The Corporate Governance Directive of the SWX
On 1 March, the Executive Committee of the Admission Board held preliminary discussions on the restructured draft of the Corporate Governance Directive. The directive is expected to be ratified by the full meeting of the Admission Board of 17 April 2002.
Last autumn, the draft was the subject of a broad solicitation of comment, upon which it underwent a revision. The directive has met with general approval. It ensures much greater transparency with regard to the responsibilities, work methods, compensations and shareholdings of governing bodies.
It requires the publication of the criteria and methods defined by the Compensation Committee, as well as compensations (including salaries, bonuses, credits and benefits in kind), options, share allotments, insurance-fund claims and loans to corporate officers. This information is to be disclosed in full with respect to:
- Executive members of boards of directors and members of management boards
- Non-executive members of boards of directors
- Former members of such governing bodies.
The Executive Committee of the Admission Board also decided to propose the following adjustments to the present version:
- That the directive should already be taken into account in the annual reports for the financial year 2002 (and not only in 2003).
- That the directive should apply absolutely to Chapter 5 (compensations and shareholdings). (The other chapters are governed by the more flexible comply-or-explain principle.)
The Admission Board is an independent body of the SWX Swiss Exchange and responsible for issues connected with listing, including the duty of listed companies to disclose information.
Corporate governance and "manager salaries"
What is corporate governance (CG)?
CG is understood to mean principles and regulations regarding the management of companies and the control thereof. Key issues are the responsibility, organizational structure and work methods of governing bodies (shareholders / general meetings, boards of directors, management boards, independent auditors), the balance of their rights and duties and how they cooperate.
Why is corporate governance important?
In recent years, the issue of corporate governance has become increasingly important. On the one hand, this is due to the internationalisation of companies and their shareholders and governing bodies; on the other hand, because of the size and complexity of international companies, traditional control mechanisms are no longer as effective as they used to be and must therefore be replaced with organizational measures.
Transparency, a key demand
Transparency is a key demand, since the forces in the capital market can only have a controlling effect if information necessary for making judgements - in particular, judgements regarding possible conflicts of interest - is made available.
The evolution of the debate on corporate governance in Switzerland
Ten years ago, both in Switzerland and abroad, the term CG was practically unheard of. The SWX Swiss Exchange has been deeply concerned with the issue since 1999 and prepared a draft for a CG directive within the framework of the principles for self-regulation (see especially Art. 8 of the Swiss Stock Exchange Act, under which internationally recognized standards must be taken into account in connection with provisions of the SWX regarding issuers). This directive will enter into force this summer. Since last year, economiesuisse has also been giving strong emphasis to CG; this has led to a draft for a "Swiss Code of Best Practice", which is in the character of a recommendation without binding effect.
"Manager salaries"
In 2000, the Swiss Federal Banking Commission required the SWX Swiss Exchange to issue regulations regarding the "disclosure in financial reporting of salaries and compensations of governing bodies and their ownership of issuers' securities" within the framework of the Listing Rules.
These regulations supplement the requirement already in effect that companies listed on the SWX must disclose in their listing prospectuses comprehensive information on the compensations, shareholdings, options and loan agreements of their senior management. Since listing prospectuses must be published only in connection with IPOs and when raising capital, the new regulations ensure that the above-mentioned information is disclosed regularly - i.e. at least once a year - in connection with financial reporting. Due to certain current events, the issue has caught the attention of the general public. It should be noted, however, that, from a CG point of view, there is information regarding the compensation of managers that is more important to shareholders and financial analysts than the size of so-called 'manager salaries', for example:
- To what extent are compensations based on performance and success?
- How should performance be measured?
- Where may there be conflicts of interest?
- Are the incentive schemes transparent?
- Does the company have a compensation committee with independent members and professional compensation systems?
- Who are the members of the compensation committee?
