Corporate Governance 2020

A practical cross-border insight into corporate governance law 13th Edition

Featuring contributions from:

Advokatfirmaet BAHR AS Hannes Snellman Attorneys Ltd Olivera Abogados Al Hashmi Law Herbert Smith Freehills Pinsent Masons LLP Arthur Cox Houthoff Schoenherr Rechtsanwälte GmbH Baker McKenzie Lacourte Raquin Tatar SZA Schilling, Zutt & Anschütz Rechtsanwaltsgesellschaft mbH Bowmans Law Firm Neffat Tian Yuan Law Firm Cravath, Swaine & Moore LLP Lenz & Staehelin Uría Menéndez Creel Abogados, S.C. Macfarlanes LLP Wachtell, Lipton, Rosen & Katz Cyril Amarchand Mangaldas Mannheimer Swartling Advokatbyrå Walalangi & Partners (in association with Davis Polk & Wardwell LLP Marsh & McLennan Companies Nishimura & Asahi) Ferraiuoli LLC Nielsen Nørager Law Firm LLP Wolf Theiss GSK Stockmann Nishimura & Asahi Zunarelli – Studio Legale Associato Table of Contents

Expert Chapters

Title TBC 000 Sabastian V. Niles, Wachtell, Lipton, Rosen & Katz

Dual-Class Share Structures in the United States 000 George F. Schoen & Keith Hallam, Cravath, Swaine & Moore LLP

Legal Liability for ESG Disclosures – Investor Pressure, State of Play and Practical Recommendations 000 Katherine J. Brennan & Connor Kuratek, Marsh & McLennan Companies Joseph A. Hall & Betty Moy Huber, Davis Polk & Wardwell LLP

Corporate Governance for Subsidiaries and Within Groups 000 Martin Webster & Tom Proverbs-Garbett, Pinsent Masons LLP

Global Transparency Trends and Beneficial Ownership Disclosure 000 Nancy Hamzo, Bonnie Tsui, Olivia Lysenko & Paula Sarti, Baker McKenzie

Q&A Chapters

Australia Japan 000 Herbert Smith Freehills: Quentin Digby & 000 Nishimura & Asahi: Nobuya Matsunami & Philip Podzebenko Kaoru Tatsumi

Austria 000 Luxembourg Schoenherr Rechtsanwälte GmbH: 000 GSK Stockmann: Dr. Philipp Moessner & Christian Herbst & Roman Perner Anna Lindner

China 000 Mexico Tian Yuan Law Firm: Raymond Shi 000 Creel Abogados, S.C.: Carlos Creel C., Gustavo Struck & Ilse Bolaños Czech Republic 000 Wolf Theiss: Jitka Logesová, Robert Pelikán, Radka Netherlands Václavíková & Kateřina Kulhánková 000 Houthoff: Alexander J. Kaarls Denmark 000 Norway Nielsen Nørager Law Firm LLP: 000 Advokatfirmaet BAHR AS: Svein Gerhard Simonnæs Peter Lyck & Thomas Melchior Fischer & Asle Aarbakke Finland Oman 000 Hannes Snellman Attorneys Ltd: 000 Al Hashmi Law: Omar Al Hashmi & Syed Faizy Ahmad Klaus Ilmonen & Lauri Marjamäki Poland France 000 000 Lacourte Raquin Tatar: Serge Tatar & Wolf Theiss: Maciej Olszewski, Joanna Wajdzik, Guillaume Roche Monika Gaczkowska & Izabela Podleśna Puerto Rico Germany 000 000 SZA Schilling, Zutt & Anschütz Ferraiuoli LLC: Fernando J. Rovira-Rullán & Rechtsanwaltsgesellschaft mbH: Andrés I. Ferriol-Alonso Dr. Christoph Nolden & Dr. Michaela Balke Romania 000 India Wolf Theiss: Ileana Glodeanu, Mircea Ciocirlea, 000 Cyril Amarchand Mangaldas: Cyril Shroff & Amita Luciana Tache & George Ghitu Gupta Katragadda Slovenia 000 Indonesia Law Firm Neffat: Leonardo Rok Lampret & 000 Walalangi & Partners (in association with Nishimura Domen Neffat & Asahi): Andhika Indrapraja, Femalia Indrainy Kusumowidagdo & Raditya Pratamandika Putra South Africa 000 Bowmans: Ezra Davids, Ryan Kitcat & Lauren Midgley Ireland 000 Arthur Cox: Brian O’Gorman & Michael Coyle Spain 000 Uría Menéndez: Eduardo Geli & Ona Cañellas Italy 000 Zunarelli – Studio Legale Associato: Sweden Luigi Zunarelli & Lorenzo Ferruzzi 000 Mannheimer Swartling Advokatbyrå: Patrik Marcelius & Isabel Frick Table of Contents

Q&A Chapters Continued

Switzerland USA 000 Lenz & Staehelin: Patrick Schleiffer & Andreas von 000 Wachtell, Lipton, Rosen & Katz: Planta Sabastian V. Niles

