How the Swiss financial marketplace is regulated mittendrin 2004 · How the Swiss financial...

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mittendrin The magazine of the SWX Group

2004

Self-regulation, management transactions, corporate governance, provision on insider trading, accounting standards,shareholder rights

How the Swiss financial marketplace is regulated

SWX_Magazin_e_040317.qxd 22.4.2004 13:36 Uhr Seite u1

Editorial 03

Dear Reader

Stable framework conditions, as well as regulation andsupervision which ensure effective investor protection andprevent abuse, are key factors for a successful financialmarketplace.

One of the main tasks of politics, government authorities andself-regulatory organizations is to promote the values that areassociated with Switzerland as a financial services centre :security, stability, performance and reliability. This alsomeans that the regulatory framework conditions must beadapted to international developments without losing sightof competitiveness as a key objective.

The financial sector is one of the most important and at thesame time one of the most highly regulated sectors of theeconomy. As is shown by many reform projects, Switzerlandputs a strong emphasis on reviewing and optimizing the regu-lation of the financial market.

For many years, the SWX Swiss Exchange has been issuingadaptable and workable rules for the financial marketplaceand listed companies; the SWX is therefore heavily involved(in German: “mittendrin”) in these discussions.

The topics covered in this issue give insight into current de-bates on the reform projects relating to the Swiss financialmarketplace. They advance opinions on the Swiss model ofself-regulation, the disclosure of management transactions,the revision of the provision on insider trading, the plans fornew regulations on company law, corporate governance in itswider sense and new developments in the area of accountingstandards.

The purpose of these measures is to create transparency soinvestors can properly assess the development of individualcompanies and the market as a whole – i.e., their investmentsand investment opportunities. In addition, these measuresare intended to strengthen investors’ – and in particularshareholders’ – participation and control rights, and ultim-ately they will ensure that the capital market can continue tooperate reliably, which is crucial for successful commercialactivity.

We would like to thank the following persons for their art-icles : Kurt Hauri, Chairman of the Swiss Federal BankingCommission, Heinrich Koller, Director of the Federal Officeof Justice, Urs Philipp Roth, Chief Executive Officer and Delegate of the Board of Directors of the Swiss Bankers Association, and the financial journalists Katharina Fehr,Anne-Marie Nega-Ledermann, Claude Baumann, RomanOberholzer, Kurt Schüle and Martin Spieler.

We would also like to thank our readers for their interest inthe Swiss financial marketplace. We are pleased to have the opportunity to offer you a copy of the “mittendrin” magazine.

Heinrich Henckel, CEO SWX Swiss Exchange

Heinrich Henckel

© Copyright

“mittendrin” is the magazine of the SWX Group. It is published in German, French and English. Reprints are subject to prior permission

and acknowledgement of the source. The views published in this magazine may differ from those of the SWX Group.

Contents 05

Page 06Self-regulation is internationally recognizedKurt Hauri, the President of the Swiss Federal Banking Commission, discusses Switzerland’s self-regulation model with Anne-Marie Nega-Ledermann of “Finanz und Wirtschaft ”.

Page 12Rising to the top with disclosure rules

Roman Oberholzer of “NZZ am Sonntag” on the regulationsregarding the disclosure of transactions in equities of one’s

own company.

Page 14“It would be easy to improve the insider trading law.”Urs Philipp Roth, head of the Swiss Bankers Association,discusses the provision on insider trading with Katharina Fehrof “NZZ am Sonntag”.

Page 18A moral basis for the market economy

Martin Spieler, editor-in-chief of “HandelsZeitung”, provides an overview of the current debate on corporate governance.

Page 24Key corporate governance issues from a legislative point of viewHeinrich Koller, Director of the Federal Office of Justice, on key corporate governance issues from a legislative point ofview.

Page 28A keystone in company law

Kurt Schüle, a business consultant and a former Member of the National Council and the Council of States, on

accounting standards and stricter rules and regulations.

Page 32The search for the perfect playing fieldClaude Baumann of “FACTS” on more shareholder-friendlyframework conditions and the question of whether sharehold-ers themselves should show more commitment.

Page 38 Further reading

Self-regulation

SELF-REGULATION IS INTERNATIONALLY RECOGNIZEDSwitzerland has no monopoly on self-regulation – and yet there are few other countries

in which it is so deeply rooted. It is even enshrined in the Swiss Stock Exchange

Act. Its weakness, according to SFBC Chairman Kurt Hauri, is “ the absence of effective

sanctions”. By Anne-Marie Nega-Ledermann

The entrance to the building of the Swiss Federal Banking Commission in Berne

SWX Group mittendrin 2004 07

Mr Hauri, why is self-regulation so im-portant to the Swiss financial sector inthe first place?Kurt Hauri: I think there are four rea-sons. First of all – and this is a very gen-eral point – there is our liberal view ofstate intervention. If something can bedone by private bodies, it does not ne-cessarily have to be a matter for thepublic sector. Where the supervision offinancial markets is concerned, some-thing that can be achieved in the pri-vate sector does not have to be put inthe hands of a state authority. Secondly,there is the principle of subsidiarity:Something that can be achieved at alower level should not be delegated up-wards. The third reason gets to theessence of things: If the market regu-lates itself, it can ensure that its regu-lation is as practice-based as possible.The rules are laid down by those whoform and operate the market itself.There are parallels here with the trad-itional guild system, in which the mar-ket also regulated itself – and did sovery strictly. Finally, the fourth reasoncomes from a pragmatic approach:Where the need for regulation is recog-nized and sufficiently acted upon bythose concerned, they should be per-mitted to regulate themselves with asignificant degree of flexibility.

In the past, the Swiss Bankers Associ-ation had a whole series of “gentle-men’s agreements”. Were these a formof self-regulation, or more like cartelagreements?K.H.: They were both, but they weremainly gentlemen’s agreements whichrestricted competition, i. e., of a clearlycartel-like nature. One instrument ofself-regulation was the gentlemen’sagreement concluded between theSwiss National Bank and the SwissBankers Association in 1955, whichwas aimed at countering the inflow offoreign money. It was a monetary policymeasure, hence the involvement of the

National Bank. The “gentlemen’s agree-ment” label was not, however, given tothe next agreement between the banksand the National Bank, which was con-cluded after the Chiasso scandal in1977. This was the first due diligenceagreement signed between the Na-tional Bank and the Bankers Associ-ation and its members, although theNational Bank would not itself be re-sponsible for its enforcement. Instead,it took on a sort of supervisory role –but one that differs significantly fromour own.

Once the SFBC oversaw only banks,but since the Stock Exchange Actcame into force its supervisory activ-ities have been extended to the par-tially self-regulating stock exchange.What is the SFBC’s experience of stockexchange supervision?K.H.: Unlike the other examples ofself-regulation practice – the banksand the Swiss Fund Association – theself-regulation of the stock exchangeis laid down in law. Article 4 of theSwiss Stock Exchange Act states thatthe stock exchange must essentiallygovern itself. Our experience of thishas been positive, on the whole. Thereare certain caveats to be made here,but they are inherent in the systemand have nothing to do with the stockexchange itself or with us. The weak-ness of the system of self-regulation isthe absence of effective sanctions.Penalties must be forceful if they areto have the desired effect, but as aninstitution under private law, the stockexchange doesn’t have the necessarypowers. And our legal system must not permit any type of independent judiciary.

Is the organization of the SWX Group,with a UK-supervised subsidiary, suffi-cient with regard to its dual role as anexchange on the one hand and a super-visory body on the other?

K.H.: The legal restructuring of thestock exchange, as a society at thehighest level above a joint-stock hold-ing company with various subsidiaries,has not weakened market supervision.On the contrary – the supervisory pro-cess works very well indeed thanks tothe excellent relationship between theUK Financial Services Authority andthe SFBC. To the credit of the FSA,that’s not something that we can takefor granted with other countries.

But can self-regulation work, giventhat the SWX Group is itself competingwith other stock exchanges and the in-ternalization of trading by some of itslargest members?K.H.: The SWX Group treads a fine linebetween its function as a participanton the global stock market and its roleas a self-regulator. But this isn’t anirresolvable conflict – it is in the inter-ests of the stock exchange to functionand be regulated well and efficiently,and to have a good reputation. That isthe only way in which it can hold itsown in international competition. But agood reputation isn’t everything. It isalso dependent on the number of par-ticipants, volume, liquidity, and thenew products it creates – and that pro-duces the tensions I’ve just men-tioned. At the moment, this tensioncentres on issuer regulation.

Swiss Stock Exchange Act

Art. 4 Self-regulation1 The stock exchange must undertake to ensure that

it has an organizational structure in respect of

its operations, administration and supervision that

is appropriate to its activities.2 It must submit its regulations and any amendments

thereof to the supervisory authority for approval.

As at 28 September 1999

Self-regulation

To what extent? K.H.: There are no government rulesfor the primary market, apart from avery small number of regulations forbond issues. Issuer regulation by theSWX Swiss Exchange thus covers thetraditional areas such as listing, ad-hoc publicity and corporate govern-ance, in which it recognized that thereare unresolved issues. The standard ofregulation is only as good as the stand-ard of its implementation – and thatapplies globally, not just to the stockmarkets. And that brings us back tosanctions . . .

. . .which demand legislative measures?K.H.: It’s the nature of the beast. Itneeds sovereign intervention. Repri-mands or even more far-reaching sanc-tions alone are of little use if the nameof the censured person or body can’t bepublished. The SWX Swiss Exchangenow employs the practice of “namingand shaming”. Under the law, this isnot an option for the SFBC. It is some-thing that the Zimmerli Commissionwill have to discuss.

The two big Swiss banks are the mostimportant participants in the SWXSwiss Exchange. Do you think this is aproblem?

K.H.: It is not a matter of the two bigbanks being dominant. The influencethey wield is significant, but there aremany other banks and securitiestraders among the participants on thestock exchange. Listed companies arenonetheless listed in their own inter-ests, not those of the stock exchanges.With various interests in conflict, regu-lation makes sense.

