. Voting shares can still be found in certain family-controlled listed companies.
The articles of association may stipulate that a shareholder, or shareholders...