United Kingdom Uruguay 000 Macfarlanes LLP: Tom Rose & Dominic Sedghi 000 Olivera Abogados / IEEM Business School: Juan Martin Olivera 220 Chapter Number Switzerland Switzerland

Patrick Schleiffer

Lenz & Staehelin Andreas von Planta

12 Setting the Scene – Sources and ■ Directive on Information relating to Corporate Governance (SIX-DCG) of the SIX Swiss Exchange, which requires Overview issuers whose equity securities have their primary or main listing on the SIX Swiss Exchange to disclose in their 1.1 What are the main corporate entities to be annual reports certain information on the group and capital discussed? structure, shareholders (including their participation rights), board of directors and executive board (including The companies covered in the answers below are organised as their compensation as well as share and option plans), the stock corporations. control mechanisms and defence measures in the case of control changes, as well as auditors and information policy. ■ Directive on the Disclosure of Management Transactions 1.2 What are the main legislative, regulatory and other (SIX-DMT) of the SIX Swiss Exchange which requires sources regulating corporate governance practices? issuers whose equity securities have their primary listing on the SIX Swiss Exchange to disclose transactions in the The primary sources of law relating to corporate governance in company’s own shares and related instruments by members Switzerland are the following: of the board of directors and the executive board. ■ Swiss Federal Code of Obligations (CO), in particular Art. ■ Swiss Code of Best Practice for Corporate Governance 620 et seq., which govern stock corporations. These rules (SCBP) issued by economiesuisse, the largest umbrella are in part mandatory and in part non-mandatory, and organisation representing the Swiss economy in apply (with exceptions) to any Swiss corporation, whether Switzerland, which sets corporate governance standards in privately held or listed on a stock exchange. The provi- the form of non-binding recommendations, primarily for sions governing stock corporations are currently being public Swiss companies. revised (see question 1.3). In addition, companies have articles of association and ■ Swiss Ordinance against Excessive Compensation with internal organisational regulations which, within the limits of respect to Listed Companies (OaEC), which implements the law, may provide for additional rules in the area of corpo- provisions of the Swiss Federal Constitution resulting rate governance. from the affirmative vote of the Swiss people on 3 March Special or different rules on corporate governance exist in 2013 on the so-called Minder Initiative. The OaEC Switzerland for banks and insurance companies as well as for entered into force on 1 January 2014 and will apply until investment companies with variable capital (SICAV) or fixed the revised provisions of the CO governing stock corpo- capital (SICAF) within the meaning of the Swiss Federal Act on rations which will incorporate the provisions of the OaEC Collective Investment Schemes (CISA). Particularly noteworthy enter into effect (see question 1.3). are the Circular on Corporate Governance, Risk Management ■ Swiss Federal Act on Financial Market Infrastructures and Internal Controls relating to Banks and the Circular on and Market Conduct in Securities and Derivatives Trading Corporate Governance, Risk Management and Internal Audit (FMIA) and its implementing ordinances which contain, for Insurance Companies issued by the Swiss Financial Market inter alia, rules regarding the disclosure of significant Supervisory Authority (FINMA). Further, FINMA has issued shareholdings, and public takeover offers with respect to a circular on minimum standards for remuneration schemes Swiss companies listed on a stock exchange in Switzerland of financial institutions (the FINMA Remuneration Circular) or non-Swiss companies having their primary listing in defines minimum standards with respect to the remuneration Switzerland. principles within banks, securities firms, insurance compa- ■ Listing rules of the SIX Swiss Exchange (Listing Rules), nies, fund management companies, asset managers of collective the most important trading venue in Switzerland, and the investment schemes and other institutions requiring a licence implementing directives and circulars which contain, inter from FINMA under the CISA (see question 3.3). alia, periodic financial reporting and other continuing and ad hoc reporting rules applying to companies whose shares are listed on the SIX Swiss Exchange. The SIX Swiss 1.3 What are the current topical issues, developments, trends and challenges in corporate governance? Exchange holds the status of a self-regulatory trading venue under the FMIA. The financial crisis and the subsequent economic downturn not only fuelled public discussion on corporate governance topics