Is it correct to talk more about “dele-gated regulation” than self-regulation?K.H.: The term “delegated regulation”isn’t 100 per cent correct, but it cap-tures the main points. Delegated regu-lation doesn’t act as a brake in thesense that it would prevent overregu-lation. The SFBC could, for example,issue its own regulations, providedthey didn’t impinge upon the self-regu-lation laid down in law. The impressivecanon of SWX Swiss Exchange rulesand regulations is evidence of the greatextent to which regulation is in the interests of the stock exchange. We areby no means the only ones making therules !

Is there any interplay between super-vision and self-regulation?K.H.: It always comes down to a sens-ible division of tasks between the offi-

cial supervisory body and self-regula-tion by the stock exchange. On thewhole, it works and has been improvedfurther in recent years. We at the SFBCare informed of or involved in the stockexchange’s regulatory initiatives at anearly stage, our main role being that of active observer. We make very few apriori demands.

Do you see any need for regulation inthe secondary market, such as the ob-ligation to obtain approval for prospec-tuses, as is planned by the EU?K.H.: Under the terms of the draft EUDirective on admission conditions, thiswould indeed be a matter for a govern-ment agency. It is already the case inthe UK. In Switzerland, prospectus ap-proval is the responsibility of the stockexchange, via the Listing Rules. Corpor-ate governance regulations have a similar aim. This raises the question ofwhether or not this makes us EU-com-pliant. It is something that needs to be looked into, but it is not a task forwhich we will be volunteering.

What status is accorded to self-regula-tion under the new Finma concept?K.H.: The special laws governing keyareas will remain alongside the organ-izational strategy for integrated super-vision that will be implemented. Thisalso means that Article 4 of the SwissStock Exchange Act is sure to remainas it stands. The introduction of a gen-eral provision governing self-regulation– which would create a legal basis forthe activities of the Swiss Bankers As-sociation and the Swiss Fund Associ-ation – is not something that we havediscussed at the Commission. On theother hand, I can’t imagine Finma, thefinancial markets’ supervisory author-ity, ever forbidding self-regulation al-together. Self-regulation is, after all,internationally recognized, even in thereport on Switzerland that the IMFdrew up as part of the Financial Sector

Kurt Hauri

Chairman of the Swiss Federal Banking Commission (SFBC) Kurt Hauri (68) is Bernese through

and through. He grew up in Bern, studied law at the local university and in Heidelberg, and gained

his doctorate in 1962. His dissertation on the constitutionality of international treaties revealed

an early interest in constitutional law and marked the beginning of a seamless career in the Federal

Finance Administration as Head of Legal Services (from 1976) and Deputy Director (1984). Two

years later, Hauri was appointed to head up the secretariat of the SFBC, a position that he held for

ten years. He has been Chairman of the Swiss Federal Banking Commission since 1996 and,

in this capacity, is also the chief regulator of the Swiss stock exchange. As a citizen of Bern, Kurt

Hauri was also President of the local authority of the Swiss capital from 1998 to 2003.

Kurt Hauri

Anne-Marie Nega-Ledermann

Self-regulation

Assessment Program. In my view, theextent of self-regulation in the futurewill depend on Finma’s strategy, whichis something that the SupervisoryBoard will determine.

Unilaterally?K.H.: It certainly won’t take any deci-sions without first holding talks withindustry organizations. In the case ofthe self-regulation of banks and thefund industry, it is their own sectorbodies that are pressing for us to adoptas our minimum standard the rulesthat they have issued. But minimumstandards must be overseen, whichmeans that compliance will have to bemonitored by an independent auditbody.

What will this mean in practice?K.H.: Recognition by us makes self-regulation semi-binding. If the systemof self-regulation contains elementswhich don’t suit us, we refuse to giveour approval. But that wouldn’t do theindustry any good. As it is, we havemore leverage, because if the industrydoesn’t support our view where theneed for regulation is concerned, wesimply issue a circular.

What impact have international devel-opments had on your supervisory activ-ities with regard to the stock ex-change?K.H.: Securities are traded around theglobe and around the clock. That’s whyI also talk about the “world” stock ex-change. A stock exchange which, like

the SWX Swiss Exchange, wishes toremain strong, cannot allow itself aninsular regulatory structure. On theother hand, this doesn’t mean that youhave to slavishly follow all foreign rulesand regulations. We keep an eye on EUDirectives and on what the USA are doing. While they might not set an ex-ample we want to follow, they do giveus an idea of what we might also do.It’s something we just have to do.

What support does Swiss-style self-regulation enjoy abroad?K.H.: It has been recognized unequivo-cally by the IMF’s country assessmentprogramme. In fact, it was our dual sys-tem of supervision that raised the dele-gation’s concerns, although their fearswere allayed and they ultimately recog-nized our approach. In my internation-al contacts in the context of the BISand IOSCO, our system of self-regula-tion has never yet been a problem. Afterall, it isn’t peculiar to Switzerland – itis just better developed here than else-where.

Who are your EU contacts on stockexchange regulation?K.H.: You’ve addressed a very interest-ing phenomenon. While there are fewareas that are untouched by EU Dir-ectives, supervisory authorities are stilllargely national. One of the EU agen-cies is CESR – the Commission of European Securities Regulators – whichbrings together all EU stock exchangeregulators and seeks to achieve a de-gree of harmonization in supervisorypractice. We were persona non grata inthe predecessor organization FESCO,and we were turned down flat when weenquired about observer status – whichwas granted only to the ten candidatecountries. Happily, the CESR is nowwilling to hold regular talks with theSFBC. Of course, we also have contactwith the individual national regulators,and an excellent relationship with our

Daniel Keist on self-regulation

The concept of self-regulation has a long and well-supported tradition in Switzerland. Rules and

regulations can be introduced and implemented much more quickly than is the case with state

regulation. What’s more, proximity to the market and the associated specialist knowledge results

in better, more practicable solutions.

Where enforcement is concerned, the SWX Swiss Exchange has toughened up its practice on

sanctions significantly in the last two years. Last year 14 sanctions were published, and the Admission

Board took a basic policy decision to publish such sanctions as a general rule. In my experience,

publishing sanctions has a drastic impact on issuers and is thus highly effective. It is also a lesson

to other issuers, acts as a deterrent and increases legal certainty because it makes the Admission

Board’s practices transparent. Furthermore, the SWX Swiss Exchange has set up an independent

appeals body and an arbitration tribunal to which the Admission Board’s sanction decisions

can be referred. This legal remedy leads on to the ordinary courts, although no case has yet had

to exploit all the available options.

In addition, enormous progress has been made on ad-hoc publicity as well as on financial report-

ing, primarily as a result of the way in which the SWX Swiss Exchange has exercised its self-

regulatory powers. This has brought about a distinct improvement in the transparency with regard

to issuers and securities that is demanded by the Stock Exchange Act.

Daniel Keist, Secretary of the Admission Board and Member of the Management of the

SWX Swiss Exchange

counterparts in Germany, France andthe UK. As the SFBC, we do not play anactive part in the OECD, since such ac-tivities are part of the remit of the Fed-eral Departments of Foreign Affairs, Fi-nance and Economic Affairs. As wecome under the umbrella of the De-partment of Finance, we are briefedand are involved in domestic opinionforming. So we are in the picture aboutwhat is going on.

What obstacles stand in the way ofrelations with other regulators?K.H.: One of our main problems con-cerns the provision on official assist-ance that is contained in the StockExchange Act. This must be revised.The fault lies in the law, not with thejudicial practice of the Swiss FederalSupreme Court. At the moment, wehave no official assistance arrange-ments with the USA and Italy on con-troversial matters. We are not allowedto provide official assistance to eitherthe SEC or the Italian stock exchangesupervisory body. The situation withFrance and the UK is easier, becausethese countries accept our statutoryrequirements for official assistance.

What is your response to the criticismdirected at you of “over-eager obedi-ence”?K.H.: We certainly don’t encourageover-eager obedience in the stock ex-change sector. Where funds are con-cerned there was a time when that wasthe case and we were more Europeanthan Europe. Now we lag behind. Weare aiming to catch up with the newCollective Investment Schemes Act,which is currently in the consultationstage.

Does Switzerland therefore have to ad-just to the regulations and Directives ofthe EU in order for the SWX Group tocontinue fulfilling its role as an inter-national financial services provider?K.H.: Regulation is definitely needed,and where there is no self-regulation,the government must intervene. Butwe should try to avoid handing every-thing over to the state.


Finma – integrated financial market supervision

The Zimmerli Commission, which is composed of experts

in financial market regulation, has been entrusted with

structuring integrated financial market supervision at the

legislative level. Part I of its report, presented in July

2003, contains proposals on the organization of the new

financial services supervisory authority, Finma:

– Merger of the Swiss Federal Banking Commission,

SFBC, and the Federal Office of Private Insurance,

FOPI, to form an agency structured as an independent

legal personality.

– Division of Finma into three: Supervisory Board

(responsible for formulating strategy, making basic

policy decisions and issuing guidelines for supervisory

activities), the Executive Board (operational manage-

ment) and the Auditors (Swiss Federal Audit Office).

The consultation stage on Part I of the report was

completed at the end of January 2004.

Part II of the report is to address the SFBC’s report on

sanctions (published in April 2003). It will also look into the

issues of expanding prudential supervision of independent

asset managers, introducing brokers and foreign exchange

traders, as well as the integration of the Money Laundering

Control Authority.

In its report on sanctions, the SFBC favours a solution

which would grant the supervisory authorities the power

to impose sanctions by means of an order under adminis-

trative law: These sanctions might be financial (fine of

up to CHF 50 million; confiscation of profits) and/or involve

professional restrictions being placed on employees of secur-

ities trading firms (this option already exists).

At the time of going to press, no public announcement

had been made on progress with Part II of the report.

Work is likely to be influenced by the outcome of the con-

sultation stage for Part I of the report. The Swiss Bankers

Association, for example, opposes the system of sanction

provisions proposed by the SFBC and, in particular, the

integration of the sanction powers into the new financial

markets supervision act.

