This year’s AGM season is marked by the recent entry into force of the Swiss Corporate Law Reform and the need for Swiss public companies to adapt their articles of association and decide whether and how to make use of new concepts such as the capital band introduced by the new law. Even though the two-year transition period only requires the implementation of the reform until the end of 2024, the majority of companies have proposed necessary changes already to this year’s AGM. This article highlights the main trends of the AGM season so far.

By Thomas U. Reutter / Philippe Weber / Daniel Raun (Reference: CapLaw-2023-12)

1) Introduction

Most of the larger Swiss public companies have by now held this season’s annual general meeting (AGM) or have at least published the respective invitation. This has given us the opportunity to analyze common patterns and main trends in this year’s AGM season. A main observation clearly is that most companies have decided to implement the Swiss Corporate Law Reform, which entered into force on 1 January 2023 (the Reform) despite the fact that the legislator has given them time until the end of 2024 to do so. Hence, the focus of this article lies on how companies have transposed the requisite changes prompted by the Reform into their articles of association and to what extent the additional facilities conferred by the revised law are adopted in practice. 

As mentioned already in the precursor of this Article (see CapLaw 2023-03), the Reform has also caused economiesuisse to revise the Swiss Code of Best Practice for Corporate Governance (SCBP). For the most part, however, the 2023 version of the SCBP constitutes a mere transposition of the Reform into the SCBP. A majority of the remaining part focuses on enshrining ESG and sustainability considerations into corporate governance of major Swiss companies. As a result, there does not seem to be a noticeable impact of the SCBP on this year’s AGM season. However, as discussed below, many companies have amended their purpose clause to include sustainability or ESG wording, which – while certainly also an expression of the common Zeitgeist – may have been facilitated by the changes in the SCBP.

2) Implementation of the Reform

Until the end of the two-year transition period, listed companies incorporated under Swiss law will need to amend numerous provisions of their articles of association even when only changing the bare minimum to align with the new law. The magnitude of the changes is comparable to the overhaul that was required in the wake of the entry into force of the Ordinance against Excessive Compensation in Listed Companies (OaEC) (whose provisions have now been transposed to the Code of Obligations as part of the Reform) nine years ago, albeit broader in scope. 

The changes broadly fall into two categories: first, amendments that simply align articles of associations to the new law and, secondly, amendments that are required if companies want to avail themselves of the new possibilities provided under the revised law. The former are generally rather simple to implement and include, amongst others, reflecting the new, lower thresholds for minority shareholders to have items included in the agenda of general meetings or to request an extraordinary general meeting (now 0.5% and 5%, respectively, of the share capital or voting rights). Once the transition period ends, the new law will usually prevail over any provisions in the articles of association that companies have failed to amend. Accordingly, it could be argued that it is not even necessary to adopt these changes as the new law will override outdated articles of association, but good corporate governance and housekeeping dictates that these changes be made anyway. The second category of changes includes the authorization to conduct general meetings virtually and/or abroad and, most notably, the new capital band (replacing the former authorized capital, but conferring on the board of directors the authority to not only increase but also to decrease the share capital). For the capital band, companies who wish to introduce this new type of authorization will have to determine inter alia the upper and lower limits as well as the duration of the capital band and in this regard will have to decide whether and to what extent to align with proxy advisors’ expectations. Typically, therefore, the adoption of a capital band is not as straightforward and requires a more differentiated approach.

3) Trends

Approximately 110 listed companies have held their AGM or published their AGM invitations at the time of writing of this article. Thus, trends and patterns can already be observed with significant reliability at this stage.

a) Timing of Implementation 

As mentioned, listed companies have the possibility to implement the changes required by the Reform already in this year’s AGM season, but they can also wait until 2024 to do so. The vast majority of Swiss public companies who have held their AGM or published their AGM invitation have decided to implement the Reform (at least in part) already in this year’s AGM season. This pattern is even more pronounced among the larger listed companies. In fact, it seems that only one company of the SMI, Switzerland’s index of the largest Swiss listed companies, has postponed the implementation of the Reform to next year; all other companies included in the SMI have decided to adopt the requisite changes in their articles of association already this year. The reasons for this approach may vary, but it seems that Swiss listed companies generally want to be perceived as agenda setting and proactive when it comes to questions of corporate governance. 

b) Number of Agenda Items to Implement Reform

Initially, there was some debate among scholars and practitioners whether the amendments of the articles of association by affected companies need to be submitted in several agenda items or could be bundled into one single proposal and be put to a single vote. Based on the AGMs held and the invitations published so far, it seems that the vast majority of companies opt for several agenda items. Only one SMI company seems to have combined the proposed changes in one agenda item. Often companies single out agenda items that need a higher majority (two thirds of the votes present or represented), such as the introduction of a capital band, or that may be particularly controversial, such as the possibility of conducting virtual shareholder meetings. Implementing the Reform with several separate agenda items clearly gives shareholders a greater choice of accepting or rejecting certain proposed changes. This approach is therefore generally perceived as more shareholder friendly, which is most likely the reason why most companies have decided to follow it. 

c) Capital Band

As of the time of writing this article, only approximately a quarter of the companies who have held their AGMs or published their AGM invitations have proposed the introduction of a capital band. Among the reasons for this low adoption rate is the fact that many companies have existing authorized capital that will not expire until 2024 and, under the transition rules of the Reform, will remain valid for the duration for which it was originally approved. Companies who introduced or renewed their authorized capital at the 2022 AGM therefore do not typically have an urgent need to resolve a capital band, unless they have since then issued shares from authorized capital, thereby depleting it. Other companies have decided against proposing the introduction of the capital band despite their authorized capital expiring in 2023, some because they do not expect that they will need the capital band and others because they intend to first observe what market practices develop.