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like management compensation, transparency and shareholder Following the entry into force of the OaEC, the importance rights, but also increased demand on the political and regulatory of proxy advisors has increased significantly, and questions have level for stricter rules for banks and other financial institutions been raised regarding the independence of proxy advisors in in particular, in addition to other public companies. case they render services both to investors (shareholders) and to In March 2013, the Swiss people and cantons accepted the issuers against payment. The SIX Swiss Exchange has started Minder Initiative, a popular initiative originally submitted in a project to introduce specific transparency rules dealing with 2008. The initiative introduces two new paragraphs in the proxy advisors which also advise issuers. Swiss Federal Constitution that provide for relatively general principles on the corporate governance regime applicable to Swiss listed companies. The new constitutional provisions do 1.4 What are the current perspectives in this jurisdiction regarding the risks of short-termism and the not contain a detailed legislative framework and are not self-ex- importance of promoting sustainable value creation over ecuting. Therefore, implementing legislation must be drafted. the long-term? In the meantime, the Federal Council enacted the OaEC, which entered into force on 1 January 2014 and provides for transi- tional implementing rules that will remain in force until the Swiss corporate law does not explicitly address the question of Swiss Parliament has adopted the actual legislative implemen- short-termism. However, the duties of the board of directors tation of the initiative. and the management are primarily linked to the interest of the The OaEC provides for, inter alia, the following new rules: company and not to the mere financial interest of the share- ■ Mandatory and annual election by the shareholders of the holders. The rules of the SIX Swiss Exchange only provide for a chairperson and the members of the board of directors, duty to disclose half-year and annual results and the Swiss Code the members of the compensation committee and the inde- of Best Practice for Corporate Governance recommends that pendent representative of shareholders (independent proxy). the board of directors be guided by sustainable corporate devel- ■ Annual binding shareholder vote on the aggregate remu- opment. The ground rules thus imply that short-term thinking neration of the members of the board of directors, execu- is not recommended and should not determine the leadership. tive board and advisory boards (if any). However, many companies adopted a quarterly reporting ■ Prohibition of certain forms of compensation such as cycle and certain compensation systems are designed to favour severance and “other” payments (golden parachutes), a short-term view. Shareholder activism pushing for strategy advance compensation payments and payments related to changes with a view to realise short term gains, have further the acquisition or disposal of companies. contributed. At present, the discussion on this topic is intense. ■ Obligation of companies to fix the maximum number of Changes can be anticipated. Compensation systems may be less permissible external mandates (in the board of directors animated by individual quantitative targets, but pass to collec- of other companies, being listed or not) of the members of tive results and to qualitative expectations. In addition, compa- the board of directors or the executive board (in the arti- nies like Nestlé and Novartis, supported by a qualified majority cles of association). of their shareholders, amended their corporate purpose clause ■ Prohibition of corporate and custodian proxies. in the articles of association to link the activity to long-term ■ Prohibition of delegation of management responsibilities value creation. Investor pressure on Corporate Responsibility to a body corporate. and ESG targets may also have an impact and lead to a lower According to the OaEC, the articles of association also have importance of short-term targets. See also questions 3.6 and 4.4. to include rules for members of the board of directors and the executive board on loans, retirement benefits, or incentive and 22 Shareholders participations plans. Further, the OaEC also provides for crim- inal prosecution in the case of a breach of the new requirements. While the new constitutional provisions and its implementing 2.1 What rights and powers do shareholders have in the strategic direction, operation or management of the ordinance introduced a number of restrictions on remuneration corporate entity/entities in which they are invested? practices, they do not provide for or require a cap on execu- tive pay. In November 2016, the Swiss Federal Council presented its The operation and management of a corporation is by statutory revised draft of the corporate law reform along with the explan- law with the management body (board of directors and execu- atory report and submitted it to the Swiss Parliament, where it is tive board), and such power may not be withdrawn by way of a currently debated. The revised law is not expected to be enacted shareholders’ resolution (certain exceptions apply with respect before 2021. The main proposals are: to anti-takeover actions in the event of a public takeover). ■ The incorporation of the OaEC into the CO. Accordingly, under Swiss law, shareholders have no direct rights ■ A target gender quota of 30% for the board of directors and or powers in the operation and management of a Swiss company. 20% for the executive committee of major publicly listed However, shareholders are to vote on the appointment and the companies subject to a “comply or explain” obligation. removal of the members of the board of directors whenever ■ An obligation for major companies in the exploitation of a shareholder meeting is held and its agenda provides for the natural resources industry to disclose payments made to appointment or removal of the members of the board of direc- public authorities which exceed CHF 100,000 per finan- tors. Thus, shareholders may indirectly influence the course of cial year. action taken by the board of directors by threatening or bringing ■ Numerous changes in “traditional” corporate law, such as removal motions. There are additional corporate actions which the permissibility of a share capital denominated in foreign may have an impact on the operation of a company and for currency, a “capital band” to give companies more flexibility which the shareholders’ approval is required, e.g. change of the to increase and reduce their share capital, clarification of the company’s corporate purpose, approval of mergers, declaration requirements for distributions out of the capital reserves and of dividends, and increase or decrease in the company’s share interim dividends, the strengthening of shareholders’ rights capital. In addition to the above, following the entry into force and remedies to improve corporate governance and the of the OaEC, shareholders are entitled to vote in a binding way enhancement of the organisation of shareholder meetings. on the aggregate amount of compensation for the members of

