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Engagement with shareholders
i Shareholder rights and powersShareholders of Swiss companies have both financial and non-financial rights. Financial rights entail the right to receive dividends that have been resolved by the shareholders' meeting. Dividends can be distributed only from free reserves. Free reserves include disposable balance sheet profits and specifically dedicated reserves. In the event of the liquidation of a company, shareholders have a right to receive liquidation proceeds.
Non-financial rights include protection and participation rights. The main aspect of shareholders' protection rights is the relative requirement of the equal treatment of shareholders. In principle, one share means one vote, and every shareholder has at least one vote. Swiss law does not grant any special rights (super-voting or special dividend rights) to long-term shareholders. A company may issue different share classes and allocate different voting powers to those shares. This special voting power does not apply to a number of resolutions, such as the election of the auditors or a special audit. Certain resolutions of the shareholders' meeting require a higher quorum than the regular majority vote (e.g., a change of corporate purpose, limitation or exclusion of subscription rights, or limitation of transferability of shares). Another protective right is the subscription right of existing shareholders in the event of a capital increase. The subscription right may be limited or excluded for important reasons by a qualified shareholders' resolution. The action for liability and the right to challenge shareholder resolutions that violate the law or the articles of incorporation or to claim their annulment are further mechanisms to protect shareholders' rights.
Participation rights entail certain information and supervision rights. Shareholders must be provided with the annual financial statements and, if applicable, the auditor's report. In addition, at the shareholders' meeting, shareholders may demand information regarding the company's affairs from the board of directors and regarding the audit from the auditors. Shareholders holding 5 per cent or more of the share capital or voting rights also have the right to inspect the company's books and records. However, the information has only to be provided and the inspection of books and records has only to be permitted to the extent required for the exercise of shareholder rights and insofar as no business secrets or other company interest worthy of protection is jeopardised. Under certain circumstances, shareholders may demand that a special investigation be carried out.
Shareholders who, alone or together, hold 5 per cent or more of the share capital or voting rights in a listed company or 10 per cent or more of the share capital or voting rights in a non-listed company have the right to request that an extraordinary shareholders' meeting be convened. In addition, shareholders holding, alone or together, 0.5 per cent or more of the share capital or voting rights in a listed company or 5 per cent or more of the share capital or voting rights in a non-listed company can request that additional items be put on the agenda of a shareholders' meeting or that their proposals in respect of any agenda items be included in the invitation to the shareholders' meeting. If requested, the rationale put forward by the shareholder has to be printed in the invitation as well. During the shareholders' meeting, any shareholder, regardless of the size of his or her shareholding, can bring a proposal in respect of any item being on the agenda of the meeting.
The convocation to a general meeting of shareholders (including agenda items and proposals of the board of directors) must be made public at least 20 calendar days prior to the meeting. At the meeting, any shareholder has the right to express his or her view on any agenda item.
During the covid-19 pandemic, shareholders' meetings of Swiss listed companies were predominantly conducted without participation of the shareholders. As from 1 January 2023, shareholders' meetings must, in principle, be held as physical meetings again. However, the corporate law reform that entered into effect on 1 January 2023 (see Section I) introduced the possibility to hold meetings in hybrid form in which shareholders can participate either physically at the in-person meeting or virtually by electronic means. In addition, the new law permits companies to introduce the possibility of virtual-only meetings. Although proxy advisers view virtual shareholders' meetings with scepticism, a large number of Swiss listed companies have adopted or are expected to adopt a respective provision in their articles of incorporation. Importantly, Swiss law ensures that the shareholders have the same participation rights (including the right to vote, to make proposals, to speak or to request information at the meeting) in virtual meetings as they have in physical meetings.
ii Shareholder duties and responsibilitiesUnder Swiss corporate law, shareholders of a company traditionally have the duty to pay only the issue price of the subscribed shares. It is the general prevailing view that shareholders of a company do not have a duty of loyalty in relation to the company, and that they are not liable for the company's obligations. In listed companies, shareholders must disclose their participation when crossing the thresholds of 3, 5, 10, 15, 20, 25, 33.33, 50 or 66.66 per cent of the voting rights; in unlisted companies, the beneficial owner has to be disclosed if a shareholder exceeds 25 per cent of the share capital or voting rights (see Section III).
There is no general code of best practice or guidelines for shareholders in Switzerland. However, in 2013, economiesuisse issued its Guidelines for Institutional Investors Governing the Exercising of Participation Rights in Public Limited Companies (the Investors' Code).14 The Investors' Code sets out five principles governing how institutional investors should exercise their participation rights in public companies. The main goal is that institutional investors take seriously their responsibility towards clients with regard to ensuring long-term, effective corporate governance of the companies in which they are invested. According to the Investors' Code, institutional investors should systematically exercise their participation rights, and do so in the best interests of their clients. Furthermore, institutional investors shall communicate how they exercise their participation rights, including the underlying reasoning. Following the comply or explain approach, all investors who have agreed to implement the Investors' Code have to publish a statement of accountability wherein they explain any deviation from the Investors' Code.