Anne-Marie Nega-Ledermann

is a financial journalist at “Finanz

und Wirtschaft”.

Discussions with the heads of Swisscompanies about the disclosure oftransactions in their own equities canbecome highly emotional. “It’s a privatematter and no one else’s concern”, is acommon sentiment. Another one runsalong the lines of: “Instead of monitor-ing the transactions of a few individ-uals, the exchange should focus on regu-lating the capital market as a whole.”Emotions ran accordingly high in thesummer of 2003, when the solicitationof comment on the regulation of man-agement transactions took place. Ap-parently, Switzerland’s financial worldis not used to this kind of transparencywhere the individual is concerned.

What is this all about? The boards ofdirectors and management boards oflisted companies are required to dis-close transactions in their own equi-ties. Accordingly, transactions carriedout directly or indirectly must be re-ported to the SWX Swiss Exchange andpublished if they exceed CHF 100,000within one calendar month. The Ad-mission Board of the SWX Swiss Exchange adopted this rule on 20 October 2003 and submitted it to theSFBC for approval.

In line with international practiceProfessor Max Boemle, an expert onthe financial markets, announced pub-

licly on several occasions that “thisstock exchange rule is important andabsolutely necessary”. He says there isno reason why the Swiss financial mar-ketplace in particular should not havesuch a disclosure requirement. And itis true that, in Anglo-Saxon countriesin particular, a policy of maximumtransparency for the benefit of in-vestors has been pursued for sometime now. The rules that are in place atthe New York Stock Exchange, for ex-ample, have their origins in 1934. Andthe reporting duty on the London StockExchange has proved to be a helpfulsource of information for investors.Furthermore, all over the world there

The SWX Swiss Exchange means business as far as transparency is concerned: the boards

of directors and management boards of listed companies are required to disclose transactions

in their own equities. This will increase the competitiveness of the Swiss financial marketplace.

By Roman Oberholzer

RISING TO THE TOPWITH DISCLOSURE RULES


have been intense discussions aboutcorporate governance following the col-lapses of Enron and WorldCom. The in-troduction by the SWX Swiss Exchangeof the duty to report managementtransactions can also be viewed in thiscontext.

Stricter provisions regarding manage-ment transactions are almost a pre-requisite for remaining internationallycompetitive with other financial mar-ketplaces. The new rule is also a sym-bol of the desire to regain the lost trustin the financial markets. Accordingly,this primary objective was hardly ques-tioned during the solicitation of com-ment. The specifics, on the other hand,proved rather contentious. “The scopeof the provisions is excessive and theireffect to some extent counterproduct-ive”, said the Swiss Bankers Associ-ation. The same opinion was voiced byvarious companies. A total of 48 com-ments of companies, investors, associ-ations and lobbies were received duringthe solicitation of comment, whichlasted from 9 May through 30 June2003.

Critics say that, in practice, manage-ment transactions are often based onother things than inside information.They may be triggered by the need ofmoney on the part of a manager, for ex-ample, or an extended black out orclosed period. Reporting such transac-tions, they say, gives the market thewrong impression. The experiencesthat have been made abroad, however,show that stock exchange participantsare fully capable of correctly interpret-ing the published information. Be-sides, whenever anything is unclear,the relevant company can be asked fordetails.

There is a strong demand on the part ofinvestors for information on manage-ment transactions. In Germany, for ex-

ample, appropriate provisions havebeen in effect since July 2002. Thelower reporting limit was fixed at EUR 25,000. A study carried out byDeutsches Aktieninstitut shows thatreports of management transactionsare a valued aid for investors. The studyconcludes that sales by company unitssubject to the reporting duty are some-times interpreted as a warning signal.Similar results have been obtained inthe USA, where even the names of thepersons making the transactions mustbe published. This information is pub-licly available and can be accessed onthe Internet. Additionally, there is anumber of financial products whose in-vestment policy is specifically gearedtowards disclosed management trans-actions.

In view of the experiences made in Ger-many, most of which have been posi-tive, the EU Commission also decidedto introduce strict provisions. A basisfor disclosure rules was already inplace in the context of an EU Directiveon insider trading and market manipu-lation that was adopted in 2002, but aspecific draft was only presented thisyear. The purpose of the EU provisionsis to achieve minimal harmonization ofthe rules and regulations currently inplace in individual countries. A defin-ite decision may be expected thisspring.

Difficulties in connection withimplementationIn spite of the sometimes harsh criti-cism received during the solicitation of comment, the Admission Board ofthe SWX Swiss Exchange decided toadopt fairly strict directives. Some cor-rections were made, however. For ex-ample, the management board and theboard of directors must state the trans-action amount and the position of theperson making it, but not the name ofthat person. Also, the original draft ex-

pressly mentioned that close relativeswere subject to the reporting require-ment as well, but now a less preciseformulation has been chosen whichonly states that transactions must bereported that are carried out directly orindirectly.

There remains one great disappoint-ment: the SWX Swiss Exchange hasfew means of enforcing compliancewith the reporting duty. At present, the Admission Board can only imposesanctions on companies and not againstboards of directors,managementboardsor closely related persons. Only timewill tell if the directives that are now in place will be observed. If not, thoseresponsible will have to consider strictersanctions. For only the rigorous imple-mentation of the provisions on the disclosure of management trans-actions will increase transparency andstrengthen the Swiss financial market-place.

Roman Oberholzer is a business journalist

with the “NZZ am Sonntag”.

“ IT WOULD BE EASY TO IMPROVE THE INSIDER TRADING LAW”Legislation against insider trading has been in effect in Switzerland since 1988. However,

investigations or even convictions are very rare. Urs Philipp Roth, head of the Swiss Bankers

Association, speaks about why that is the case and what could be improved.

By Katharina Fehr

Urs Philipp Roth


Mr Roth, Switzerland has had an in-sider trading legislation in force since1988. What are the experiences thathave been made so far?Urs Philipp Roth: Unfortunately, I haveto say that we have very little experi-ence with the insider trading law.There were practically no convictionsand only a few investigations were con-ducted.

To what do you attribute that fact? Is ittoo difficult to demonstrate proof, or isthe legislation too porous? U.P. R.: The likelihood is that thereare not all that many instances of in-sider trading. That also bears up ifone takes a look abroad. In New Yorkor London, it rarely occurs that con-victions are pronounced. A lot ofspeculation is involved in stock mar-ket trading, thus the search for aninsider is often like looking for theproverbial needle in a haystack. I cangive you an example. In the run-up toa takeover, most of the time there arerumours already in the marketplace.That makes it difficult to filter out realinsider trades from the other trans-actions. In my previous position at amajor bank, I occasionally had to lookinto suspicions of insider trading.Most of the time, it turned out thatthe people who made the suspicioustrades only fell into this insider “pro-file” by coincidence – simply becausethey were regularly executing trans-actions in the given stock. Of coursewe have also seen clear-cut cases ofviolation over the past years, all ofwhich became public knowledge.

But even in those cases, no convictionsresulted. Why not?U.P. R.: That has to do with our crim-inal provisions in this regard. They arevery limited. Article 161 of the CriminalCode, which deals with insider trading,was hemmed in by the panel of expertsthat drew up the relevant clauses in

1988 as well as by Parliament itself.As a result, the legislation is applicableonly in very specific categories of of-fence.

Which might those be?U.P. R.: The case must involve a cap-ital market transaction, such as a take-over or a company’s decision to goprivate. And that is actually not thetypical case of a misuse of insiderknowledge.

So a person who has knowledge of animpending profit warning and sellsshares on the basis of that informationis not in violation of the Criminal Code? U.P. R.: That is correct. The nature ofthe Criminal Code does not permit anarticle to be more broadly interpretedand applied to other cases of violation.That has also been confirmed by theSupreme Court.

Who had an interest in such limp legis-lation when it was introduced in 1988? U.P. R.: I don’t believe that any inter-est groups were behind it. The panel ofexperts’ goal was rather to formulate

the law in the most concrete termspossible. That it ultimately has beeninterpreted in such a confined mannerwas certainly not the intention. Buttoday one has to recognize that the in-sider legislation is now almost 16 yearsold. The stock exchange environmentwas different back then. One didn’thave the same financial instrumentsand information that are availabletoday. Therefore, I am of the opinionthat the insider law is in need ofadjustment.

In 2001, the Commission on OrganizedCrime and White-Collar Crime (an ini-tiative of the Conference of CantonalJustice and Police Directors) created awork group headed by Zug councilmanHanspeter Uster – the so-called UsterCommission. Its report has now beenpresented to the Federal Departmentof Justice. In your opinion, whatchanges have to be made to the law inorder for it to have more bite? U.P. R.: There are two procedural levels– one pertaining to issues of responsi-bility and the other to substance. At theprocedural level, I foresee few prob-

Urs Philipp Roth has for almost three years now been the

Managing Director and Delegate of the Board of Directors of

the Swiss Bankers Association. As a graduate in law,

Mr Roth (56) began his career with the former Swiss Bank

Corporation where, as legal counsel, he bore responsibility

during almost a quarter of a century for the bank’s legal and

compliance office. Thus the merger of Swiss Bank Corpor-

ation and the Union Bank of Switzerland that created today’s

UBS saw him play a key role. Mr Roth is chairman of the

steering committee of “ International Finance Centre

Switzerland” and is a lecturer at the University of Zurich.

When this father of three grown children is not focusing

on issues of banking and securities exchange law, he enjoys

reading, going to the opera and snowboarding.

Urs Philipp Roth

Provision on insider trading

lems. If the SWX Swiss Exchange dis-covers unusual trading patterns, it con-ducts preliminary investigations andexamines the relevant trading activity.Afterwards, it informs the criminal au-thorities of its suspicions. The FederalBanking Commission may also initiatean investigation if it has drawn the conclusion that irregularities have occurred. Fundamentally, though, itstrikes me as being important that in-sider cases are processed by a singlebureau of the Federal Prosecutor’s Of-fice in order to make use of all factsthat have been gathered.