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the board of directors and the executive board. The vote may meeting and an absolute majority of the nominal value of the be organised in a prospective or a retrospective way, or a combi- shares represented. nation of both. 2.4 Do shareholders owe any duties to the corporate 2.2 What responsibilities, if any, do shareholders have entity/entities or to other shareholders in the corporate with regard to the corporate governance of the corporate entity/entities and can shareholders be liable for acts or entity/entities in which they are invested? omissions of the corporate entity/entities? Are there any stewardship principles or laws regulating the conduct of shareholders with respect to the corporate entities in Other than the disclosure obligations according to the CO and which they are invested? FMIA, shareholders have no responsibilities as regards the corporate governance of their corporate entity (see also ques- As a matter of Swiss company law, shareholders, unlike the tion 2.7). members of the board of directors or the management of a company, do not owe fiduciary duties to the Company. 2.3 What kinds of shareholder meetings are commonly Shareholders may only be held responsible for acts and/or held and what rights do shareholders have with regard to omissions of the company where they acted as actual or construc- such meetings? tive founder, organ or agent of the company. In exceptional cases, the corporate veil of a company may be pierced on the Swiss corporations need to hold an annual shareholder meeting grounds of abuse of rights, particularly where a sole shareholder within six months after the close of the business year and may commingles its own funds and those of the company, disregards hold other (extraordinary) shareholder meetings as and when corporate formalities, and where the company is severely under- they need to. All shareholders are entitled to be given notice capitalised. Also, controlling shareholders owe no fiduciary of the shareholder meeting in the form provided for by the arti- duty to the company or minority shareholders unless they act as cles of association no later than 20 days prior to the day of the an actual or constructive organ or agent of the company. meeting. The prevailing view in Switzerland is that companies whose 2.5 Can shareholders seek enforcement action against shares are in the form of registered shares may provide in their the corporate entity/entities and/or members of the articles of association for the use of electronic communications management body? to shareholders; accordingly, it should be possible to send out the relevant notice for calling a shareholder meeting to the holders In general, the members of the board of directors are liable to of registered shares in electronic form only. However, in prac- the shareholders for damage caused to them by any intentional tice, shareholders are given notice of the shareholder meeting by or negligent violation of their duties (see question 3.6). mail and publication in the Swiss official gazette of commerce. Resolutions of the board of directors may not be challenged in Shareholders representing at least 10% of the share capital may court. Exceptionally, however, resolutions of the board of direc- request that a shareholder meeting be convened. Shareholders tors which are so defective as to be incompatible with the basic representing at least 10% of the share capital or an aggregate structure or organisation of the company may be declared void par value of at least 1 million Swiss francs may request that a by the court following a petition of shareholders. Resolutions specific item be put on the agenda irrespective of the board of of the shareholder meeting can, however, be challenged by the directors’ backing. shareholders if they are in breach of corporate law and/or the Shareholders may participate in the shareholder meeting articles of association. personally or by proxy. The articles of association may limit proxy-representation to other shareholders. Pursuant to the OaEC, the board of directors had to ensure that, at the latest, 2.6 Are there any limitations on, or disclosures in the 2015 annual general meeting, the shareholders were able required, in relation to the interests in securities held by to give electronic proxies and voting instructions to the inde- shareholders in the corporate entity/entities? pendent proxy. Further, under the OaEC, corporate and custo- dian proxies are no longer permissible. Under Swiss corporate law, there are no statutory limitations Swiss corporate law does not provide for communication rights on the number of shares a shareholder may hold or the speed of dissident shareholders which would entitle them to require with which he can build a stake in a company. To the extent the board of directors to circulate their statements among the provided in the articles of association, listed companies with shareholders or to make available the name and address of the registered shares may, however, refuse to register shareholders other shareholders registered in the company’s share register to in the company’s share register with voting rights, if (i) a share- the dissident shareholders so that they can contact them. Thus, holder, or shareholders acting in concert, exceeds a certain in practice, proxy fights are mainly fought by using the media to defined percentage of registered shares in the company, or make the relevant positions of a dissident shareholder known to (ii) the acquirer, on the company’s request, does not state that the other shareholders. he holds the acquired shares in its own name and for its own The shareholder meeting may pass resolutions and carry out account. In addition, the articles of association may provide for elections by an absolute majority of the votes allocated to the voting restrictions so that a shareholder may only exercise its shares represented. Certain specific resolutions, however, such voting rights up to a certain percentage. Moreover, the articles as the change of a company’s corporate purpose, the creation of association may refuse the registration as a shareholder with of shares with privileged voting rights, restriction of the trans- voting rights if such registration would prevent the company ferability of shares, the limitation or suspension of pre-emptive from providing evidence of Swiss control as is required by rights of shareholders in a capital increase and the merger of the certain Swiss laws. Further limitations and restrictions apply company by amalgamation require a qualified majority of at least with respect to regulated industries (e.g. banks and insurance two-thirds of the votes represented at the relevant shareholder companies) and in the case of a public takeover.