Among the companies who did propose to their shareholders a capital band, it is noteworthy that only two opted to set the upper limit of the band at the maximum allowed by law (50% above the existing share capital). In many cases, companies limited the maximum increase to 10% or less of the current share capital, which can be ascribed to the influence of proxy advisors’ recommendations for non-preemptive share issuances. The lower limit of the capital band has often been set at 85% to 90% of the current share capital. In several instances companies have proposed capital band provisions that do not allow for reductions at all, making the relevant provisions akin to authorized capital under the old law.

A substantial number of AGMs have already been held and one observation seems to be that authorizations in favor of the board of directors to issue capital such as the capital band seem to be less controversial and accepted by larger majorities in shareholder meetings than was the case a few years ago. One reason may be that companies hardly ever ask shareholders for non-preemptive authorizations to issue capital beyond the levels where proxy advisers would still recommend an affirmative vote. 

d) Virtual and Hybrid General Meetings and General Meetings Abroad

One of the central themes of the Reform is to provide for a long overdue basis to use electronic means more broadly. Most prominently, the new law allows for general meetings to be held virtually, i.e., electronically without a venue, or in hybrid form. In order for the board of directors to be allowed to convene general meetings purely virtually, the articles of association need to contain an explicit provision to this effect.

As noted in CapLaw 2023-03, the reactions of proxy advisers and similar institutions to the possibility of holding general meetings exclusively through electronic means have been quite varied, from favorable (GlassLewis) to reluctant (ISS and economiesuisse) to outright opposed (Ethos Foundation). In practice, at the time of writing of this article about 75% of listed companies have decided to propose an amendment of their articles of association to authorize their board to decide that general meetings be held virtually. These proposals have often been accompanied by an explanation that there is currently no intention to hold future general meetings in virtual-only format. Novartis as one of the first listed companies to publish its AGM invitation has limited the authorization to five years, after which shareholders will again have to renew the authorization for virtual general meetings. This solution hasn’t caught on with the companies that followed, making Novartis an outlier.

The Reform also allows companies to introduce in their articles of association a basis to hold general meetings abroad. Only very few companies have made use of this possibility. It would seem that most Swiss listed companies still have strong roots in Switzerland and/or do not see a particular need for general meetings abroad, particularly when there is the possibility of virtual meetings.

e) Securities Lending and Registration as Shareholder with Voting Rights (“Empty Voting” Prohibition)

Under the previous law, a listed company had the right to refuse the registration of a new shareholder with voting rights if at the company’s request the acquirer failed to declare expressly to have acquired the shares in its own name and for its own account. Under the revised law, this right of the company has been extended. The company may now also reject an acquirer of shares if the latter does not expressly declare that there is no agreement on the redemption or return of corresponding shares and that it bears the economic risk associated with the shares. The new law aims to reduce the improper use of securities lending and similar legal transactions to influence votes and elections at the general meetings. The legislator, however, refrained from introducing a general ban on the exercise of voting rights from shares acquired through a securities lending or similar legal transaction. Instead, the legislator left it to the companies to decide whether or not they wish to make use of this new restriction.

If an acquirer of shares does not submit the required declaration upon request of the company, and the board of directors of the company therefore refuses to recognize the acquirer of shares, the ownership of the shares, i.e. shareholder status with the economic rights to hold and sell the shares and the dividend right, will nevertheless pass to the acquirer; however, the voting rights attached to such shares will not pass and the corresponding shares will be deemed not to be represented at the general meeting.

In Swiss doctrine the view has been taken that the right to reject an acquirer due to the absence of a negative declaration on securities lending requested by the company applies directly on the basis of the revised law, i.e. that there is no need to include an express provision in the articles of association to provide the company with this right. However, it is not certain that courts will follow this view or rule that the right may only be exercised if expressly provided for in the articles of association.

In practice, at the time of writing of this article approximately 50% of the listed companies which have proposed to amend their articles of association at the 2023 general meeting have decided to adjust the provision on transfer restrictions of shares and to expressly include the requirement to submit a negative declaration on securities lending by a new acquirer. For such purpose, most companies have simply copied the new legal text into the articles of association.

f) Other Changes Related to the Reform

As mentioned above, a vast majority of companies have made proposals to their shareholders to at least partially adapt to the new law. Aside from the capital band, the introduction of an authority to refuse registration as shareholder with voting rights in case of securities lending and the possibility of virtual general meetings, however, these changes are for the most part uncontroversial. For example, many companies still have to adapt their share ownership thresholds for convening a shareholder meeting (5% ownership conferring such right mandatorily under the new law) or for putting an item on the agenda of a shareholder meeting (0.5% ownership conferring such right mandatorily) to the revised thresholds mandated by the Reform. Hence, most of the other changes serve to align the articles of association to mandatory provisions of the revised law, to align terminology or to update outdated references to statutory provisions.

4) Changes Outside the Reform mainly Relate to ESG Considerations

As briefly outlined in the introduction, a “flavor of the AGM season” seems to be that many listed companies have decided to propose amendments to their purpose clause to enshrine sustainability or ESG related considerations. Approximately one third of the listed companies having held their AGM or published their AGM invitation have newly considered such amendment. Such proposals coincide with and may partly be triggered by the revision of the SCBP (Swiss Code of Best Practice for Corporate Governance), which now puts particular emphasis on ESG and sustainability considerations. While the board of directors is the main addressee of such considerations in the SCBP, a legal basis in a company’s constitutional document approved by the shareholder meeting clearly helps the board to consider ESG and sustainability considerations in its business decisions. Based on AGM results published so far, such proposals seem to have been non-controversial and have all been approved.

Thomas U. Reutter (thomas.reutter@advestra.ch)
Philippe Weber (philippe.weber@nkf.ch)
Daniel Raun (daniel.raun@advestra.ch)