What improvements do you see at the“substance” level?U.P. R.: The question of substance iseasy to solve. The insider law states:“Whoever abuses confidential infor-mation that leads to the price (of a se-

curity ) being influenced shall be pun-ished.” Paragraph 3, however, limitsthat information to “ capital markettransactions”. One would therefore onlyhave to strike Paragraph 3 of Article161 in order to have a law with morebite to it. As a result, we would alsosolve the problem of administrative as-sistance. In cases of insider situations,international cooperation via legal andadministrative assistance is very im-portant. For instance, imagine that MrX has knowledge of a profit warningand sells the relevant shares on theNew York Stock Exchange – albeit, viaa Swiss bank. However, Article 161 isonly applicated to transactions exe-cuted on the SWX Swiss Exchange.The USA cannot provide legal assis-tance to Switzerland because the sub-stance of the case is not punishable inSwitzerland. For that reason, Switzer-

land has already come under heavycrossfire mainly from the USA and Ger-many. Even the administrative assist-ance provisions in Article 38 of theStock Exchange Act are very limited.The Swiss Bankers Association, in con-junction with the Federal BankingCommission, therefore drew up a pro-posal eighteen months ago as to howthis article could be revised. The solici-tation of comments ran until the end ofMarch. From our vantage point, how-ever, that procedure was indeed alengthy one.

The use of prior knowledge of an im-pending profit warning would thereforebecome punishable. What other casesare there that are not punishabletoday?U.P. R.: Among them are certainly theknowledge of revolutionary patents for


example in the pharmaceutical indus-try, important changes in a company’ssenior management, and the threat ofa class-action suit for product liability.All of those situations could have a sig-nificant impact on the price of a stock.But the use of such information is notpunishable under today’s law.

There are frequent demands to definethe term “ insider ” more strictly. Butyou don’t view that as a solution?U.P. R.: No, because even as it per-tains to the term “insider” – the nar-rower something is defined in theCriminal Code, the larger the loop-holes are. And even if those loopholescan never be entirely closed, I believethat the elimination of Paragraph 3would lead to the law’s encompassingfully 80 per cent of the potential in-sider cases.

Would it help if the penalties were tobe stiffened in order to create a deter-rence? U.P. R.: That is a question of appropri-ateness. An insider violation is not thesame as murder or manslaughter. ThusI think it is right to classify it as a mis-demeanour and not as a crime. Onewould accomplish a lot more if the lawwere finally to become actually applic-able.

From the outside, it appears that im-proving the law is turning out to be asluggish process. In your opinion, arethere certain groups that are opposedto a more stringent insider norm?U.P. R.: No, much to the contrary.There are rather groups that are fullycommitted to improving the law –among others, the Swiss Bankers Asso-ciation. For several years now, we have

been devoting efforts to making the lawmore effective. As the world’s largestasset manager, Switzerland cannot beinterested in letting the insiders of thisworld go unpunished in this country.

Are there other institutions such as theFederal Banking Commission or thebanks themselves that could under-take preventative steps against insidertrading?U.P.R.: I don’t think so. We of coursecould enact a self-regulatory proced-ure, but there are no actual means ofdirect action. An insider violation is acriminal act and not a matter adjudi-cated by the supervisory authorities.

Katharina Fehr is a business journalist

with the “NZZ am Sonntag”.

Katharina Fehr

“ I am pleased that the disclosure of information relating to corporate governance by companies listed on the SWX hasimproved noticeably due to the DCG.”Conrad Meyer, Director of the Institute for Accounting and Control at the University of Zurich


Numerous instances of abuse of powerand self-enrichment on the part ofmanagement to the detriment ofshareholders have not only damagedthe image of the commercial worldand financial marketplaces amongbroad sections of the public, they havealso increased the demand for stricterrules and regulations and more severepunishments for rule violations. Pointsthat have been criticized include toolittle focus on the interests of share-holders by managers, too little trans-parency with regard to management,in many cases, too little independenceon the part of boards of directors, in-stances where the positions of chair-man and CEO are held by one and thesame person and limited independ-ence of auditors. The demand for moresurveillance helps efforts to improvecompanies’ corporate governance.One concern in this regard is financialtransparency; another are the manage-ment and organizational structureswithin companies. Legal provisionsare supposed to ensure that the per-sonal interests of managers do nothave precedence over those of share-holders and that boards of directorsmonitor compliance with control pro-visions.

Important balance of power withinjoint-stock companieseconomiesuisse’s Swiss Code of BestPractice for Corporate Governancestates that corporate governance “em-braces all the principles and rules oforganization, conduct and trans-parency which are geared to the inter-ests of shareholders and are designedto ensure a balance between directionand control at the highest corporatelevel while safeguarding decision-making power and management effi-ciency”. The purpose of corporate gov-ernance is to ensure that boards ofdirectors fulfil their management andcontrol duties and that general meet-ings of shareholders, as well as the fi-nancial markets, are able to performtheir disciplinary duties. Corporategovernance, then, comprises all prin-ciples regarding the management andmonitoring of a given company. A sys-tem of checks and balances and steer-ing and incentive structures are in-tended to ensure a balance of powerwithin joint-stock companies. InSwitzerland, appropriate instrumentsare provided by the recommendationsregarding corporate governance setout in the Swiss Code of Best Practiceand the Corporate Governance Direct-ive of the SWX Swiss Exchange, ef-

fective since 1 July 2002. The direct-ive encourages issuers to make key in-formation relating to corporate govern-ance available to investors in an easily accessible form. Because mar-ket forces can only hold a control func-tion when the necessary information,e.g., information on possible conflictsof interest, is available, companies arealso required to disclose specific infor-mation on management and control atthe highest management level, as wellas the total amount of the compensa-tions awarded to the members of thegoverning bodies and the amount of thehighest compensation awarded to an in-dividual. The effectiveness of disclos-ing salaries and honorariums in connec-tion with protecting the interests ofshareholders should not be overesti-mated. “Experience shows that thisleads to rather higher salaries for man-agers, because the published figuresare compared with each other”, saysprofessor Jaap Winter, Chairman of theHigh Level Group of Company Law Ex-perts, a group of corporate-law expertsof the European Commission. Still,transparency with regard to salarieswould allow shareholders to judgewhether or not these salaries are inproper relation to performance. “But ex-cessive salaries cannot all be abolished.”

Doctored balance sheets, excessive manager salaries, many of which were paid out without the

knowledge of shareholders, and secret agreements on the management floor have created

scandals in Switzerland and abroad. Corporate governance is supposed to protect the interests

of shareholders and prevent creative accounting.

By Martin Spieler

A MORAL BASIS FOR THE MARKET ECONOMY

The images and the text proceed from the corporate governance seminar of 1 December 2003,organized by the SWX Swiss Exchange.

Corporate governance

Changed role of boards of directorsThe sizes of salaries are not the onlytopics under discussion; the relativesizes of the fixed and variable portionsof these salaries are debated as well.On the one hand, management is sup-posed to have an incentive to optimizevalue for the benefit of shareholders; onthe other hand, bad experiences withstock-option plans have made manyshareholders circumspect. In the past,such plans have led managers to ma-nipulate company figures in order tobenefit from the associated payments.Furthermore, shareholders do not wishto see their shares diluted. It is the re-sponsibility of the members of the com-pensation committees of the individualcompanies to find optimal compro-mises that benefit shareholders to thegreatest possible extent. A condition forthis is in-depth expert knowledge on thepart of the relevant boards of directors.The role of boards of directors haschanged dramatically in connectionwith the increasingly vigorous debatesurrounding the role of corporate gov-ernance. Whereas many companiesused to have passive boards of directorswithout any particular expertise ortasks, the requirements are now farmore demanding, especially with re-gard to financial control of companymanagements. In addition to routinesurveillance of the key figures, earlyrecognition of potential risks is very im-portant. In order to carry out thesetasks, members of boards of directorsmust not only have the required figuresand be able to interpret them, theymust also have the necessary time.Members of boards of directors whowish to be proactive cannot increasethe number of their mandates indefin-itely. The requirements for boards of directors have also become more de-manding with regard to industry know-ledge and management experience. A negative example was supplied by theboard of directors of the collapsed

Swissair: several members of the boardof directors did not have the requiredindustry knowledge and were not pre-pared to invest the time necessary toquestion the management’s strategyand figures. Even when a company col-lapses, however, the legal options for

shareholders are rather limited: share-holders can only take legal actionagainst the management of a givencompany if the duties of diligence andloyalty have been violated, but not incases of simple financial failure.

How should the state carry out itsregulatory tasks? Both in Switzerland and abroad, a keyissue in the current debate on corporategovernance is whether the enforcementand drafting of corporate governanceprovisions should, in the main part, be

carried out by individual countries – ormaybe even in the context of a con-certed international effort – within alegal framework or whether success ismore likely to be achieved by permittingas much self-regulation as possible.Switzerland, the SWX Swiss Exchange

and the trade associations favour an op-timal balance of basic governmentalrules and flexible self-regulation as faras details are concerned. In the USA,the Sarbanes-Oxley Act was introducedin response to the many corporate scan-dals in order to improve corporate gov-ernance and increase investor trust.The responsibility for the implementa-tion provisions lies mainly with the Se-curities and Exchange Commission(SEC) and the stock exchanges. Underthe Sarbanes-Oxley Act, auditors arenot permitted to offer certain advisory

Conrad Meyer, André Kudelski and Peter Böckli

“Even the best corporate governance cannot preventcrime.” Jaap Winter

services, and they are appointed not bythe management, as before, but by theaudit committee of the board of direct-ors. Furthermore, a majority of themembers of boards of directors must beindependent. A key provision of theSarbanes-Oxley Act is that CEOs andCFOs must confirm under oath that thefinancial statements are in order andthat they themselves accept liability forthe statements’ correctness and com-pleteness. Proof that additional laws canlimit the power of company managers,however, has not yet been produced.