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As regards disclosure, under the FMIA and its implementing 32 Management Body and Management ordinance, whoever, directly or indirectly or acting in concert with others, acquires or sells shares in a Swiss company listed on a stock exchange in Switzerland and thereby reaches, exceeds 3.1 Who manages the corporate entity/entities and how? or falls below the threshold percentages of 3, 5, 10, 15, 20, 25, 33⅓, 50 and 66⅔ of the voting rights must notify the company, as well as the stock exchange within four trading days. Persons In principle, Swiss corporate law provides for a one-tier board who have the discretionary power to exercise voting rights structure. However, the board of directors is granted considerable (i.e. asset managers) are also subject to these disclosure obliga- organisational discretion. Save for non-transferable core compe- tions. The company then has to make regulatory announce- tences, such as strategic management, appointment and removal of ments of this information by using the SIX Swiss Exchange’s the members of the management, the supervision of the manage- electronic reporting platform. The disclosure obligations are ment and the setup of a sufficient internal controlling and reporting (inter alia) also triggered by put and call options and conversion system, the board of directors may delegate the management to rights. Under the FMIA, the duty to disclose significant share- an individual or to an executive board. In listed companies, the holdings also applies with respect to non-Swiss companies with day-to-day management is typically delegated to the chief execu- a main listing on a stock exchange in Switzerland. Further, tive officer or the executive board, resulting in a two-tier board Swiss company law requires listed companies to disclose in their structure. Special rules apply to banks and security dealers which annual report the identity of shareholders or organised groups must establish a two-tier structure with a functional and personal of shareholders with an interest in shares of more than 5% separation of operative management and supervision. (if the articles of association provide for a percentage restric- Swiss law does not require that the functions of the chair- tion of shareholders at less than 5%, it is this lower percentage person of the board of directors and the CEO be separated which applies to this disclosure). As to dealing in shares of the (except for banks and security dealers). To the extent that the board of directors decides that a single individual should assume company by the members of the board of directors or the exec- the functions of the chairperson of the board of directors and utive board, see question 3.4. the CEO, the SCBP recommends that the board of directors On 1 November 2019, new provisions entered into force, provides for adequate control mechanisms, e.g. by appointing a which (partially) abolish bearer shares in Switzerland. According non-executive member of the board of directors (lead director) to the new provisions, bearer shares are only permitted if the responsible for such control. bearer shares are listed on a stock exchange or maintained in Under Swiss law, there is no required minimum number of book-entry form as intermediated securities. If this is not the non-executive or independent directors. The SCBP recom- case, such bearer shares must be converted into registered shares mends that the majority of the board of directors be composed no later than 1 May 2021. of non-executive directors, i.e. members who do not perform any line management function within the company. In practice, 2.7 Are there any disclosures required with respect to this recommendation is widely followed (and always has been) the intentions, plans or proposals of shareholders with by all listed companies. Further, with respect to licensed banks respect to the corporate entity/entities in which they are and securities firms, FINMA expects that a substantial number invested? of the members of the board of directors – at least a third – should be independent, i.e. members who are not and have not Shareholders as such are not required to disclose mere inten- in the previous two years been employed in some other function tions, plans or proposals to the company or the public. See also within such entities or as their lead auditor, have no commercial question 2.6. links with such entities which would lead to conflicts of interests and are not a qualified shareholder (shareholding of at least 10%) in such entities and represent no such shareholder. Further, all 2.8 What is the role of shareholder activism in this members of the board of directors of licensed banks and securi- jurisdiction and is shareholder activism regulated? ties firms must be non-executive directors. Other than as set out below, neither Swiss corporate law, nor Compared to other jurisdictions, the number of campaigns the Listing Rules or any other rules of the SIX Swiss Exchange conducted by activist shareholders in Switzerland is still rela- explicitly provide for mandatory board committees (special rules tively small. However, in line with the global increase of share- apply to banks and insurance companies). The SCBP recom- holder activism in recent years, Switzerland has also seen an mends that an audit, compensation and nomination committee increase in activist campaigns over the last couple of years. be established. The members of the audit committee should be Shareholder intervention typically focuses on board representa- non-executive, preferably independent directors and the majority tion, share buy backs, dividend payment and other distribu- of the members (including the chairperson) should be experi- tions, board and executive remuneration but also on activist enced in accounting matters. The members of the compensa- campaigns in connection with acquisitions where shareholder tion committee should be independent directors. The SCBP approval is required to conduct the necessary capital increase, or defines “independent director” as a non-executive member of public tender offers. the board of directors who has not been a member of the exec- To date, there are no rules and regulations which specifically utive management in the past three years and who has no, or address shareholder activism in Switzerland. E.g., an activist only comparatively minor, business relations with the company. shareholder has to comply with the disclosure rules under With respect to listed companies, the OaEC provides for FMIA, when building its stake in a listed company (see ques- a mandatory and annual election by the shareholders of the tion 2.6). members of the compensation committee. Further, the arti- cles of association of a listed company must provide for princi- ple-based rules regarding the powers and responsibilities of the compensation committee (which may also be given additional duties, such as nomination of members of the board of directors or the executive board).

