On 6 February 2023, economiesuisse published the revised Swiss Code of Best Practice for Corporate Governance. The revision is the first major overhaul since 2014 and follows the entry into force of the Swiss corporate law reform.
This edition of Advestra Insights looks into some of the changes and their implications for Swiss listed companies. Furthermore, it points towards broader corporate governance trends exemplified in the Code's new guidelines and makes some comparisons with recent proxy advisors' recommendations.
1 INTRODUCTION
On 6 February 2023, economiesuisse (www.economiesuisse.ch) published its revised Swiss Code of Best Practice for Corporate Governance (the "2023 SCBP"). It replaces the Swiss Code of Best Practice for Corporate Governance in its version following the last major overhaul in 2014 (the "2014 SCBP") in the wake of the "Say on Pay" amendment to the Federal Constitution.
First introduced in 2002, the SCBP sets corporate governance standards in the form of non-binding recommendations primarily addressing Swiss listed companies, but also serving as a guideline for non-listed Swiss companies and other organizations of economic significance. Within its non-binding framework, it follows a "comply or explain" approach: the SCBP allows companies to deviate or refrain from implementing the SCBP's recommendations provided that any deviations are disclosed in a transparent way and an explanation is provided. Nevertheless, it is implied that absent a good justification listed companies should not depart from the principles set out in the SCBP.
The publication of the 2023 SCBP follows the entry into force of the Swiss corporate law reform on 1 January 2023 which brought about manifold changes to the law governing Swiss companies. The timing follows a similar pattern of the past: the 2014 SCBP was enacted in the wake of the Ordinance against Excessive Compensation in Listed Companies (whose provisions have now been transferred to the Swiss Code of Obligations ("CO") as part of the corporate law reform).
As a general observation, the 2023 SCBP also imposed itself a gender-neutral language; a trend followed by several listed companies when amending their Articles of Associations.1
Below, we will take a look at key changes and examine whether the 2023 SCBP is more than just a summary of the current state of affairs in Swiss corporate law and practice.
2 GENERAL MEETINGS AND SHAREHOLDERS
2.1 Overview
On the one hand, the revision of the shareholders' right and general shareholders' meeting provisions evolved around the corporate law reform which is striving for, inter alia, an enhancement of shareholders' rights and modernization of shareholders' meetings (e.g., by allowing the use of digital technology). On the other hand, it also picked up more general trends such as ESG, regular dialogue between companies and their shareholder base as well as enhanced transparency expectations for proxy advisors towards companies.
2.2 Shareholders' Meetings
In addition to mirroring the new corporate law provisions on powers of the shareholders' meeting, the 2023 SCBP emphasizes the shareholders' right to comment on issues regarding sustainable corporate development, including social and sociopolitical matters. A trend which has been observed recently with many listed companies proposing the addition of an ESG clause to its corporate purpose in the Articles of Associations.2 As a side note, the topics of long-term value creation and corporate social responsibility had already been addressed during the last revision of the 2014 SCBP.3 The current incarnation of the SCBP goes one step further and places sustainability and sustainable growth at the heart of the corporate governance framework. The 2023 SCBP also suggests that the Articles of Associations may comment on issues regarding sustainable corporate development, including social and sociopolitical matters (such as CO2 or other environmental goals, respecting human rights, etc.), as long as the inalienable powers of the Board are reserved.
However, in line with the 2014 SCBP, the 2023 SCBP still does not make any recommendations on transparency and disclosure with respect to ESG and/or sustainability aspects, which have become the focus of the latest amendments to the CO. This corresponds with the historical approach that the SCBP is generally reticent on disclosure issues, because these were primarily the domain of stock exchange regulation, namely the SIX Corporate Governance Directive.
Separately, the 2023 SCBP not only includes duties and recommendations for (listed) companies, but also for its shareholders: "Institutional investors, including proxy advisors, should act transparently towards the company." In particular, this provision aims at increasing transparency by proxy advisors which have been the subject of ongoing criticism. However, the 2023 SCBP shies away from implementing additional substance, such as a right for Swiss listed companies to be heard by proxy advisors before they issue recommendations.
Many other reforms of the 2023 SCBP mirror the new Swiss corporate law requirements (for listed companies), such as:
- The requirement of the board of directors (the "Board") to include motions, together with a brief justification, in the notice convening the shareholdings' meeting (art. 700(2)(3) CO);
- When determining the agenda items, the Board should observe the principle of unity of subject matters (Einheit der Materie; art. 700(3) CO);
- Interestingly, the 2023 SCBP permits purely electronic shareholders' meetings (virtual meetings) "if this makes participation easier for shareholders and the orderly and safe conduct of the meeting is not jeopardized". These requirements of easier participation and orderly/safe conduct go beyond the Swiss corporate law requirements (art. 701d CO), but are more liberal than the conservative stance certain proxy advisors take when it comes to virtual shareholders' meetings.4 Rightly, the 2023 SCBP emphasizes the individual responsibility of each shareholder for the functioning of their electronic means when participating electronically;
- The independent proxy should treat voting instructions received from individual shareholders confidentially until the shareholders' meeting and may give the company general information on the instructions received no earlier than three working days before the shareholders' meeting (art. 689c(5) CO).
The 2023 SCBP also deleted any references and explanations for votes by "show of hands". The reason is that the new corporate law provisions require listed companies to disclose the exact distribution of votes in the meeting minutes (art. 702(5) CO) which factually makes votes by "show of hands" impossible for listed companies.
2.3 Dialogue with Shareholders and Investors
The 2023 SCBP promotes more interaction between companies and its investor base. In line with the general trend towards a more constructive engagement with shareholders and investors, the 2023 SCBP suggests that the Board seeks a dialogue with shareholders on important matters and ensures a dialogue with other key stakeholders of the company.
This is particularly true in the run-up to shareholders' meetings, when companies should use the resources available to facilitate the provision of information to and decision-making by shareholders. Following shareholders' meetings, in case "a significant proportion of the votes do not support the Board's motion", it should start a dialogue with the shareholders and address their concerns. The 2023 SCBP remains silent on the threshold for such "significant proportion" of non-supporting votes. This threshold may accordingly vary from one company to another. However, we would expect that any acceptance levels of agenda items below around 80% might be an indication for certain shareholders' dissatisfaction and merit a dialogue with the shareholders.
Stating the obvious, the 2023 SCBP provides that any shareholder (and, by extension, other key stakeholder) interaction finds its limit in applicable disclosure requirements and the statutory principle of equal treatment of shareholders. Furthermore, the 2023 SCBP confirms that the Board is not required to respond to all requests for information in the shareholders' meeting: It explicitly provides for the right to answer complex questions (or list of questions) before or after a meeting.
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Footnotes
1 See e.g. the 2023 AGM invitation of Novartis AG.
2 See e.g. the 2023 AGM invitations of Schaffner Holding AG and Dätwyler Holding AG. Pioneers, like Nestlé S.A., however, already have similar ESG clauses as part of their corporate purpose for decades.
3 In an explanatory report to the 2014 revision, it had been noted that "the focus is always on the long-term interests of the shareholders, represented and concretized by the sustainable interests of the company. However, the implementation of this standard leaves room for interpretation". The report is available under: https://www.economiesuisse.ch/de/publikationen/ swiss-code-best-practice-corporate-governance-2014.
4 ISS and Ethos will vote against an amendment of the Articles of Association if they allow for virtual meetings without a justified reason.
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