A standardized, international corpor-ate governance code is also under dis-cussion in the EU. The EU wishes tointroduce binding laws in the areas ofcorporate governance and auditing byenacting new directives and amendingexisting rules. Shareholders’ rights in

Europe are intended to be expanded bymeasures such as the right to ask ques-tions, cross-border voting, the right ofpostal voting, participation in generalmeetings of shareholders by electronicmeans and the introduction of the col-lective responsibility of all members ofgoverning bodies for the annual ac-counts and other important points. Inthe opinion of professor Winter, however, a company-law expert based in Amster-dam, a standardized code is not appro-priate for Europe due to the diverse legal systems and cultures. “An EU cor-porate governance code”, he says,“would mean a huge book with many exceptions.” He thinks priority shouldbe given to the introduction of a direct-ive on transparency requirements andbetter coordination of national share-holders’ rights.

Avoiding the corporate governancestraitjacket in SwitzerlandIn Switzerland, relevant legislation hasbeen limited to basic issues. The SwissCode of Best Practice for CorporateGovernance, which is observed by mostcompanies, comprises thirty recom-mendations, but it does not have theforce of law. economiesuisse expresslywished to avoid a corporate governancestraitjacket, preferring to give com-panies the freedom to shape their cor-porate governance in accordance withtheir own requirements. Unlike the le-gislature in the USA and the Sarbanes-Oxley Act, the Swiss legislature is nottrying to prescribe in detail how compa-nies should be managed. There is, how-ever, a whole array of proposals inpreparation which call for stricter legis-lation on corporate governance rules. According to professor Peter Böckli,

Jaap Winter, Amsterdam

Corporate governance

Peter Böckli and Heinrich Henckel

head of the “Aktienrechtsrevision undCorporate Governance” workgroup, whichwas created by the Federal Office ofJustice to prepare draft laws, most ofthese motions are intended to ensurethat the Federal Council examines theSwiss legislature in terms of corporategovernance and shareholders’ rights.The motions of the Swiss Parliamentcan be divided into four categories: in-creasing shareholders’ rights and betterprotection for minorities, compositionand organizational structure of boardsof directors and management boards,transparency with regard to compensa-tions and emoluments, and preparationand auditing of annual accounts.

Possible inclusion of non-listedcompaniesCorporate governance rules are oftenerroneously associated only with listedcompanies. Peter Böckli points out that“the corporate governance workgrouphas concluded that the corporategovernance principles set out in corpo-rate law, and in particular the duty toprovide transparency, should be incor-porated into the Swiss Code of Obliga-tions, and that they should apply tonon-listed companies as well as listedones”. These transparency require-ments should, however, be limited tocompanies that are considered eco-nomically significant. Rudolf Hauser,the Chairman of the Board of Bucher In-dustries, speaks from experience whenhe says that the direct and indirect costsof implementing corporate governanceprinciples should not be underesti-mated even in connection with listedsmall and mid caps. The market andcompetitive pressure, he says, alreadyensure the required transparency, but itis only to a certain extent that they canensure widespread proper conduct onthe part of management boards. This isan area where a limited amount of regu-lation might be in order, he adds. MrHauser thinks that the rules and regula-

tions currently in place could be im-proved and simplified. “They should not,however, be expanded, as this would not increase their effectiveness, andtheir usefulness in preventing abuse islimited anyway.” Professor Winter alsorecognizes the limitations of corporategovernance rules: “Even the best corpor-ate governance cannot prevent crime.”Yet he points out that inadequate corpor-ate governance involves high risks forshareholders because it allows compa-nies to hide their problems longer,“whereas minimal corporate governancestandards reduce risks considerably”.

Corporate governance should not beseen as a directive that is fixed for alltime, but rather as an ongoing processthat is re-examined on a regular basis inconsideration of new insights and legalprovisions and adjusted as necessary.Compliance with corporate governanceguidelines contributes significantly toestablishing sustainable trust in com-pany managements and the financialmarketplace on the part of shareholdersand the public. And corporate govern-ance has one use that benefits not justthe economy, but society as a whole: it

is the moral basis for a well-functioningmarket economy, which in turn is thebasis of our society.


High level of acceptance of the Corporate Governance Directive in Switzerland

A study conducted by Conrad Meyer, Director of the Institute for Accounting and Control at the

University of Zurich, shows that Switzerland is on a promising path with its model based

on balancing legal rules and self-regulation. 265 annual reports were analysed and 150,000

individual pieces of information were gathered in connection with the study, which concludes

that the reporting by companies listed on the SWX Swiss Exchange has improved significantly

since the introduction of the Corporate Governance Directive in July 2002.

The study shows that the average level of compliance among the companies included in the

study is 85 per cent. 110 of the 265 companies achieved a level of compliance of over 90

per cent. The lowest levels of compliance were achieved in connection with the “Group struc-

ture and shareholders” and “Information policy” sections, the highest in connection with

the “Auditors”, “Changes of control and defence measures”, “Compensations, shareholdings

and loans” and “Board of directors” sections.

Martin Spieler is editor-in-chief

of “HandelsZeitung”.

Status report

KEY CORPORATE GOVERNANCEISSUES FROM A LEGISLATIVEPOINT OF VIEWCompared to many other European countries, Switzerland looks good in terms of corporate

governance. The debate on the nature and scope of legal regulation, however, has only just begun.

By Heinrich Koller

The key legislative issues are shareholder rights, the organizational structure of the company and transparency with regard to compensation of the board of directors and the management board.


Judging by the number of publica-tions and statements on corporategovernance in Switzerland, Switzer-land’s rules on proper corporate man-agement and control are in a sorrystate. But appearances are decep-tive. Ever since the company-law re-form of 1992, which, in the opinionof experts, has generally proved suc-cessful, Switzerland, in various re-spects, looks good compared to manyother European countries. Significantprogress has been made in connec-tion with the tasks, organizationalstructure and legal status of boards ofdirectors, for example, as well as withcompany law and even accounting.Still, certain events that have takenplace at major Swiss and foreigncompanies in recent years have re-sulted in a widespread debate ongood governance. There has beengrowing regulatory pressure on theinternational markets and from thepublic.

The Swiss economy realized the needfor action fairly quickly and introducedpreliminary provisions on corporategovernance at the level of self-regula-tion. As early as 2002, economie-suisse’s Swiss Code of Best Practicefor Corporate Governance and theDirective on Information Relating toCorporate Governance of the SWXSwiss Exchange entered into force1.While the Swiss Code of Best Practiceis in the nature of recommendationswithout binding effect, some of theprovisions of the directive of the SWXSwiss Exchange are binding on listedcompanies. This includes rules ontransparency with regard to the com-pensations and shareholdings ofmembers of boards of directors andmanagement boards and the loansgranted to them. For other areas, thedirective of the SWX Swiss Exchangespecifies the principle of comply orexplain.

The public debate on corporate gov-ernance was also picked up by theFederal Assembly. Since mid-2001,about twenty parliamentary motionshave been lodged which concern cor-porate governance as a whole or cer-tain aspects of it. By referring many ofthese motions, the legislature clearlyshowed its intention of addressing atleast some of the topics and issuesconnected with corporate governancethrough legislation2.

Current projectsThe Federal Office of Justice has in-structed a group of experts to examineto what extent company law is in ac-cordance with the principles of corpor-ate governance and, if necessary, topropose amendments. The report thatthe group drew up is now available.The need for changes to company lawis not limited to corporate govern-ance, however; in recent years, exist-ing law has proved to be in need of updating in other areas as well, espe-cially with regard to capital structure(unregistered shares, shares withoutpar value, flexibilization of equity cap-ital) and general meetings of share-holders (voting rights attached to as-sets in safekeeping; electronic generalmeetings of shareholders). Relevantproposals have been put forward inthese areas.

The proposed changes to companylaw are complex (e.g., the introduc-tion of a system of shares without parvalue and the flexibilization of equitycapital). As far as corporate govern-ance is concerned, the debate on thenature and scope of legal regulationhas only just begun. In particular,complex interconnections and poten-tial regulatory alternatives have yet tobe explored. The next steps in revisingcompany law, therefore, have yet to bedetermined. There is a clear need foraction in connection with unregis-

tered shares, but the actual and polit-ical urgency of other issues is dis-puted. Quick improvements can bemade with regard to transparency inconnection with executives’ salaries. The introduction of corporate govern-ance laws should also be consideredin the light of international develop-ments, and in particular of the up-coming revision of the OECD’s corpo-rate governance principles of 19993,the American Sarbanes-Oxley Act4

and the work of the European Union(the EU Commission’s Winter Reportand Plan of Action of 21 May 2003)5.

The sections below constitute an at-tempt to describe the key legislativeissues in connection with corporategovernance. They provide an overviewby focussing on three key issues.

Shareholders’ rightsThe following issues are of key import-ance in connection with strengthen-ing the legal status of shareholders ascompany owners:· There are to be more possibilities

regarding representation at generalmeetings of shareholders (consid-eration of a ban on provisions in ar-ticles of incorporation limiting theright of shareholders to representa-tion and introduction of the right ofshareholders to be accompanied togeneral meetings of shareholdersby persons of their choice and toconsult them).

· Parliamentary motions have beenput forward which would requiremodification of the rules on votingrights attached to assets in safe-keeping (repeal of the “in dubio proadministratione” rule) and a solu-tion for the problem of unregisteredshares.

· There are calls for improvement ofminority protection through easierexercise of shareholders’ rights andtheir right to file actions, as well as

Footnotes in the bibliography on p. 38

Status report

for the reduction of process risks(rules on costs and advances thatare more accommodating for share-holders).

· There are demands for new regula-tions on the duty of governing corp-orate bodies to refund unjustifiedpayments.

· Improvements have also been pro-posed with regard to the right to ob-tain information and advice.

Organizational structure of companiesA system of checks and balancesshould be provided by company lawwhich permits balanced internal control for the purpose of corporate governance. Company managements,however, should maintain their free-dom of action and their decision-mak-ing powers, as well as their efficiency.A proper balance between manage-ment and control should be aimed for.The following key questions must beresolved:· How can conflicts of interest within

boards of directors be avoided andhow should they be handled?

· Should boards of directors be givenspecific legal responsibility for de-vising internal control systems?