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3.2 How are members of the management body Initiative, Swiss listed companies are required by law to submit appointed and removed? the aggregate compensation of the members of the board of directors, executive board and advisory committees to a binding vote of the shareholders. With respect to such a vote, companies The shareholder meeting appoints and removes the members of may choose to have the shareholders prospectively or retrospec- the board of directors (see question 2.1). Removal is possible at tively approve the aggregate compensation of the members of any time, irrespective of terms of office that may still be running. the board of directors and the executive board. They may also The OaEC provides for mandatory and annual election by the choose a combination of the two systems by submitting fixed shareholders of the chairperson and the members of the board compensation to a prospective and variable compensation to a of directors, the members of the compensation committee and retrospective vote. As for the compensation report, the OaEC the independent representative of shareholders (independent does not require listed companies to submit their compensation proxy) (see also question 1.3). report to a vote of the shareholders. Under the OaEC, certain forms of compensation are prohib- 3.3 What are the main legislative, regulatory and other ited. This includes severance payments, advance payments, sources impacting on compensation and remuneration payments related to the acquisition or disposal of businesses, of members of the management body? loans, credit, pension benefits or performance-based remunera- tion not provided for in the articles of association and the allo- With the acceptance of the Minder Initiative in 2013, the Swiss cation of shares, other equity securities and options or conver- Constitution has been amended with a number of new provi- sion rights not provided for in the articles of association (also sions that aim to increase transparency and introduce stricter see question 1.3). rules with respect to the remuneration of the board of direc- The revised FINMA Remuneration Circular supplements the tors and the executive board of listed companies. As discussed above rules for banks, insurance companies and other financial above, these constitutional provisions are currently being put institutions (see question 1.2). Its provisions are only manda- into law as they are not directly applicable (see question 1.3). torily applicable for large banks and large insurance compa- Until this legislative implementation has been approved by the nies. Generally speaking, the FINMA Remuneration Circular Swiss Parliament, the transitional rules as set out in the OaEC places the responsibility for the compensation system of finan- apply to all Swiss listed companies. As discussed in more detail cial institutions on the board of directors, puts the emphasis on below, the new rules of the OaEC prohibit various forms of the sustainability of remuneration practices, in particular with compensation and require listed companies to amend their respect to variable remuneration and the prevention of incentive articles of association with new compensation-related provi- distortions, and also increases transparency with respect to the sions. Further, the OaEC provides for detailed rules regarding remuneration practices. Further, the FINMA Remuneration the compensation report that listed companies are required Circular defines minimum standards for the design, implemen- to prepare for each financial year. Under these rules, listed tation and disclosure of remuneration schemes of banks, insur- companies are obliged to disclose the total aggregate amount ance companies, securities traders and other financial insti- of all remunerations to members of the board of directors and tutions supervised by FINMA, as well as their consolidated the executive board. In addition, compensations and loans domestic and foreign subsidiaries and branches, and covers the of persons close to the members of the board of directors or salaries of all employees including the executive board and the the executive board have to be disclosed. Compensations and board of directors (the only exceptions being the remunera- loans granted to every member of the board of directors have tion of partners with unlimited liability and persons holding an to be disclosed individually, comprising the name and function interest of at least 10% in the company). of the member. With respect to the members of the executive board, only the highest compensation awarded, indicating the 3.4 What are the limitations on, and what disclosure recipient and his/her function, has to be disclosed. In addi- is required in relation to, interests in securities held tion, the SIX-DCG requires the disclosure of information on by members of the management body in the corporate the basic principles and elements of compensation, the number entity/entities? of permitted activities of the members of the board of direc- tors and the executive committee as well as any share and option Directors may own shares in their companies. plans in the annual report. As to disclosure, the significant shareholding notification Even before the entry into force of the OaEC, the SCBP requirements of the FMIA apply equally to director share- already provided for detailed recommendations pursuant to holders (see question 2.7). Further, Swiss corporate law requires which the board of directors has to implement a compensation that any shares, as well as option and conversion rights of the system for the members of the board of directors and the execu- members of the board of directors, the executive board and tive board and to prepare a compensation report for the annual persons close to them be disclosed on an individual basis in the shareholder meeting describing the remuneration system and its notes to the annual financial statements of the company. application in the business year under review. It was further As regards dealing in the company’s own shares, companies recommended that the board of directors either brings the with a primary listing on the SIX Swiss Exchange are, under the compensation report into the discussion during the agenda items SIX-DMT, obliged to ensure that the members of their board of “approval of the annual financial statements” or “discharge to directors and their executive committee report all transactions the board” (so that the resolution to approve the annual finan- no later than the second trading day after the reportable transac- cial statements and the resolution of discharge, respectively, tion (i.e. a transaction in the company’s own shares, conversion are taken by the shareholders in knowledge of the content of and share acquisition rights, as well as in financial instruments, the compensation report), or puts the compensation report to a the price of which is influenced primarily by the company’s own consultative vote at the annual shareholder meeting in question. shares) has been concluded. The companies then have to report In practice, many listed companies accepted the alternative of a such transactions within another three trading days to the SIX consultative vote. Following the implementation of the Minder Swiss Exchange. Transactions by related parties which are made

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under the significant influence of a person who is subject to a the strategic direction of the company and should ensure that reporting obligation under the SIX-DMT are also to be reported strategy and finances are in harmony. Further, the board of to the SIX Swiss Exchange. The relevant notifications to the directors should ensure that management and control functions SIX Swiss Exchange, inter alia, have to include the name and are allocated appropriately. function of the person subject to the reporting obligations, number and type of instruments, as well as the total value of the 3.8 Are indemnities, or insurance, permitted in relation transaction. The SIX Swiss Exchange has to publish the content to members of the management body and others? of such reports (except for the name of the person subject to the reporting obligation and the date on which such a person has The general view in Switzerland is that companies are permitted reported the relevant transaction to the company) by making to maintain insurance in respect of directors’ and officers’ such information accessible on the website of SIX Exchange liability to the company and to pay for the premium. Regulation for a period of three years. An undertaking of the company to indemnify directors and officers for liabilities is likely to be held invalid, except for costs 3.5 What is the process for meetings of members of incurred in connection with lawsuits unsuccessfully brought the management body? against a director or officer.

