Intent Declared Summary

Until 2005, the corporate governance framework in Switzerland mainly consisted of self-regulatory provisions and stock exchange regulations on corporate governance, according to a 2006 article for Ernst & Young by M. Schweizer. The International Monetary Fund in its 2007 report identified shortcomings in this framework regarding the protection of minority shareholders and disclosure of information. However, efforts have been made to improve this framework since 2005, and Switzerland has seen “some of the most significant corporate governance reforms,” notes the 2006 Schweizer report. Among the changes were the revision of Swiss company law (Swiss Federal Code of Obligations) to improve the legal framework in matters of corporate governance as well as further amendments to the company law that were proposed by the Swiss Federal Council in late 2007 and 2008. These amendments concern especially shareholder rights and executive compensation, according to a 2009 KPMG publication. The comprehensive enactment of all aspects of this law is expected to take some time.

General Overview

In its 2007 report on Securities Regulation, the IMF identified shortcomings regarding the protection of minority shareholders and disclosure of information in Switzerland. The IMF report recommended giving powers to the Swiss Federal Banking Commission (SFBC) -- the banking supervisory authority at that time -- to verify information disclosure and act on offers if investor protection is at risk. The report further advised strengthening accounting and auditing regulations to ensure the "comparability of financial information disclosed to investors, and to introduce proper supervision and sanctioning of auditors and listed companies" (p. 13). As of 2007, according to the same report, new regulations have entered into force to improve the transparency of listed companies. These rules require listed companies to disclose allowances, remunerations, loans, and shareholdings of board members and management, as well as their relatives.

The main laws and regulations concerning corporate governance in Switzerland are: Swiss Federal Code of Obligations, Swiss Federal Act on Stock Exchanges and Securities Trading, Listing rules enacted by Swiss Exchange (SIX), Directive on Information relating to Corporate Governance (enacted by SIX), Directive on the Disclosure of Management Transactions (enacted by SIX), and Swiss Code of Best Practice for Corporate Governance (“Swiss Code”). Writing in 2006 for Ernst & Young, M. Schweizer reported that the corporate governance framework in Switzerland used to consist of mainly self-regulatory provisions and stock exchange regulations on corporate governance. But in 2005, the self-regulation tradition was significantly changed with the passing of the revised company law, which aimed to improve the Swiss legal regime as it pertained to corporate governance. According to a 2006 article by Haymann published in the International Financial Law Review, the revised company law ensures the disclosure of "remunerations schemes and credit facilities granted to members of the board or senior management" as an attachment to annual financial statements. Schweizer comments that Switzerland “has seen some of the most significant corporate governance reforms of the last decade” in 2005 (p. 57). According to a 2009 KPMG publication the Swiss Federal Council proposed further amendments to the Swiss Code of Obligations (company law) in December 2007 and December 2008. The bill aims to improve corporate governance by enhancing shareholder rights, updating organization of the board, proposing changes in proxy voting, introducing more flexible capital structures, increasing the use of electronic communication for the general shareholder meeting, and updating accounting legislation. According to the KPMG article, the bill was to be discussed by the commission of the small chamber of parliament in March 2009 but it could take “a number of years, for all subsections of this revision to reach legal enforcement” (p. 7).

According to a 2004 Organization for Economic Cooperation and Development (OECD) Survey on Corporate Governance, the Swiss Code of Best Practice on Corporate Governance was established in 2002 on a voluntary basis to improve transparency with regard to board responsibilities and shareholders' rights. Simultaneously, the Swiss Exchange introduced the Directive on Information relating to Corporate Governance (Directive Corporate Governance , or DCG), which provides a combination of mandatory and "comply-or-explain" principles in order to enhance transparency of issuers. As noted on its website, the Swiss Exchange's DCG contains guidelines on annual reporting and requires all issuers to disclose important information on their board and senior management. The Swiss Code of Best Practice on Corporate Governance was updated in 2007 and incorporated ten recommendations on the remuneration of directors and senior managers as a response to the heated discussion on the issue. Organizations such as the Swiss Association of Pension Funds, Swiss Bankers’ Association, Swiss Employers Association, Swiss Insurance Association, and Swiss Institute of Certified Accountants and Tax Consultants have expressly agreed to adopt the “Swiss Code” and the ten recommendations.