· Should boards of directors be re-quired by law to define the areas ofbusiness for which the managementboards need their approval ?

· Should the term of office of mem-bers of boards of directors be lim-ited?

· Are there circumstances whichshould disqualify someone from be-ing voted into a board of directors ?

· Should rules be introduced on thecreation of board committees andtheir duties ?

· Should there be a rule againstsomeone being both the chairmanand the CEO of a given company?

As far as the legal organization of au-ditors is concerned, the Federal Office

of Justice, in cooperation with an ex-ternal expert, has prepared a compre-hensive proposal for new regulations6.Its adoption, which was originallyplanned for end-2003, has been post-poned by several months by the Fed-eral Council in expectation of evolvinginternational developments in the USA(Sarbanes-Oxley Act) and the EU (revi-sion of the relevant directive).

The efforts to revise auditing laws aremainly concerned with the rephrasingof the auditing duty (dependent on thesize and not the legal form of the com-pany), clearer and in some cases expanded tasks of auditors and com-pletely new rules on authorization tocarry out audits insofar as such au-thorization is legally required. Anotherkey issue is the introduction of strictnew rules regarding the independenceof auditors, as only auditing of annualresults by independent auditors pro-vides a reliable picture of the financialshape of a company. Finally, there areplans to introduce governmental su-pervision of auditors of publicly heldcompanies.

Transparency with regard to compen-sations of boards of directors and man-agements boardsThe corporate governance expertsconsulted by the Federal Council inconnection with improving trans-parency with regard to compensationsof members of boards of directors andmanagement boards issued a report in the spring of 20037. At about thesame time, another expert, commis-sioned by the National Council’s Com-mittee for Economic Affairs andTaxes, delivered a report on the samesubject.

As early as last December, a solicita-tion of comment was initiated for aproposal for legal provisions based onthese two reports8. The period of solici-

tation of comment ended at end-Feb-ruary 2003. A relevant message of theFederal Council will be delivered thisyear.

There already are rules on trans-parency with regard to compensationspaid by listed companies (e.g., the dir-ective of the SWX Swiss Exchange),but transparency with regard to execu-tive salaries is a topic of great polit-ical significance which was stronglyemphasized by the media in connec-tion with the debate on corporate gov-ernance. Legal provisions, therefore,would make sense and are politicallydesirable. The legislature will have toweigh the conflicting interests and, inparticular, decide to what extent com-pensations of individuals will have tobe disclosed. The preliminary draft,which has undergone a solicitation ofcomment, includes the following pro-visions:· The legal duty to disclose informa-

tion should only apply to companieswhose shares are listed on a stockexchange.

· The information should be pub-lished in an annex of the balancesheet in order to ensure that theinformation is checked by the audit-ors.

· Remunerations paid by the com-pany to members of the board of dir-ectors and the management boardand these individuals’ sharehold-ings in the company should be dis-closed.

· The total remunerations paid to theboard of directors and the manage-ment board, the individual membersof the board of directors, and themember of the board of directorswho received the highest remuner-ation should be disclosed.

The corporate governance project willclarify to what extent rules on trans-parency with regard to compensations


of governing bodies should apply tonon-listed companies. While, in thecase of publicly held companies,transparency with regard to compen-sations concerns external companyinformation required for the properoperation of the capital market, themain issue in connection with non-listed companies is internal informa-tion for the shareholders.

Legislation versus self-regulationAs is often rightly pointed out, theproblems of various Swiss and foreigncompanies which resulted in the prac-tically global debate on corporate gov-ernance were isolated cases, yet theyexposed the limits of self-regulationand the ability of companies to carryresponsibility. The sudden collapse ofa major company (like Swissair) canhave serious consequences for an entire national economy. The call for le-

gislature is understandable, even if thelaw will never truly be able to enforceeconomically responsible behaviour. Inspecific situations, legal provisions areincapable of ensuring adequate in-ternal corporate control. The decisivefactor will always be the conduct ofpersons in responsible positions. Still,legislature must prevent obvious abusesituations by introducing appropriaterules and regulations, but it must notunnecessarily limit the freedom of ac-tion required for entrepreneurial actionby a corporate organizational structurethat is adapted to the circumstances.It is important to increase investors’and shareholders’ trust in the economythrough targeted measures. Legisla-ture must establish signposts at keypoints and stake out an area of activitythat provides space for flexible solu-tions and which the corporate worldmust colonize in a responsible manner. Professor Heinrich Koller is the Director of

the Federal Office of Justice.

Heinrich Koller


As principles and specific rules of theway in which companies report theirfinancial situation (earnings, cash-flow and assets), accounting stand-ards aim to create a common financiallanguage that is spoken and under-stood as widely as possible around theworld. This, in turn, makes it possibleto compare financial performance in-dicators across industries, nationalborders and economic blocs. In thelight of the many recent company fail-ures and accounting scandals, it is nowonder that they have attracted theattention and scrutiny of a broaderpublic.

The uncertainty is deep seated. Havethey all failed – the managers, thesupervisory bodies, the auditors andthe state as legislator and regulator ?Why weren’t the problems brought to light earlier through detailed andregulated company reporting and auditors’ reports? It is true that as thenew market euphoria faded, seriousweaknesses emerged in companies,their management, their accountingrecords and their supervision on ascale that nobody had ever thoughtpossible. The rules were in place, aswere the necessary checks and bal-ances, but corporate culture waslived out in a very different way, asSwissair administrator Karl Wüthrichobserved with regard to the airline’sdemise.

The process of damage control andclearance has begun at all levels. InSwitzerland, the corporate govern-ance debate – with its objective ofproper company management – beganjust as the crisis of confidence seemedto peak. This led in the country’s gov-erning councils to a great deal ofridicule and malice being directed atbusiness leaders. Yet among the pub-lic and politicians alike, there is thegrowing view that calling on the statealone to step in would not solve theacute prevailing problems. Indeed, ifstate intervention were the cure-all,the various public-sector failures(such as the cantonal banks of Bern,Solothurn and Appenzell-Ausserrho-den as well as the financial difficul-ties of the Leukerbad authorities)would never have been allowed tohappen.

Under these circumstances, the stockexchange has an important part to playas the interface between the corporatesector and the public capital market.Alongside the Swiss Federal BankingCommission, the SWX Swiss Exchangehas the power to control access to thecapital market and presence on the fi-nancial markets in such a way thatonly trustworthy companies and insti-tutions who satisfy minimum trans-parency requirements are able to raisethe funds they need from publicsources.

Only with a concerted effort by busi-ness, the stock exchange and the statecan our country regain the lost trust bytaking responsibility for the past, pres-ent and future. The implementation ofreasonable corporate governance stand-ards would represent a significantstep in this direction. With this inmind, enormous weight is attached inSwitzerland to the Swiss Code of BestPractice formulated by economie-suisse, and the SWX Swiss ExchangeDirective on Information on CorporateGovernance. These two documents sethigh standards of balanced corporatemanagement and control, as well asthe provision of appropriate informa-tion to shareholders and the public.The directive endeavours to improve is-suers’ policy of information towards in-vestors. It offers enhanced protectionfor the investor, while strengtheningfaith in Switzerland as a financial centre. The “comply or explain” prin-ciple, however, does not unduly limitissuer flexibility and freedom. In thisliberal way, the SWX Swiss Exchangeexercises its influence to ensure thatthe Swiss Code is actually practised.

Greater transparency is also the object-ive of tough financial reporting provi-sions. From fiscal 2005 onwards, onlythe IFRS and US GAAP will be ac-cepted as accounting standards forcompanies listed in the main segmentof the SWX Swiss Exchange. (Exemp-

A KEYSTONE IN COMPANY LAWAccounting and reporting standards are aimed at achieving a common international

language and comparability between financial performance indicators. Recent company

failures and accounting scandals have put them under critical scrutiny. By Kurt Schüle

Accounting and reporting standards

tions for banks and foreign-domiciledcompanies will remain in place, how-ever.) Listed real estate and invest-ment companies, as well as SWX LocalCaps, can continue to apply the SwissGAAP ARR.

The required changeover has far-reach-ing implications for internal account-ing, and it can be assumed that thecompanies concerned will generallyopt for the IFRS rather than US GAAP.With the Swiss GAAP ARR, listed com-panies have already had to adjust tothe Anglo-Saxon principle of investorprotection (the “true and fair view”)and wave goodbye to the minimumstandards under Swiss company lawthat were geared to creditor protection.Applying the IFRS for the first timealso requires an adjustment to internalprocedures and business processes.What’s more, transactions that havenot been regarded in the past as rele-vant from a bookkeeping viewpoint(e. g., related to options and deriva-tives) must now be recorded. And atthe beginning of the transition, a de-tailed analysis must be made of devi-ations between the IFRS and SwissGAAP ARR, or an independent ac-counting strategy developed.

There is a growing trend in interna-tional accounting practice towards theuse of market (fair) values. Under the“impairment only” concept, goodwillmust in future be reviewed at regularintervals and, if its value has dimin-ished, it must be written down in theincome statement. And from now on,equity-related payments to manage-ment and staff must be stated immedi-ately as personnel expenses and dis-closed.

As can be seen from the table, theIFRS and Swiss GAAP ARR are thedominant accounting standards ap-plied by public companies, with a clear

Coordination required among many legislative projects

The Federal Stock Exchange and Securities Trading Act (SESTA), which came into force on 1 February

1997, was the first time that Switzerland’s governing councils had enacted legislation at the national level

on stock and securities trading. Against fierce resistance from the then finance minister, Federal Coun-

cillor Dr Otto Stich, the Federal Assembly came out in favour of the principle of a self-regulating stock

exchange, with ultimate supervision placed in the hands of the Swiss Federal Banking Commission.