Swiss company law requires that at least one board meeting be 3.9 What is the role of the management body with held per year for the purpose of preparing the annual general respect to setting and changing the strategy of the shareholder meeting. In addition, each member of the board of corporate entity/entities? directors may request that a board meeting be convened at any time. The SCBP recommends that at least four meetings of the Under Swiss company law, the setting and changing of the board of directors be held annually according to the require- company’s strategy is with the board of directors. If a change ments of the company and that its members convene at short of strategy requires an amendment to the articles of association notice if necessary. (e.g., an amendment to the purpose clause in the company’s arti- cles of association), the shareholders will have to approve such 3.6 What are the principal general legal duties and amendment. liabilities of members of the management body? 42 Other Stakeholders In fulfilling their responsibilities, the members of the board of directors have to comply with the duties of care and loyalty, as 4.1 May the board/management body consider the well as the duty to treat shareholders equally. The duty of care interests of stakeholders other than shareholders in requires the members of the board of directors to comply in their making decisions? Are there any mandated disclosures or required actions in this regard? actions with standards of care as usual in a given professional or functional context. The duty of loyalty requires a director not to pursue his interests to the disadvantage of the compa- Under Swiss law, the board of directors has to safeguard the ny’s interests. Under Swiss law, the duties of care and loyalty are company’s interests rather than the interests of the shareholders. owed to the company rather than towards the shareholders. The The company’s interests encompass the interests of other stake- duty of equal treatment requires the board of directors to treat holders such as the company’s employees. There are no rules shareholders under the same circumstances equally. Deviations and regulations in Switzerland, which mandate disclosures or from equal treatment are permitted if such deviations are in the require actions in this regard. company’s interests and justified by a valid reason. In fulfilling its responsibilities, the board of directors has to 4.2 What, if any, is the role of employees in corporate safeguard the company’s interests. The company’s interests as governance? commonly defined in Switzerland encompass not only the inter- ests of the shareholders but also the interests of other stake- Although unions have contributed to some extent to the recent holders such as the company’s employees. discussion in Switzerland of corporate governance-related issues, Upon breach of the board of directors’ duties, which has the in particular with respect to board of directors and management consequence of damage to the company, the company or each of remuneration, employees do not play a prominent role in corpo- the shareholders may sue the directors; creditors are only enti- rate governance. In particular, Swiss law does not require that tled to sue the directors for damages incurred by the company employees be represented on the board of a company (irrespec- if the company is bankrupt. If the board of directors has dele- tive of whether privately held or listed on a stock exchange). gated the management of the company in compliance with the statutory requirements, and the damage has been caused by the management, the board of directors is exempt from liability if 4.3 What, if any, is the role of other stakeholders in corporate governance? careful selection, instruction and supervision of the manage- ment can be demonstrated. Other stakeholders do not play a prominent role in corporate governance (see also questions 4.2 and 4.4). 3.7 What are the main specific corporate governance responsibilities/functions of members of the management body and what are perceived to be the key, 4.4 What, if any, is the law, regulation and practice current challenges for the management body? concerning corporate social responsibility?

According to the SCBP, the board of directors is to provide Neither Swiss company law, nor the Listing Rules (and its imple- leadership and control to the company. It is responsible for menting directives or circulars enacted thereunder), nor the

