Sustainable corporate interests are moving into the focus of Corporate Governance
In June the economic umbrella organisation economiesuisse (Swiss Business Federation) published a draft of the revised Swiss Code of Best Practice for Corporate Governance and invited interested parties to provide comments.
Among the most important updates compared to the Swiss Code from 2002 (amended with recommendations on compensation committees and compensation policy of 2007 in Appendix 1) are the legally required changes following the ordinance against excessive pay in stock exchange listed companies and the alignment of the code to sustainable corporate interests.
The draft of the Swiss Code implements the requirements of the ordinance against excessive pay in stock exchange listed companies, which became effective on 1 January 2014. However, the draft also changes the central concept of the Swiss Code.
The new ordinance replaces certain requirements of corporate law and primarily intends to strengthen the possibilities to influence the determination of a corporation’s compensation policy by institutional and private investors. Therefore the compensation report covering the board of directors, management and the advisory council, which has to be prepared annually by the board of directors, is central to the ordinance. In addition to the ordinance, the draft of the Swiss Code (paragraph 25) as well as appendix 1 also include extensive regulation regarding the tasks and responsibilities of the board of directors and the compensation committee, the compensation system as well as the compensation report and the transparency requirements. For institutional investors, economiesuisse has also issued directives regarding the execution of their participation rights in public companies.
Compared to previously, the draft of the Swiss Code puts more emphasis on risk management. As a result the board of directors is now required to consider the risks in its corporate planning in addition to strategy and finance and the draft of the Swiss Code explicitly includes the financial, operational (e.g., also legal and compliance risks) and reputational risks. On the one hand, the recognition, evaluation and compliance with local and international law and globally accepted standards increases significantly in global enterprises. This also impacts the size and organisation of the compliance function. On the other hand, the improved inclusion of institutional investors strengthens an effective corporate governance and a sustainable corporate policy in the long run as opposed to a strategy which is focused on taking on short-term risks. As a result of such a policy reputational risks can also be reduced.
Strengthening the long-term interests of shareholders, the improvement of risk management including operational (e.g., legal and compliance risks) and reputational risks as well as increased requirements for a transparent and comprehensible compensation policy free from conflicts of interest are closely connected to the goal of the draft of the Swiss Code to pursue a sustainable corporate policy as the central concept of Corporate Governance.
In addition to the draft of the Swiss Code, a corporate governance that incorporates a sustainable corporate policy is also included in a number of international Corporate Governance frameworks.
The Organisation for Economic Co-operation and Development in Europe (OECD) is planning a similar change to the Corporate Governance Codex, and the EU-Commission has issued a proposal for the renewal of the directive on shareholders’ rights and a recommendation regarding the quality of the reporting on corporate management (comply or explain) in April 2014.