SESTA laid the legal foundation for the SWX Swiss Exchange, which has itself structured stock exchange

trading according to international standards with a compact system of rules and regulations. Under

the authorities delegated to it the SWX issued comprehensive Listing Rules, which contain the applic-

able accounting and reporting standards and the provisions necessary to enforce them. The Listing

Rules thus implement Art. 8 of the Stock Exchange Act, which states that internationally recognized

standards must be taken into account. In 1998, the responsible SWX body, the Admission Board, passed

a resolution adopting the Swiss GAAP Accounting and Reporting Recommendations (Swiss GAAP ARR)

as the official stock exchange standard.

The economic and business developments of recent years have highlighted a need for action and, under-

standably, brought the legislators onto the scene, as evidenced by the countless corporate governance

initiatives that have emerged from the National Council and the Council of States. Swiss company law

currently resembles a big legislative construction site. The many projects are at different stages of develop-

ment and also overlap to some extent. The need for coordination (between national and international

law, too) is correspondingly large and urgently needs an unité de doctrine, most pressingly between the

Federal Council and the Federal Assembly !

The Merger Act is set to become law after the deadline for a referendum passed on 22 January 2004 with-

out any motion being presented. By contrast, the law on limited liability company audits has been

blocked (within the Legal Commission of the National Council) until new audit rules have been presented

by the Federal Council. Efforts are being made towards effective auditing, regardless of legal form.

The new system would exempt SMEs from statutory audits in the future. The Federal Council’s opinion

should have been issued back in December 2003, but the Council wanted to factor in current international

developments – and above all discussions with the US PCAOB (Public Company Accounting Oversight

Board) on audit supervision. The solution proposed by Switzerland – which would eliminate the

problem of extraterritorial intervention by the USA in the Swiss audit sector on the basis of the former’s

Sarbanes-Oxley Act – has clearly found favour with the Americans.

Another hot potato, also related to corporate governance, was created by the announcement of state

regulation of “transparency concerning remuneration to members of governing and executive bodies”.

Towards the end of February 2004, the SFBC presented a draft bill for consultation that set out how new

provisions in the Swiss Code of Obligations could be applied primarily to companies with exchange-listed

shares to create more transparency concerning financial rewards to members of the board of directors

and management. These transparency provisions, which would replace the existing provisions of the

SWX Corporate Governance Directive, have been triggered and accelerated by the whole corporate

governance issue. Nonetheless, the topicality of the project certainly can’t be denied, especially consid-

ering the heated debate surrounding the Mannesmann-Vodafone accountability case in Germany. By

contrast, preparatory work on the revision of Swiss companies legislation, intended to ensure the imple-

mentation in law of all aspects of corporate governance, will continue for some time yet. The Federal

Council plans to combine the proposals of experts Böckli, Huegenin and Dessemontet into a draft bill

for consultation before the end of the year.

The schedule for the new financial reporting act, that has been entrusted to Prof. Giorgio Behr, has yet

to be determined. While the stock exchange has issued the necessary rules and regulations for listed

companies, a compelling solution still has to be found for private companies and especially for SMEs

that can be implemented without impacting on taxes.


trend towards the IFRS. In the mainsegment, 62 issuers still use the SwissGAAP ARR. These companies will haveto make the transition to an inter-national standard or switch to the Local

Caps segment by 2005. Local Caps –investment and real estate companiescurrently comprising 78 issuers – maycontinue to apply the Swiss GAAPARR.

The companies that have opted to ap-ply US GAAP are primarily those whoseshares are already listed in the USA orwhich otherwise have strong US ties.At present, the following main segmentcompanies draw up their financialstatements according to US GAAP:ABB, Adecco, Biomarin, Card Guard,Gavazzi, Ciba SC, Converium, CytosBiotechnology, Inficon, Logitech, Ori-dion and (for the first time in 2002)Synthes-Stratec. They are joined fromthe New Market by Day Software, E-centives and the investment com-pany Absolute Private Equity, while the

Accounting and reporting standards in use

2002 2001

IFRS 162 155

Swiss GAAP FER 96 101

Banks (GRR-SFBC*) 20 20

US GAAP 15 14

Other 2 8

Total** 295 298

* Guideline on reporting regulations for banks

** Total domestic and foreign equities withprimary listing on the SWX

CS Group will follow suit in 2004, hav-ing previously applied the Swiss GAAPAAR and the Swiss Banking Act.

Among the other US-listed companies,Centerpulse, Novartis, Serono, Swiss-com, Syngenta and UBS have adoptedthe IFRS. They are therefore obliged totranslate their financial statementsinto US GAAP-compliant format and,in particular, present the effects on netprofit and equity. Given the consider-able additional costs involved, it isdoubtful that all of the Swiss compa-nies mentioned will actually benefitfrom their listing in New York.

The various rules and regulations

Swiss companies legislation

The legislation encompasses those articles on the statute books (Swiss Code of Obliga-

tions, Arts. 662–677) that govern accounting and reporting. It offers a very broad frame-

work, permits undisclosed reserves and is geared primarily to the principle of creditor

protection.

Swiss GAAP ARR

The Accounting and Reporting Recommendations, issued by a foundation set up in 1984,

comprise 166 clearly presented pages. They are based on the principles of fair presen-

tation and the “true and fair view”, and are aimed (after the compulsory application of

the IFRS or US GAAP from 2005 for companies listed in the main segment) at unlisted

Swiss companies and those that are traded in the SWX Local Caps segment.

IFRS (International Financial Reporting Standards)

The IFRS – formerly known as the IAS (International Accounting Standards) – are issued

by the standard-setting IASB (International Accounting Standards Board) in London

and currently comprise more than 1,200 pages (IAS 1 to 40; IFRS 1 and four preliminary

drafts, as at the time of writing). They are detailed and principle based (fair presentation,

true and fair view), and are geared to investor protection and thus to the international

financial markets. They are accepted almost everywhere in the world and will be binding

from 2005 in the EU – and thus on around 7,000 listed European companies (with the

exception, at present, of IAS 32 and 39 concerning finan-

cial instruments). EU Member States can also oblige

other countries to apply the IFRS. They have still to be

generally approved (as equivalent to US GAAP) by the

US stock exchanges and the SEC.

US GAAP (US Generally Accepted Accounting Principles)

US GAAP are rules-based standards with an extremely

dense level of regulatory detail. They are issued by the US

Financial Accounting Standards Board (FASB) according

to the principle of fair presentation and have been sum-

marized in a large number of books. The backing of the

Securities and Exchange Commission (SEC) gives them

their legal enforceability and they are binding on around

17,000 US companies, as well as on foreign firms that are

listed on US stock exchanges. Foreign issuers may

apply another standard which is derived from US GAAP,

providing they submit Form 20-F.

Kurt Schüle, corporate consultant and

former National Councillor and Member of

the Council of States, Schaffhausen.

Lawyers and politicians are trying to create better framework conditions for shareholders by

introducing various rules and reform projects. It is not enough, however, just to improve

shareholders’ rights; shareholders themselves, and especially institutional investors, must show

greater commitment. By Claude Baumann

THE SEARCH FOR THE PERFECTPLAYING FIELD

Many shareholders have lost money inrecent years in connection with thestock market slump and the many corporate scandals. A survey by theSwiss Banking Institute of the Univer-sity of Zurich shows that, in 2001alone, almost half of Swiss investorssuffered losses on their securities(see the box on equity ownership in Switzerland). No wonder that thetrust of many investors in the stockexchange has declined considerably.This state of affairs has inducedlawyers, economists and politicians to

try and create a perfect playing fieldfor investors.

Various rules have already been intro-duced, thanks in large part to pres-sure from Anglo-Saxon countries. Twoexamples are economiesuisse’s SwissCode of Best Practice and the Direct-ive on Information Relating to Cor-porate Governance of the SWX. Thepurpose of the Guidelines to guaran-tee the independence of financialanalysis is likewise to increase in-vestors’ trust in the financial sector

and hence also in the stock exchange.At www.finweb.admin.ch, the Swissgovernment lists about forty proposalsfor reform which concern the finan-cial marketplace and are in variousstages of development.

These rules and regulations are cer-tainly valuable aids to orientation forinvestors, but even the best recom-mendations and guidelines cannot al-together prevent future excesses andcorporate scandals, as recent financialevents make clear. Furthermore, devel-

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opments in the USA have shown thatthe disclosure of management salariesdoes not put a limit on payments to topexecutives – rather the opposite.

This means that if shareholders want tobe sure that their investments are ingood hands, they must become pro-active and more involved in the contextof their rights and duties as co-owners of companies – at general meetings of shareholders, for example. It is thegeneral meeting that has the power tochange the articles of incorporation,appoint the board of directors and theauditors, approve financial statementsand determine the dividend.

Passive major investorsIndividual shareholders with few votingrights, however, have no say in companydecisions. This is one of the reasonswhy only a third of all shareholders inSwitzerland attend such events. Morepower lies with the major owners, theinstitutional investors: pension funds,fund companies and insurance compa-nies. According to the latest surveys,they control almost twenty per cent ofthe equity capital of listed companiesin Switzerland. But even they rarelymake use of their shareholder rights.About two-thirds of the pension funds,for example, never vote at generalmeetings of shareholders.

There are various reasons for this pas-sivity. Shareholders who wish to beproactive must take an interest in thecompany. This takes time and moneythat many investors don’t have. AsHans Caspar von der Crone, a professorof law in Zurich, says, shareholders votenot at general meetings but by makingtheir investment decisions. If theydon’t like something, they can sell it.

Powerful instrumentsThe question remains, however, ofwhether it is enough if major share-

holders who manage the pension andinsurance funds of Switzerland’s citi-zens only trade in securities. In view oftheir position, shouldn’t they take ongreater responsibility in connectionwith corporate asset allocation, for ex-ample, or staffing issues? Such effortsare described as shareholder activism(see the box). Experts are in favour ofinstitutional investors participatingmore intensely, saying that only if theybecome proactive can there be a trueequity ownership mentality.

