Revision of Stock Corporation Law | Part 4: Implementation of Art. 95 para. 3 BV in the Revision of Stock Corporation Law

This article is part of our series of articles summarizing the revision of the Stock Corporation Act (in force as of 01.01.2023). We will regularly highlight amended parts of the revision and outline the possible implications for practice.

On March 3, 2013, Article 95 (3 ) of the Swiss Constitution was incorporated into the Federal Constitution as part of the popular initiative "against rip-offs". The provisions in Art. 95 Para. 3 BV are not directly applicable and identify themselves as mandates to the legislator. Until the implementation of the mandates in the Code of Obligations(CO) as well as in the Criminal Code(SCC), the Federal Council has issued the Ordinance against Excessive Compensation in Listed Stock Corporations(VegüV) as a transitional provision as of January 1, 2014. This article shows in detail how the regulations are implemented in the CO and whether there is a need for action for the stock corporations.

1. art. 95 para. 3 lit. a BV

Competences of the General Assembly

Letter a of Art. 95 para. 3 BV lists the new non-transferable powers of the General Meeting of Shareholders of listed stock corporations. Thus, this is the annual vote on all types of compensation of the Board of Directors, the Executive Board and the Advisory Board. In addition, letter a mentions the annual election of the Chairman of the Board of Directors, individual members of the Board of Directors, the Compensation Committee and the independent proxy as further tasks. The requirements are contained in Art. 2 VegüV in the form of a catalog of the non-transferable measures of the General Meeting of Shareholders, and Art. 3 to 11 VegüV regulate the details of the elections.

The catalog of non-transferable powers of the general meeting of shareholders of a listed stock corporation finds its way into law with the revision of the Stock Corporation Act in Art. 698 para. 3 revOR. The wording has been taken over mutatis mutandis from Art. 2 VegüV.

In Art. 689c revOR, the legislator regulates the election of the independent proxy and in Art. 733 revOR the election of the members of the compensation committee. The compensation committee must consist of members of the board of directors.

Art. 735 and Art. 735a revOR contain the provisions on the voting of annual compensation of all kinds to the Board of Directors, the Advisory Board and the Executive Board. Pursuant to Art. 735 para. 3 item 4 revOR, it is mandatory to include in the Articles of Association the provision that in the case of prospective votes on compensation, a compensation report shall be submitted to the General Meeting of Shareholders for consultative determination.

Electronic tuning

The third sentence of letter a of Art. 95 Para. 3 BV states that shareholders may vote remotely by electronic means. This succinctly formulated provision requires more detailed elaboration by the law and technical implementation by the stock corporations. The VegüV does not regulate any details in this regard. Art. 9 para. 1 no. 3 VegüV merely states that proxies and instructions to the independent proxy can also be issued electronically.

Art. 701c revOR stipulates that shareholders who do not physically attend the General Meeting may exercise their rights electronically. With this provision, the provision of the BV finds its way into the Code of Obligations. Furthermore, Art. 701d revOR introduces the possibility of a virtual general meeting. Art. 701a para. 2 revOR provides for the possibility of holding the General Meeting at different venues at the same time, as long as all participants have the votes transmitted to their venue with images and sound. In practice, this is done by live video transmission. More detailed information on the electronic General Meeting can be found in our article Electronic Means in the General Meeting.

2. art. 95 par. 3 lit. b BV

Letter b prohibits any severance or other compensation, advance compensation, premiums for company acquisitions and sales and additional consulting or employment contracts of a company of the same group for the members of the governing bodies. Furthermore, the management of the company must be carried out by a natural person. Art. 20 VegüV presents these inadmissible remunerations in a catalog. This catalog has been adopted and supplemented in Art. 735c revOR. Clauses 2 and 3 regulate the prohibition of compensation based on a non-competition clause which is not justified in business terms or which exceeds the average compensation of the last three years. Clause 4 prohibits non-arm's length compensation in connection with a previous board membership in the company. Finally, item 5 prohibits signing-on bonuses that do not compensate for a demonstrable financial disadvantage.

3. art. 95 par. 3 lit. c BV

Letter c states that the amount of credits, loans and pensions to the members of the governing bodies, their performance and shareholding plans and their number of mandates outside the group as well as the duration of the employment contracts of the members of the executive board are to be regulated in the articles of association. This was already stipulated in Art. 12 para. 2 VegüV and is introduced at the level of the law by Art. 626 para. 2 revOR with the same analogous wording.

4. art. 95 par. 3 lit. d BV

Letter d contains the penalty provisions for violations of letters a through c. A prison sentence of up to three years and a fine of up to six years' compensation are provided for. Art. 24 VegüV regulates these penalty provisions as follows: For the fine it is explicitly mentioned that the maximum amount of the daily rate according to Art. 34 para. 2 SCC may be exceeded, but the fine may not exceed six times the annual remuneration. Only in this way is it practically possible to impose a fine in the envisaged amount in view of the largely very high remuneration of members of the board of directors.

Art. 154 nStGB adopts the provision from the VegüV mutatis mutandis. The only change lies in the express stipulation in paragraph 2 that one is not guilty if there is contingent intent. However, this is already regulated in Art. 24 para. 1 and 2 VegüV, according to which the offenses are only punishable if they have been committed "against better knowledge", i.e. with at least direct first-degree intent.

5. conclusion

Compared to the regulations of the VegüV, which are already in force, almost no innovations come with the revised CO. Only two aspects need to be considered:

Firstly, the revision of stock corporation law introduces new regulations for electronic general meetings. In order to make use of this instrument, some precautions are required. For more details on this topic, please refer to our article Electronic Means in the General Meeting.
Secondly, Art. 735c revOR prohibits above-average compensation based on a non-competition clause that is not justified in business terms, compensation to former members of corporate bodies that is not in line with the market, and inaugural bonuses that do not compensate for a financial disadvantage. It is recommended that the compensation awarded by the corporation be reviewed to ensure that it complies with the law in accordance with the revOR.

Source: Dispatch on the amendment of the Code of Obligations (Stock Corporation Act), BBl 2017 399, November 23, 2016.

Do you have any questions about the 2023 revision of company law? Please contact Balthasar Wicki or Sebastian Wälti.

Corporate law, digitizationArife AsipiOctober 19, 2022Wicki Partners AGrevision of stock corporation law, AG, VegüV, BV, electronic means, general meeting of shareholders