According to a 2006 International Financial Law Review article by Haymann, the 2005 Directive on the Disclosure of Management Transactions requires members of the board or senior management to inform the Swiss Exchange of transactions involving their own interests. As noted in a 2007 Global Survey of the Institute of International Bankers (IIB), on January 1 of that year the SFBC established a new circular on "Supervision and Internal Control" to improve corporate governance for banks, securities traders, financial groups, and financial conglomerates. This Directive was further reissued by the Financial Market Supervisory Authority (FINMA) as the Circular on Supervision and Internal Control of Banks No. 08/24 of 2008.

At the beginning of 2008, the former Swiss Exchange (SWX) group was merged with SIS Group and Telekurs Group to form the SIX Group. According to the SIX website, the Board of Directors of the SIX Group decided to reinforce the self-regulation structure by separating the regulatory functions from operational business, as well as more stringently separating powers between rule making, rule enforcement and adjudication. Therefore three specific regulatory bodies have been established: (1) the Regulatory Board; (2) the judicial bodies comprising the Sanction Commission, Appeals Board and Board of Arbitration; and (3) the SIX Exchange Regulation division. The SIX Exchange Regulation division is the enforcement body, carrying out relevant laws and regulations, and monitoring compliance with various regulations. It determines sanctions, or submits sanction proposals. Prior to 2009, the Swiss Exchange had been supervised by the SFBC, which was merged into the Swiss Financial Market Supervisory Authority (FINMA) effective January 1, 2009. The main stock market index for the Swiss Exchange is the Swiss Market Index (SMI). The main role of the Exchange is to organize, operate, and regulate key aspects of the Swiss capital market, and monitor as well as enforce compliance with the regulatory framework for securities issuance and trading. In 2006, according to the 2007 IMF report, the Swiss Exchange ranked tenth worldwide by market capitalization and its subsidiary --Eurex -- ranked third worldwide in derivative transactions. The SMI also increased by 31% in 2005 and by an additional 20% in 2006. Under the 1997 Federal Act on Stock Exchanges and Securities Trading, the Swiss Exchange, according to its website, is required to meet international standards in its regulatory activities. Both equity securities and debt securities are listed on the Swiss Exchange.

In its 2010 Doing Business report, the World Bank found that investor protection in Switzerland was substantially lower than the OECD average. The Investor Protection Index is a subcomponent of the World Bank's 2010 Doing Business Indicators, and consists of three dimensions of investor protection: transparency of transactions (Extent of Disclosure Index), liability for self-dealing (Extent of Director Liability Index), and shareholders' ability to sue officers and directors for misconduct (Ease of Shareholder Suits Index). The indices range from 0 to 10, with higher values indicating greater disclosure, greater liability of directors, greater powers of shareholders to challenge the transaction, and better investor protection. Switzerland scores 0 in the disclosure index against an OECD average of 5.9. It scores 5 in the Director Liability Index against an OECD average of 5 and 4 in the Shareholder Suits Index against an OECD average of 6.6.

The Principles

IIPrinciple I: Ensuring the Basis for an Effective Corporate Governance Framework

