All questions

Corporate leadership

i Board structure and practices

Swiss companies limited by shares are governed by the general meeting of shareholders and the board of directors. The board of directors and the shareholders' meeting each have their respective duties and competences. This reflects the principle of parity. On a day-to-day basis, the board of directors represents the company in relation to third parties and conducts the business within the limits of the corporate purpose. The board of directors is thus the company's responsible executive body that may represent the company and manage any matter not reserved to the shareholders' meeting by law or the articles of incorporation. However, Swiss company law allows flexible, individual governance structures. In reality, the management of the day-to-day business (except for the non-transferable and inalienable duties of the board) is regularly delegated. In listed companies, the management is usually delegated to the chief executive officer (CEO) or an executive board, resulting in a two-tier structure. Such two-tier structure is mandatory for banks and security dealers.

Any matters that have not been allocated to the shareholders' meeting by law or the articles of incorporation are the responsibility of the board of directors. Except for the non-transferable duties, the board of directors may delegate its responsibilities to individual members of the board of directors or to third parties (the executive board). The non-transferable responsibilities of the board are:

  1. the overall management of the company and the issuing of all necessary directives;
  2. the determination of the company's organisation;
  3. the organisation of the accounting, financial control and financial planning systems as required for the management of the company;
  4. the appointment and dismissal of persons entrusted with managing and representing the company;
  5. the overall supervision of the persons entrusted with managing the company, in particular with regard to compliance with the law, articles of association, operational regulations and directives;
  6. compilation of the annual report, preparation for the general meetings and the implementation of its resolutions;
  7. the notification of the court in the event that the company is over-indebted; and
  8. for listed companies, the preparation of the compensation report as requested by the OaEC.

The board of directors may establish special committees. The Code recommends the establishment of an audit committee and a compensation and nomination committee. The audit committee's members should have specific expertise in the area of finance and audit. Moreover, the OaEC requires listed companies to establish a compensation committee whose members must also be members of the board of directors and who are elected by the general meeting of shareholders. The articles of incorporation must set out the basic rules of the activities of the compensation committee. Further, the audit as well as the nomination and compensation committee should mainly be composed of independent, non-executive members. While the board of directors is ultimately responsible for the succession of the CEO as well as its members, the nomination committee establishes principles for and prepares the succession process.

The main rules regarding the remuneration of the board of directors and the management board of listed companies are set out in the OaEC (and will be transferred into the CO once the pending revision will have been completed and approved by the legislator. For more information on the status of this revision, see Section VI). The shareholders' meeting has a binding vote on the remuneration of the board of directors and the executive board. The basis for this is the compensation report, which must be prepared by the board of directors and which is subject to a consultative vote by the general meeting of shareholders. Moreover, pursuant to the OaEC, certain forms of remuneration are prohibited, such as severance and similar payments (golden parachutes), advance compensation payments, and payments linked to the purchase or sale of companies.

ii Directors

The board of directors may consist of one or several members. If a company has issued different share classes, each share class may elect at least one representative to the board of directors. In practice, the board of directors consists of several members. The Code recommends that the composition of the board be diverse as regards expertise and gender. The revised draft CO provides for a gender quota for listed companies exceeding certain thresholds. In contrast to other jurisdictions, the Swiss approach is rather soft. It is envisaged that each gender shall make up at least 30 per cent in the board of directors and at least 20 per cent in the executive board. If the quotas are not met, the report on compensation must specify the reasons for missing the quotas as well as the planned measures to reach the quotas in the future. It is contemplated that companies will have five years to establish the quota in the board of directors and 10 years to do so in the executive board.

Further, the Code stresses the importance of having a majority of independent, non-executive members in the board of directors. All board members have the same rights and duties. To ensure efficiency, the Code recommends that the board of directors shall not be too big. Pursuant to the revised draft CO, the appointment of a secretary by the board of directors will no longer be required. Pursuant to the CO, the term of office is generally three years unless the articles of incorporation state differently. However, for listed companies, the OaEC limits the term to one year. Re-election is possible. The members of the board of directors are elected by the shareholders' meeting. In listed companies, the chair must also be elected by the shareholders' meeting. In addition, the OaEC requires that the company's articles of incorporation limit the maximum number of activities that a member of the board of directors, the executive board or an advisory board may carry out in other legal entities or other organisations registered in the Commercial Register (or a similar register abroad).

Any member of the board of directors may request information on all matters relating to the company. Any member of the board of directors and the executive board is required to provide information during a board meeting. Outside of board meetings, members of the board of directors may ask members of the executive board about the general business performance and, upon special request, about individual transactions. Inspection of files and records is only possible as far as it is necessary for a member of the board of directors to fulfil his or her duties.

Under the CO, unless the articles of incorporation state otherwise, each member of the board of directors can represent the corporation towards third parties. In practice, signing authority is regularly limited to joint signing authority. Moreover, at least one representative with individual signing power or two representatives with joint signing power must reside in Switzerland.

In the case of a two-tier structure, the relationship between the board of directors and the management board must be governed in the organisational regulations. The Code recommends having a two-tier structure with a majority of non-executive board members, and a separation of the functions of chair and CEO. If the company decides that the same person shall act as chair and CEO, the board of directors should establish certain control mechanisms to ensure appropriate checks and balances. For instance, an independent lead director who can independently convene and lead a board meeting should be appointed.

The board of directors must act in the best interest of the company as mandated by the duty of care and loyalty. Shareholders must be treated equally in like circumstances. According to the general view, the company's interest encompasses the interests of the shareholders as well as the other stakeholders, with the sustainable growth of the company being the underlying principle and goal. There are no (strict) rules as to how the board should weigh the interests of the different stakeholders against each other: ultimately, this weighing and other business decisions are a matter for the board's own diligent judgement. In various decisions of the Federal Supreme Court, the applicability of the business judgement rule has been confirmed. The prerequisites for the applicability of the business judgement rule are a diligent review or assessment process that is based on adequate information and documents and that is free of conflicts of interest. If these prerequisites are met, the Court will only assess whether the board's decision was justifiable. If any of the prerequisites are not met, the Court will conduct a full assessment. However, a board decision based on a conflict of interest is not per se a violation of the board's duty of care.

Under Swiss corporate law, a conflict of interest is deemed to exist if a board member has individual interests that are opposed to the interests of the company or, more frequently, if he or she has a duty (based on law, contract or otherwise) to pursue third-party interests that are opposed to the company's interests. If a board member suffers from a potential conflict, he or she has an obligation to disclose such information to the chair or the entire board. It is then up to the board, without the potentially conflicted member, to assess the situation and resolve upon and implement appropriate measures as required to ensure that the conflict does not negatively affect the company. Such measures include an abstention of the conflicted member from the decision and, depending on the circumstances, also from the deliberations, or the establishment of an independent committee consisting of the disinterested board members. If required to address a more serious and detrimental conflict, the board may also decide to shield the conflicted member from any critical information. The draft CO set forth a specific provision dealing with conflicts of interest of board members. However, the commission of the National Council found the provision to be too broad with regard to the fact that conflicts of interest can have a wide range of nuances. The National Council followed this reasoning and voted against the introduction of the new provision with 143 to 53 votes.