Federal Council wants modern company law

Bern, 23.11.2016 - The Federal Council wants to modernise Swiss company law. It adopted the related dispatch for Parliament at its meeting on 23 November 2016. The focus is on making the regulations on company foundations and capital more flexible, strengthening shareholder rights, and introducing moderate rules on executive remuneration. The Federal Council also wants to make financial flows within the commodities sector more transparent. Finally, guidelines on gender representation at senior executive level in major listed companies will help to promote gender equality.

The Federal Council determined and published the key elements of Switzerland’s new company law on 4 September 2015. The dispatch it adopted today proposes to Parliament how these fundamental policy decisions are to be implemented. The requirements of Article 95 para. 3 of the Federal Constitution, which originate from the popular initiative "Against Fat-Cat Salaries", are to be codified in law. With its dispatch, the Federal Council revisits the major reform of company law that was undertaken in 2007, thus fulfilling the mandate that was conferred upon it by Parliament.

Strengthening shareholder rights to implement the initiative "Against Fat-Cat Salaries"

The new dispatch will transfer the provisions of the Ordinance against Excessive Remuneration in Listed Companies Limited by Shares (ERCO) into the relevant federal statutes. In force since 1 January 2014, the ERCO implemented the new constitutional provision on remuneration for governing and executive bodies of listed companies on an interim basis.

To strengthen both legal certainty and shareholder rights, the draft supplements the requirements of the ERCO in certain respects, thereby taking account of the concerns raised by the popular initiative. Specifically, it outlaws joining bonuses which do not offset any demonstrable financial disadvantage, as well as compensation for non-compete clauses that are not commercially justified. It also limits the level of such payments. Where shareholders vote in advance on variable remuneration for top managers, they must also be presented with the annual compensation report for a subsequent consultative vote. Finally, more effective options for claiming the reimbursement of unlawful payments will also be introduced.

Moderate gender guidelines for top management

The gender equality obligation laid down in the Federal Constitution will be fulfilled by the introduction of gender guidelines for the boards of directors and executive boards of major listed companies. Women should account for at least 30 percent of the board of directors and at least 20 percent of the executive board. If these targets are not met, the joint-stock company will be required to state the reasons, and the action that is being taken to improve the situation, in its remuneration report.

This "comply-or-explain" approach is intended to step up efforts within the business sector actively and comprehensively to encourage women at senior management level, where they remain by far the under-represented sex. Adjustment periods of five years for boards of directors and ten years for executive boards will provide sufficient time to seek suitable candidates.

Greater transparency in the commodities sector

The Federal Council also wants to make financial flows in the commodities sector more transparent, and thus encourage companies to act responsibly. One reason for this is the frequent absence of a sufficient legal framework in the countries in which commodities are produced or extracted. Systemically significant companies in the extractive sector will thus have to disclose payments to state bodies in excess of 100,000 Swiss francs per financial year in an electronic report.

More flexible company foundation and capital requirements

Furthermore, the dispatch on Switzerland’s new company law provides for greater flexibility and simplification in a whole range of areas. For example, it will be possible for equity capital to be denominated in a foreign currency, and authorised capital reductions will also be permitted within the scope of a new capital band. In the future, provided the circumstances are straightforward, it will also be possible to found, dissolve and cancel from the Commercial Register the company forms AG (company limited by shares), GmbH (limited liability company) and Genossenschaft (cooperative) without the need for public certification.

The Federal Council is proposing reforms to other specific areas in addition to those mentioned above. For example, by revising the provisions on corporate restructuring it aims to create incentives for companies to take the necessary action at an early stage, and thus avoid insolvency. In addition, arbitral tribunals will be able to rule on disputes under company law in addition to the public courts, as is the case at present.

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