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Shareholders

i Shareholder rights and powers

Shareholders 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 only be distributed 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, shareholders may demand further information regarding the business of the company and the audit process. Shareholders may also request to inspect the company's books and correspondence as far as that inspection does not harm business secrets or other shareholders' interests. Shareholders may demand that a special audit be carried out.

Shareholders who, alone or as a group, hold 10 per cent or more of the share capital or a participation of at least 1 million Swiss francs have the right to request that a shareholders' meeting be convened. In addition, shareholders holding, alone or as a group, 10 per cent or more of the share capital or a participation of at least 1 million Swiss francs can request that additional items are put on the agenda of a shareholders' meeting. Any shareholder, regardless of the size of his or her shareholding, can bring a proposal to any agenda item of a shareholders' meeting.

The revised CO will contain lower thresholds to facilitate the performance of these rights. Under the revised CO, for listed companies, shareholders holding at least 5 per cent of the share capital will be permitted to request that a shareholders' meeting be convened, and shareholders holding at least 0.5 per cent of the share capital will be permitted to request that an item be put on the agenda of a shareholders' 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.

ii Shareholder duties and responsibilities

Under Swiss corporate law, shareholders of a company traditionally have only the duty to pay 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 (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).19 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.

The binding OaEC requires 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 regarding further items such as compensation. Pension funds must additionally disclose annually to their clients how they have exercised their voting rights.

iii Shareholder activism and proxy advisers

Shareholder activism and proxy fights in Switzerland have increased considerably during the past few years. One of most recent activist campaigns was that by Veraison Capital against the leadership of Aryzta, a Swiss-Irish bakery group. With long-term investor COBAS, Veraison requested the holding of an extraordinary general meeting of shareholders and proposed the removal of certain directors (including the chair) and the election of new directors. After a public battle, the activist was able to win support from other shareholders and achieved the suggested change in Aryzta's leadership team.

Veraison also conducted a campaign against the board of directors of SIX-listed Implenia (Switzerland's leading construction and real estate services company). Veraison's request included a change in the corporate strategy and changes to the composition of the board. The campaign was not successful.

During 2020, probably because of the covid-19 pandemic, the number of activist campaigns decreased considerably. However, we expect the number of campaigns and proxy fights to pick up during the next 12 to 18 months.

The demands of most activists in Switzerland target the composition of the board of directors (including the chairman) and executive board (in particular, the CEO) and their compensation, a review of and change in strategy, or corporate restructurings. 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.

Swiss law does not provide for special provisions applicable to shareholder activists. In particular, shareholders are not allowed to inspect the share register. Moreover, a board of directors is not required to distribute to the company's shareholders any statements made by activist shareholders. As a consequence, the board of directors entertains private conversations and settlement discussions with the activist and, if those discussions are not successful, a public proxy fight between the board and the activist is started. 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 had been criticised. With the abolition of the register blocking as of 1 January 2021, an entry in the commercial register since then can only be prevented by means of (superprovisional) precautionary measures.

iv Takeover defences

The 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; 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 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. Since the OaEC came into effect, listed companies are no longer permitted to have staggered boards, as board members may be elected only for one year.

v Contact with shareholders

The 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. 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 its major shareholders and proxy advisers to explain the company's long-term 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 revision of the CO will also improve communication with shareholders by facilitating the use of technology. For instance, the board may provide that it is possible for the shareholders to have access to electronic remote voting.20 Under the OaEC, listed companies are already required to provide shareholders with the opportunity to grant electronic proxies to the independent proxy.

Institutional investors and proxy advisers have gained relevance during the past few years. In this context, the Investors' Code introduced the duty for institutional investors to inform their shareholders about how they exercise their voting rights. The OaEC follows the same principle and requires pension funds to actually exercise their voting rights as regards certain agenda items, such as the election and compensation of board members. In addition, pension funds must disclose annually to their clients how they have exercised their voting rights.