Swiss law requires Swiss pension funds to exercise their voting rights in the election of board members, the chair, the members of the compensation committee and the independent proxy, and in respect of further items such as compensation. Pension funds must disclose annually to their clients how they have exercised their voting rights.
iii Shareholder activism and proxy advisersShareholder activism and proxy fights in Switzerland have increased during the past few years. One of most recent activist campaigns was that by Petrus Advisers against the leadership of Temenos, a Swiss provider of standardised banking software. Petrus Advisers requested the resignation by the chair and the CEO of Temenos, and that the board of directors carry out a strategy review, including in respect of a potential sale of the company. After Petrus Advisers had exercised public pressure during a few months, Temenos announced that its CEO and, after an interim period, its chair would retire. Other noteworthy recent activist campaigns include Third Point's intervention at Glencore and Bluebell's campaign at Richemont. It is expected that numerous other activist campaigns will occur in the next 12 to 18 months.
The demands of most activists in Switzerland (as elsewhere) target the composition of the board of directors (including the chair) and executive board (in particular, the CEO) and their compensation, a review of and change in strategy, or a sale, spin-off or other corporate reorganisation.
Swiss law does not provide for special provisions applicable to activist shareholders. In particular, shareholders are not allowed to inspect the share register. However, the corporate law reform that entered into effect on 1 January 2023 (see Section I) improved the position of activist shareholders in proxy fights by, among other things, lowering the hurdles for requesting extraordinary shareholders' meetings or the addition of items on the agenda or of motions in respect of any agenda items. Also, a board of directors is now required to print the rationale for any motions put forward by activist shareholders in the invitation to the shareholders' meeting, and the independent proxy is permitted to disclose generic information on the received voting instructions to the board only shortly prior to the meeting. It remains to be seen whether these changes, which are intended to enhance shareholder rights, more broadly will result in a significant increase of proxy fights between companies and activist shareholders.
In proxy fights, it is not uncommon for a company (and the activist shareholder) to engage a proxy solicitor to identify shareholders, to explain the board's (or shareholder's) position and arguments, and to convince shareholders to exercise their voting rights at the shareholders' meeting. Activist shareholders may challenge shareholder resolutions. Up to the end of 2020, as an interim measure, activists could request the blocking of the commercial register to prevent, or at least delay, the registration of a merger or capital increase. The register blocking was a simple and effective way of temporarily preventing entries in the commercial register. However, owing to its considerable potential for abuse, the register block was criticised. With the abolition of the register blocking as of 1 January 2021, an entry in the commercial register since then can be prevented only by means of (ex parte) precautionary measures.
Proxy advisers such as ISS, Glass Lewis and Ethos are also active in the Swiss market. Parliament adopted a motion requiring the government to propose new legislation addressing conflicts of proxy advisers on 3 June 2020, thereby instructing the Federal Council to submit an amendment to the law to disclose and avoid conflicts of interest of proxy advisers for listed companies and to take into account international developments in doing so. However, in the absence of a physical presence of these proxy advisers in Switzerland – namely, of ISS and Glass Lewis – it remains unclear how the required legislation would effectively be enacted.
iv Takeover defencesThe Swiss takeover rules prevent a board of directors and management of a target company from taking frustrating actions without shareholders' approval after a tender offer has been formally announced. 'Frustrating actions' are defined as those that significantly alter the assets or liabilities of the target company (e.g., the sale or acquisition of any target company's assets at a value or price representing more than 10 per cent of the total consolidated balance sheet or contributing more than 10 per cent to the profitability of the target company, and the conclusion of contracts with members of the board of directors or senior management providing for unusually high severance payments). The target board is also prohibited from acquiring or disposing of treasury shares or respective derivatives and from issuing any conversion or option rights, unless those transactions are made in the context of pre-existing employee share programmes or obligations under pre-existing instruments (such as pre-existing convertible bonds). In addition, the Swiss Takeover Board has the authority to object to defensive measures that manifestly violate company law.
However, the board may still take other steps to counter an unsolicited informal approach or formal offer, including seeking a white knight, running a public relations campaign or bringing legal action against the bidder, especially on the basis that the bidder has not complied with its disclosure obligations, or if the terms of its offer are not in line with the takeover rules. The board could also call an extraordinary shareholders' meeting and propose more effective defence measures, such as the sale of a material part of the business or the issuance of new shares. Apart from specific defence measures in response to a specific bid, the articles of incorporation of a number of listed Swiss companies contain preventive clauses, particularly transfer and voting rights restrictions, which an offeror will normally seek to have removed from the articles as a condition to closing. Under these circumstances, the board is generally perceived to have more leverage in discussions with a bidder, especially in relation to the financial terms of a proposed offer. However, staggered boards are not possible for Swiss listed companies, as board members must mandatorily be (re-)elected each year.
v Contact with shareholdersThe main means of contact between a company and its shareholders is the annual general meeting of shareholders. In addition, shareholders may request special information from the company (see Section V.i). Listed companies are required to make ad hoc notifications of price-sensitive facts arising within the sphere of the company.
It is quite common for listed companies to entertain regular contact with their major shareholders and proxy advisers to explain the company's strategy and to better understand shareholder concerns. However, the principle of equal treatment of shareholders, ad hoc publicity and insider regulations, in principle, require the board to not disclose non-public price-sensitive information to selected shareholders. Any such contacts must be in the interest of the company. These contacts are often entertained by the chair, the lead director and investor relations.
The revised corporate law that entered into effect on 1 January 2023 improved communication with shareholders by facilitating the use of technology. For instance, the board may provide that it is possible for shareholders to have access to electronic remote voting (hybrid meetings, see Section V.iii).