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SCBP provide for specific rules with regard to corporate social plans, changes of control and defence measures, and on infor- responsibility. However, the board of directors, in determining mation policy. With respect to such information, the principle of the company’s best interests, has to take into account not only “comply or explain” applies, i.e. the company must give specific the interests of the shareholders but also those of other stake- reasons for each instance of non-disclosure to the extent that holders, such as the employees of the company (see questions it decides not to disclose certain information. Further, listed 3.6 and 4.1). companies have to prepare a compensation report that discloses, Issuers with a primary listing of equity securities on the Swiss inter alia, the amount of compensation paid to the members of Exchange have, according to the SIX-DCG, the opportunity, the board of directors and the executive board and the shares in by means of opting in, to inform SIX Swiss Exchange that they the company held by them (see questions 3.3 and 3.4). issue a sustainability report in accordance with an internation- Copies of the articles of association may be requested from ally recognised standard. This fact has to be published on the the relevant commercial register with which the articles of asso- website of the SIX Swiss Exchange. ciation must be filed. The SCBP recommends that the articles of association be made available from the company in writing or 52 Transparency and Reporting in electronic form at any time. The company’s organisational regulations do not need to be made publicly available. However, 5.1 Who is responsible for disclosure and the company must inform the shareholders upon their request transparency? about the organisation of the management (see question 3.8). Often, the articles of association, as well as the organisational regulations, can be downloaded from the company’s website. The ultimate responsibility for disclosure and transparency rests Listed companies are required to make the published annual upon the board of directors. and interim financial reports available in electronic form on their website. They must also make available any ad hoc informa- 5.2 What corporate governance-related disclosures are tion on the company’s website at the same time as it is distributed required and are there some disclosures that should be to the SIX Swiss Exchange and electronic information systems published on websites? such as Bloomberg, Reuters or SIX Financial Information, and keep such information posted on the website for at least two As regards financial reporting, companies listed on the SIX years. Finally, listed companies must maintain a so-called “push Swiss Exchange must publish audited annual financial state- system”, a service that allows investors wishing to receive ad hoc ments and unaudited half-year interim financial statements in information from the company directly to sign up for future accordance with either IFRS or US GAAP (if listed according distributions on the company’s website. to the International Reporting Standard), or with Swiss GAAP FER (if listed according to the Swiss Reporting Standard), and, 5.3 What is the role of audits and auditors in such with respect to each reporting standard, in line with the Listing disclosures? Rules and the relevant directives. The Listing Rules further require the company to submit a corporate calendar containing The company’s auditors have to audit the annual financial state- the dates of important corporate events such as the date of share- ments (but not the interim financial statements) and, since the holder meetings and the publication date of the annual financial adoption of the OaEC, the compensation report. In addition, statements or the half-year financial statements to the SIX Swiss as the information on remuneration and the shareholding inter- Exchange and keep such information up-to-date. ests of the board of directors and the executive board must As regards other information, listed companies have a duty to be disclosed in the notes to the annual financial statements, disclose potentially price-sensitive facts (ad hoc information) and such disclosures in the notes must be verified by the compa- to disclose in a separate section of their annual report informa- ny’s auditors in the course of their ordinary audit activities. tion, inter alia, on the group and capital structure, shareholders, Furthermore, the company’s auditors have to verify whether an the board of directors and the executive board, basic principles internal control system exists. and elements of compensation as well as the share and option

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Patrick Schleiffer has been a partner with Lenz & Staehelin since 2002 and is co-head of the capital markets group in Zurich and a leading expert on financial market law, particularly capital markets, stock exchange and securities law, investment fund law, financial services regu- lation, corporate law and corporate governance. Patrick Schleiffer holds lic. iur. and Ph.D. degrees from the University of Zurich and an MCJ degree from the New York University School of Law, New York. He was admitted to the Zurich Bar in 1995 and to the New York Bar in 1997. Patrick Schleiffer is admitted as a recognised representative for the listing of securities on the SIX Swiss Exchange. He lectures capital markets and securities law in the LL.M. Program of the University of Zurich and is a regular speaker at conferences. He is a co-editor of the Swiss internet-based law newsletter CapLaw and an officer of the Securities Law Committee of the International Bar Association (IBA).

Lenz & Staehelin Tel: +41 58 450 80 00 Brandschenkestrasse 24 Email: [email protected] CH-8027 Zurich URL: www.lenzstaehelin.com Switzerland

Andreas von Planta was a partner with Lenz & Staehelin from 1988 to 2017. Since 2018 he has been Senior Counsel at Lenz & Staehelin. He is a leading expert in corporate law, stock exchange regulation and one of the most experienced M&A practitioners in Switzerland. Andreas von Planta holds lic. iur. and Ph.D. degrees from the University of Basel and an LL.M. from the Columbia University School of Law, New York. He specialises in corporate law, corporate finance, company reorganisations and M&A. He is a member of governing or supervisory bodies of several Swiss listed companies such as Helvetia Holding AG and Novartis AG. Furthermore, he has been admitted as a recognised repre- sentative for the listing of securities on the SIX Swiss Exchange. Since 2008, Andreas von Planta has chaired the Regulatory Board of the SIX Swiss Exchange, its independent body entrusted with the adoption of self-regulation.

Lenz & Staehelin Tel: +41 58 450 70 00 Route de Chêne 30 Email: [email protected] CH-1211 Geneva 6 URL: www.lenzstaehelin.com Switzerland

While Lenz & Staehelin is acknowledged by most as Switzerland’s leading law firm, its connections and expertise span the globe. With over 200 lawyers, its ability to innovate and adapt to the ever-changing complexi- ties of legal and regulatory environments in Switzerland and beyond has attracted many of the world’s top corporations as well as private individuals. Continuity, stability and a pragmatic understanding of the big picture have all played a significant part in the firm’s development and success – and in its ability to attract the best young talent. Swiss-orientated but globally attuned, Lenz & Staehelin is rightly recognised in Switzerland and abroad as ‘The world’s Swiss law firm’. www.lenzstaehelin.com

Corporate Governance 2020