To understand shareholder stewardship in Switzerland, one must note a few idiosyncrasies. First, Switzerland is a grassroots society. This is evidenced by a tradition of devolving political authority to the lowest possible level and, in the business context, the historical prevalence of ‘cooperatives’, business associations based on mutual self-help.
Second, Swiss corporate law and practice have always emphasised and protected stakeholder interests over the principle of maximizing shareholder value.
Third, the blueprint for Swiss corporations, large and small, has long been the family-controlled business enterprise, with shareholders taking the long view and being prone to exercise their ownership rights responsibly.
The stewardship approach implies that shareholders act as ‘enlightened’ owners, thus deviating from the stated legal rule that a shareholder owes no duty to the corporation. Swiss shareholders have been acting like stewards for decades, not least due to the stakeholder principle being endorsed by court practice and supported by political and societal consensus. Stewardship involves making up one's own mind, though; in recent years, many institutional investors have shown a willingness blindly to follow the recommendations of proxy advisors, but there is emerging evidence of major financial institutions reassuming the stewardship role traditionally played by controlling shareholders.
Long vs Short Term
Given this environment, it comes as no surprise that Swiss corporate law is rather unspecific about the interests a Swiss board should serve. It essentially states that directors and managers must safeguard the interests of the company, without referring to any particular constituency. In the 1960s, this open-ended approach generated the Swiss equivalent of the 1930s US Berle-Dodd debate. According to the dominant doctrinal view, Swiss corporations were long-term profit-making entities operating to benefit shareholders, employees, creditors and society alike; however, this approach was challenged by those contenting that shareholders expected and deserved nothing more than investment returns.
Swiss courts and lawmakers sided with the dominant view. Admittedly, shareholder value theory regained some popularity in the late 1980s. However, it once more lost ground in the 2000s, when the Dotcom bubble burst and corporate scandals cast renewed doubt on the shareholder-centric model. The Global Financial Crisis of 2007/08 further increased scepticism towards the shareholder value proposition.
The Swiss Federal Supreme Court has consistently favoured long-term profitability over short-termism. Similarly, shareholders’ interests do not prevail when it comes to corporate and financial markets law. For example, the 2014 version of the Swiss Code of Best Practice for Corporate Governance (SCBP) emphasises Swiss corporate boards’ responsibility for the sustainable development of enterprises and—unlike its 2002 predecessor—downplays shareholder value considerations.
Value Creation and Employees
More importantly, major Swiss corporations have embedded broad entrepreneurial goals in their articles of association. For example, the articles of Nestlé SA, Europe’s most capitalised company, expressly state that the company ‘shall, in pursuing its business purpose, aim for long-term, sustainable value creation’.
Even so, the Swiss variant of the stakeholder principle is not as far-reaching as in other continental European jurisdictions. Employee relations provide a good example. Swiss corporate practice has always recognised their importance, as evidenced by a conspicuous absence of strikes and collective bargaining disputes. However, employees do not have a formal voice in corporate decision-making: unlike in Germany (and many other EU jurisdictions), employee co-determination never took hold in Swiss legislation or practice.
Daniel Daeniker is the Senior Partner at Homburger, Zurich.
Gérard Hertig is a Principal Investigator at the Future Resilient Systems Program, Singapore-ETH Centre and a Fellow and Research Member at ECGI.
This post is based on the recent article ‘Capitalist Stakeholders: Shareholder Stewardship in Switzerland’ (forthcoming in Dan W Puchniak & Dionysia Katelouzou (eds), Global Shareholder Stewardship (CUP 2022)).