The main laws and regulations concerning corporate governance in Switzerland are: Swiss Federal Code of Obligations, Swiss Federal Act on Stock Exchanges and Securities Trading, Listing rules enacted by Swiss Exchange (SIX), Directive on Information relating to Corporate Governance (enacted by SIX), Directive on the Disclosure of Management Transactions (enacted by SIX), and Swiss Code of Best Practice for Corporate Governance (“Swiss Code”). Writing in 2006 for Ernst&Young, M. Schweizer reported that the corporate governance framework in Switzerland used to consist of mainly self-regulatory provisions and stock exchange regulations on corporate governance. But in 2005, the self-regulation tradition was significantly changed with the passing of the revised company law (Swiss Code of Obligations), which aimed to improve the Swiss legal regime as it pertained to corporate governance. According to a 2006 article by Haymann published in the International Financial Law Review, the revised company law ensures the disclosure of "remunerations schemes and credit facilities granted to members of the board or senior management" as an attachment to annual financial statements. Schweizer comments that Switzerland “has seen some of the most significant corporate governance reforms of the last decade” in 2005 (p. 57). According to a 2009 KPMG publication the Swiss Federal Council proposed amendments to the Swiss Code of Obligations (company law) in December 2007 and December 2008. The bill aims to improve corporate governance by enhancing shareholder rights, updating organization of the board, changes in proxy voting, introducing more flexible capital structures, increasing the use of electronic communication for the general shareholder meeting and updating the accounting legislation. According to the KPMG article, the bill was to be discussed by the commission of the small chamber of parliament in March 2009 but it could take “a number of years, for all subsections of this revision to reach legal enforcement” (p. 7).

According to a 2004 OECD Survey on Corporate Governance, the Swiss Code of Best Practice on Corporate Governance was established in 2002 on a voluntary basis to improve transparency with regard to board responsibilities and shareholders' rights. Simultaneously, the Swiss Exchange introduced the Directive Corporate Governance, which provides a combination of mandatory and "comply-or-explain" principles in order to enhance transparency of issuers. As noted on its website, the Swiss Exchange's DCG contains guidelines on annual reporting and requires all issuers to disclose important information on their board and senior management. The Swiss Code of Best Practice on Corporate Governance was updated in 2007 and incorporated ten recommendations on the remuneration of directors and senior managers as a response to the heated discussion on the issue. Organizations such as the Swiss Association of Pension Funds, Swiss Bankers’ Association, Swiss Employers Association, Swiss Insurance Association, and Swiss Institute of Certified Accountants and Tax Consultants have expressly agreed to adopt the “Swiss Code” and the ten recommendations.

According to a 2006 International Financial Law Review article by Haymann, the 2005 Directive on the Disclosure of Management Transactions requires members of the board or senior management to inform the Swiss Exchange of transactions involving their own interests. As noted in a 2007 Global Survey of the IIB, on January 1 of that year the SFBC established a new circular on "Supervision and Internal Control" to improve corporate governance for banks, securities traders, financial groups, and financial conglomerates. However, the information provided above does not directly address Switzerland's compliance with this principle.

IIPrinciple II: The Rights of Shareholders and Key Ownership Function

In its 2007 report, the IMF identified shortcomings regarding the protection of minority shareholders. Haymann reported in 2006 that the Swiss Code of Best Practice was implemented simultaneously with the Swiss Exchange's CGD in 2002 to provide guidelines on minority shareholders' rights, transparency, and responsibilities of the Board. Furthermore, M. Schweizer reported in 2006 that reforms to lower the thresholds for the exercise of certain shareholder rights were under process, and proxy voting rights were being revised. A subsequent amendment to the company law was expected to enter into force on January 1, 2007, which according to Haymann, emphasizes, inter alia, on reinforcement of shareholders' rights, and institutional representation of shares. A 2009 report by Schleiffer and von Planta mentions that listed companies are required by Swiss company law to disclose the identity of shareholders with more than 5 percent shares. Moreover, the 2009 KPMG article notes that the Swiss Federal Council proposed further revisions to the company law in 2007 and 2008, aimed at enhancing shareholder rights, especially regarding executive/board compensation disclosure and voting, and lowering thresholds for convocation, agenda setting, requesting special audits, and filing claims for the liquidation or termination of a business. However, the publicly available information does not directly address Switzerland's compliance with this principle.

