Switzerland Update: New Stock Corporation Law: The Board of Directors

The new stock corporation law, which comes into force on 1 January 2023, brings many innovations.

Introduction

The Board of Directors (BoD) is not exempt from these changes. This blog post therefore aims to briefly and succinctly present some aspects of the new stock corporation law that affect the Board of Directors in particular.

Eligibility, term of office

The new Act does not change the principles regarding admissibility, according to which (i) only natural persons may become members of the Board of Directors (Art. 120 Commercial Register Ordinance (HRegV)) and (ii) the election and dismissal of members of the Board of Directors is a non-transferable competence of the General Meeting (Art. 698 para. 2 no. 2 and Art. 705 para. 1 Swiss Code of Obligations (CO)).

The new law confirms that, in the case of listed companies, the members of the board of directors must be elected individually (and not “as a group”) and that the term of office of a member of the board of directors ends at the conclusion of the next ordinary general meeting (Art. 710 para. 1 Swiss Code of Obligations). These principles, which are already in force, are enshrined in the Constitution and are mandatory (Art. 95 para. 3 let. a of the Federal Constitution of the Swiss Confederation (BV)).

The new Act extends the principle of individual election of members of the Board of Directors to non-listed companies, unless the Articles of Association provide otherwise or the Chairman of the General Meeting decides otherwise with the consent of all shareholders represented (Art. 710 para. 2 sentence 2 nOR). In practice, many companies not listed on the stock exchange already use this single voting system, which is considered best practice.

The term of office of the members of the Board of Directors is generally three years, but can be shortened by the Articles of Association or extended to six years (Art. 710 para. 2 sentence 1 nOR), which is no different from the applicable law.

Finally, the re-election of a member of the Board of Directors is possible for all stock corporations, regardless of whether they are listed on the stock exchange or not (Art. 710 para. 3 nOR). The law does not impose any restrictions on the maximum number of consecutive terms of office or an age limit. However, such restrictions may be provided for in the Articles of Association.

Organization, President

In the case of listed companies, the General Meeting elects the Chairman of the Board of Directors from among the members of the Board of Directors and the term of office of each member of the Board of Directors ends with the conclusion of the next Annual General Meeting (Art. 712 para. 1 nOR).

In the absence of a chairman, the Board of Directors appoints a new one for the remainder of the term of office – regardless of whether the company is listed on the stock exchange or not. The Articles of Association may provide for other solutions to remedy this temporary lack of organisation (Art. 712 para. 4 Swiss Code of Obligations), such as the immediate convening of an extraordinary general meeting or the extension of the term of office until the end of the next general meeting.

Meetings, decision-making

The new law provides a more precise framework for the decision-making of the Board of Directors than the existing law, but explicitly allows greater flexibility in its actions.

The Board of Directors may continue to take its decisions in a physical meeting with a specific meeting place (Art. 713 para. 2 let. 1 nOR). It may continue to pass its resolutions in writing, on paper or in electronic form, provided that all members of the Board of Directors have agreed to this decision-making procedure (circular resolutions), i.e. if no member has expressly requested the discussion of an agenda item (Art. 713 para. 2 let. 3 nOR).

It should be noted that the new Act expressly confirms that the Board of Directors can take its decisions in electronic form – in analogous application of Art. 701c to 701e CO (Art. 713 para. 2 let. 2 nOR), which has already been accepted in practice.

The boards of directors can exercise their voting rights electronically (Art. 701c nOR) and hold meetings of the Board of Directors in purely virtual form (i.e. by telephone or video conference), without a physical meeting venue (Art. 701d nOR). In this case, the Board of Directors must use technical means to verify the identity of the participants and to ensure the simultaneous transmission of requests to speak during the meeting as well as the reliability of the voting results (i.e. the authenticity) (Art. 701e Swiss Code of Obligations).

Finally, the deliberations and decisions of the Board of Directors must always be recorded in minutes to be signed by the Chairman and the responsible person (not necessarily by the Secretary) (Art. 713 para. 3 nOR).

In addition, the Board of Directors may regulate the further details of resolutions in the Organisational Regulations (Art. 716b para. 3 nOR).

Transfer of management

Previously, the Board of Directors could delegate all or parts of the management of the Board of Directors to one or more of its members (i.e. delegates of the BoD) or to other natural persons (i.e. members of the Executive Board or directors) on the basis of the Organisational Regulations, provided that the Articles of Association provide for this (Art. 716b para. 1 CO). The new law is now based on the reverse principle, according to which delegation of the management is in principle possible, unless the articles of association provide otherwise (Art. 716b para. 1 nOR).

In principle, management can only be delegated to natural persons (Art. 120 HRegV; Art. 95 para. 3 let. b BV), with the sole exception of asset management, which can also be delegated by listed companies to a legal person (Art. 716b para. 2 sentence 2 nOR).

The mandatory minimum content of the Organisational Regulations remains the same even under the new law: The Regulations are intended to regulate the management of the company, determine the bodies required for this, redefine their tasks and, in particular, regulate internal reporting (Art. 716b para. 3 nOR).

The new law confirms that, in the absence of delegation, management is always exercised jointly by all members of the Board of Directors (Art. 716b para. 5 nOR).

Finally, the Board of Directors must inform shareholders and company creditors who can prove an interest worthy of protection in writing or electronically about the organisation of the management (Art. 716b para. 4 nOR).

Conflicts

The avoidance and management of conflicts of interest is part of the general duties of care and loyalty of every member of the Board of Directors (Art. 717 CO). Effective corporate governance is therefore essential to avoid such situations as far as possible or, if necessary, to manage them appropriately. Here, the new law provides a minimum framework that allows the Board of Directors to organise the avoidance and management of conflicts of interest with a certain degree of flexibility (Art. 717a Swiss Code of Obligations). Members of the Board of Directors or members of the Executive Board who have a conflict of interest must inform the Board of Directors immediately and in detail about the conflict (Art. 717a para. 1 nOR). The Board of Directors must then take the necessary measures to safeguard the interests of the company (Art. 717a para. 2 nOR). The member concerned shall not take part in the decision on the measures. The Board could, for example, decide to resolve the subject matter of the conflict in a two-stage procedure: a first vote with all Board members present and then a second vote without the affected Board member, whereby a Board decision is only valid if it is positively confirmed by the second vote. This would not release the conflicting board member from his liability. The Board of Directors could also commission a fairness report or seek independent advice on the disputed issue, or allow the conflicting board member to participate in the discussions but exclude him or her from voting. The law does not explicitly exclude a conflicting director, but in the event of a permanent conflict of interest, it is widely accepted that the conflicting director or executive board member should declare his or her expulsion.

The Board of Directors may include the applicable rules for dealing with conflicts of interest in the Organisational Regulations (Art. 716b para. 3 nOR). In doing so, the Board of Directors can orient itself on certain governance rules that have already been established in practice, e.g. on the rules of the Swiss Code of Best Practice for Corporate Governance published by economiesuisse. These rules, which were originally intended for listed companies, can also be implemented by companies whose shares are not listed on the stock exchange.

By Vischer, Switzerland, a Transatlantic Law International Affiliated Firm.

For further information or for any assistance please contact switzerland@transatlanticlaw.com

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