IIPrinciple III: The Equitable Treatment of Shareholders

According to Haymann's 2006 report, the Swiss Code of Best Practice includes guidelines on shareholders' rights, including minority shareholders. Nevertheless, shortcomings regarding the protection of minority shareholders were identified in the 2007 IMF report. The 2009 KPMG article notes that the Swiss Federal Council proposed further revisions to the company law in 2007 and 2008, including lowering thresholds for shareholders rights concerning convocation, agenda setting, requesting special audits, and filing claims for the liquidation or termination of a business. However, the information does not directly address Switzerland's compliance with this principle.

IIPrinciple IV: The Role of Stakeholders in Corporate Governance

A 2009 report by Schleiffer and von Planta mentions that in determining the company’s best interest, the board has to consider the interests of stakeholders (such as the employees of the company) as well. But neither Swiss company law nor the Listing Rules provides for specific rules concerning corporate social responsibility. Apart from the above, there is insufficient publicly available information regarding Switzerland's compliance with this principle.

IIPrinciple V: Disclosure and Transparency

In its 2007 report, the IMF identified shortcomings regarding information disclosure. The report recommended giving powers to the SFBC to verify information disclosure, and act on offers if investor protection was at risk. The IMF report further advised strengthening accounting and auditing regulations to ensure the "comparability of financial information disclosed to investors, and to introduce proper supervision and sanctioning of auditors and listed companies" (p. 13). As of 2007, according to the same report, new regulations have entered into force to improve transparency of listed companies. These rules namely require listed companies to disclose allowances, remunerations, loans, and shareholdings of board members and management, as well as their relatives.

The Swiss Code of Best Practice and the Swiss Exchange's CGD both provide guidelines on minority shareholders' rights, transparency, and responsibilities of the Board, according to Haymann's 2006 report. The Swiss Exchange website discloses that the Swiss Exchange's CGD also contains guidelines on annual reporting, and requires all issuers to disclose important information on their board and senior management. Haymann also noted that the 2005 Directive on the Disclosure of Management Transactions requires members of the board or senior management to inform the Swiss Exchange of transactions involving their own interests. In 2006 Schweizer reported that new transparency requirements regarding management pay and management transactions are provided under the revised company law. A 2009 report by Schleiffer and von Planta mentions that listed companies are required by Swiss company law to disclose the identity of shareholders holding more than 5 percent of shares.

According to the 2007 IMF report, Swiss accounting and auditing rules will be harmonized in accordance with European Union directives. Schleiffer and von Planta notes in their 2009 report that companies listed on the main segment of SIX Swiss Exchange are required to publish audited annual financial statements and unaudited half-year interim financial statements in accordance with either International Financial Reporting Standards (IFRSs) or U.S. Generally Accepted Accounting Principles (GAAP) and in line with the Listing Rules and the relevant directives. The 2009 KPMG article mentions that the Swiss Federal Council proposed a new concept for updating the accounting and financial reporting law, where the reporting requirements are solely based on the size of a company. However, the information provided above does not directly address Switzerland's compliance with this principle.

IIPrinciple VI: The Responsibilities of the Board

According to the IMF's 2007 report, new regulations have entered into force to improve transparency of listed companies. These rules require listed companies to disclose allowances, remunerations, loans, and shareholdings of board members and management, as well as their relatives. The 2005 Directive on the Disclosure of Management Transactions requires members of the board or senior management to inform the Swiss Exchange of transactions involving their own interests. Haymann in his 2006 report notes that the company law was revised in 2005 to ensure the disclosure of "remunerations schemes and credit facilities granted to members of the board or senior management" as an attachment to annual financial statements. He also mentions that the Swiss Code of Best Practice and the Swiss Exchange's CGD provide guidelines on responsibilities of the Board. The Swiss Code of Best Practice on Corporate Governance was updated in 2007 and incorporated ten recommendations on the remuneration of directors and senior managers as a response to the heated discussion on the issue. The 2009 KMPG article notes that the Swiss Federal Council proposed further revisions to the company law in December 2007 and December 2008 to strengthen the disclosure of the compensation of executives and board members. In addition, the draft bill prescribes an annual, and individual re-election of all board members instead of the current practice of electing the board as a whole for extended periods of time. However, the information provided above does not directly address Switzerland's compliance with this principle.