A distinction should be made betweenAnglo-Saxon countries and continentalEurope. While in the USA and GreatBritain many listed companies belongto a wide public and only few compa-nies are controlled by major sharehold-ers, the opposite is true on the Con-tinent: most companies are controlledby a small number of major sharehold-ers. This limits the influence of minor-ity shareholders, i.e., the investors whohold the publicly held shares. In add-ition, the legal framework is such thatthe minority shareholders hardly exer-cise their potential influence at gen-eral meetings of shareholders. Profes-sor Max Boemle, a Swiss financialexpert, says: “Swiss law does not com-pare well to that of other countries asfar as shareholder rights are con-cerned. It is important that sharehold-ers should exercise their interests atgeneral meetings of shareholders morevigorously.”

The US system shows what this mightentail. With the concept of the share-holder proposal, the US legal systemprovides an effective instrument fordefending shareholders’ interests.Shareholder proposals are brief state-ments or instructions from sharehold-ers to the management, and althoughthey are only in the nature of a pro-posal, if the majority or a large minorityof the shareholders agree to a share-

Shareholder activism in the USA

The brothers John and Lewis Gilbert are con-

sidered pioneers of shareholder activism. A year

before the stock market crash of 1929, they

started to examine the governing bodies of major

US companies very closely. For hours on end,

they would sit in the New York Public Library

studying the financial papers. From 1932,

they attended up to eighty general meetings of

shareholders a year, trying to affect the com-

position of boards of directors and demanding

more financial transparency. Accordingly, the

first regulatory basis for shareholder activism

can be traced back to the efforts of the Gilbert

brothers. In 1934, the Securities and Exchange

Act was introduced. In 1942, it was complemented

by Rule 14a-8, which required companies to

respond to shareholder proposals supported by

a majority of shareholders.

There was a second wave of shareholder acti-

vism in the USA in the 1960s. In accordance

with the spirit of the age, shareholders became

increasingly concerned about social, ethical

and ecological issues, which was reflected in

various laws. This was the basis for the later

debate on corporate governance.

There was a third wave of shareholder activism

in the 1980s which was set in motion by

institutional investors. The billions of dollars in

assets that they had amassed over time gave

them immense power. Pension funds such as

the CalPers (California Public Employee

Retirement System) started to assert their in-

fluence.

Shareholders’ rights and duties


holder proposal, the company manage-ment must act upon it (see biblio-graphy, Schobinger).

At present, there is no legal basis forshareholder proposals in Switzerland.Only investors owning shares to thenominal value of more than a millionfrancs or at least ten per cent of thevoting rights have the right to demandthat items be added to the agenda. Various companies, however, amongthem Swisscom, UBS and Ciba, havelowered these requirements on theirown initiative.

There are other rules that are un-favourable to shareholders apart fromthose pertaining to general meetings ofshareholders which also need to be revised – voting right shares, for ex-ample, which are still widely used inSwitzerland. They give certain share-holders the same voting rights as other

sented should give their representa-tives precise instructions.

Unregistered shares should be abol-ished as well. Many investors, espe-cially foreign ones, do not register inthe company’s share register since theyare only interested in the return and thedividend and not in voting rights. Ifvotes cannot be cast by post or via theInternet, these investors cannot affectthe general meeting of the sharehold-ers or support important items on theagenda.

Many Swiss companies have an unregis-tered-share ratio of between twentyand fifty per cent. The authorities aretherefore trying to establish whether itmight not be possible for banks to re-quest their customers to register in theappropriate share registers. Anotherpossibility would be to stop paying divi-dends to unregistered shareholders.

shareholders who have more capital in-vested. Voting right shares, however,limit a company’s capital market via-bility without being a true defenceagainst hostile takeovers, as expertspoint out. Standard shares, which workon the principle of “one share, onevote”, seem desirable.

Eliminating abstinenceBecause of the international clienteleand for other reasons, many sharehold-ers of Swiss companies traditionallyallow their banks to exercise theirvoting rights. Where such authorizationis not given, the depositary bank mustvote in accordance with the wishes of the company (banks’ right to votecustomers’ deposited shares). Thisstrengthens the management andweakens the position of the sharehold-ers, so this is another area wherechanges are necessary. Shareholderswho allow themselves to be repre-

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Experts consider this solution ratherdrastic, however, and not viable in thecontext of capital market politics.

The legislature should determinewhether it might not be possible to addinformation from critical shareholdersto invitations and agendas for generalmeetings of shareholders, as is prac-tised in the USA. It would also be use-ful to think about how general meet-ings of shareholders should take placein the future. There is certainly no lackof ideas. Proposals range from the“abolition of the shareholder funfair”(“Weltwoche”) and the introduction ofvoting by post to “meat and games forshareholders” (“Cash”).

It must be remembered that the share-holders of many of today’s companiesare international. This is why the tech-nology group ABB, for example, holdsits general meetings of shareholders at multiple venues which are linked by live TV. A survey carried out by theSwiss Banking Institute in Zurichstates that no less than two-thirds ofSwiss shareholders would participatein general meetings of shareholders ifthese were held via the Internet.

Refraining from constantly interferingThe debate on the equity ownershipmentality raises the question of the extent to which shareholders shouldunite in order to promote their interests. Foundations such as Ethos andActares already offer such services inthe context of sustainable and ethicalshareholder policies. In the USA, insti-tutional investors can already havetheir interests protected by profes-sional voting-rights representatives.

Ulrich Grete, head of the AHV compen-sation fund, says: “There should not beany alliances just for reasons of expe-diency, however, for each pension fund

and each investor must remain inde-pendent and vote according to theirown opinions. On the other hand, if allor most shareholders come to the sameconclusion independently of eachother, there must be something to besaid for it.”

The efforts currently under way whichwill undoubtedly lead to more favourable framework conditions for share-holders must not induce investors tokeep interfering with their companies.This is not their task. The equity own-ership mentality means that share-holders should contribute to creating awell-qualified and independent boardof directors which in turn should pursue a coherent strategy and appointmanagers who have a certain amount ofrestraint. That is all. And quite enough.

The equity ownership mentality in Switzerland

In Switzerland, the equity ownership mentality became established in the 1990s in particular,

notably thanks to the financier Martin Ebner of the canton of Schwyz. His demands for transpar-

ent corporate structures, smaller and professional boards of directors, more efficient control

mechanisms within companies (corporate governance) and shareholder value have become

universal. Rentenanstalt/Swiss Life allocating shares to customers in 1997 and the IPO of Swiss-

com a year later were further milestones for the equity ownership mentality in Switzerland.

The high point was reached in 2000, when about a third of the population of Switzerland owned

securities. The following stock market crash gave many investors a shock. In 2001, half of all

investors lost money on equities. Many small shareholders sold out. Within two years, the number

of shareholders in Switzerland dropped by 400,000. The Swiss Banking Institute of the University

of Zurich estimates that a quarter of the population of Switzerland between 18 and 74, or 1.26

million Swiss, currently own shares. Most of these shares are issues of highly capitalized com-

panies such as Nestlé, Novartis and UBS.

Claude Baumann is a financial editor

with “FACTS”.

Bibliography

Rising to the top with disclosure rules, p. 12–13

- SWX Swiss Exchange : Management Transactions

(http://www.swx.com/admission/consultation_dd_en.html)

- Directors’ Dealings. A legal and empirical analysis of trading by

members of governing and executive bodies in their own com-

pany’s shares (German) ; Deutsches Aktieninstitut : October

2002 (www.dai.de/dai_publikationen)

- Germany : Disclosure under §15a of the German securities trad-

ing act (Wertpapierhandelsgesetz, WpHG) (“Directors’ Dealings”)

(www.bafin.de/datenbanken/p15a.html#hinweise_datenbank)

- Directive of the European Parliament and Council on Insider

Trading and Market Manipulation, Article 6

(http://europa.eu.int/comm/internal_market/en/finances/

mobil/market-abuse_en.htm)

- UK Listing Rules, Chapter 16 Directors

(www.fsa.gov.uk/pubs/ukla/chap16-3.pdf)

- US Stock Exchange Commission, SEC

(www.sec.gov/answers/insider.htm)

- Securities Exchange Act of 1934, Section 16, Directors, Officers,

and Principal Shareholders

(www.sec.gov/divisions/corpfin/34act/index1934.shtml)

- Search engine for management transactions in US equities

(http://cbs.marketwatch.com/tools/stockresearch/default.asp?siteid

=mktw)

“It would be easy to improve the insider trading law”, p. 14–17

- SFBC report on sanctions

(http://www.ebk.admin.ch/e/aktuell/m030502-02e.pdf)

- Swiss Penal Code (Schweizerisches Strafgesetzbuch, StGB)

(http://www.admin.ch/ch/d/sr/3/311.0.de.pdf)

A moral basis for the market economy, p. 18–23

- Conrad Meyer, Institute for Accounting and Control at the

University of Zurich, study on the practical implementation of

the Corporate Governance Directive (www.irc.unizh.ch)

- Corporate Governance Directive CGD (www.swx.com)

- Peter Böckli, A detective called the Board – information

problems with non-executive members (German), article in the

“Neue Zürcher Zeitung”, 10 June 2003

- Peter Böckli, Interim report of the Corporate Governance

Working Group (German), 25 March 2003

(http://www.bj.admin.ch/themen/corpgov/zber-d.pdf)

- Swiss Code of Best Practice for Corporate Governance, issued by

economiesuisse (www.economiesuisse.ch)

Key corporate governance issues from a legislative point

of view, p. 24–271 cf. http://www.economiesuisse.ch (policy areas ; legal issues ;

corporate governance)

2 cf. http://www.bj.admin.ch (introduction ; work in progress ;

resources and documentation)3 cf. http://www.oecd.org/publications (documents)4 cf. http://www.treuhand-kammer.ch/management/file/ACF4C0F.pdf

(information on the Sarbanes-Oxley Act from a Swiss perspective)5 cf. http://europa.eu.int/comm/internal_market/en/company/

company/modern/index.htm6 cf. http://www.bj.admin.ch/themen/rrg/intro-e.htm 7 cf. http://www.bj.admin.ch/themen/corpgov/zber-d.pdf 8 cf. http://www.bj.admin.ch/e/index.html

(legislation; business and trade ; transparency)

A keystone in company law, p. 28–31

- Swiss GAAP ARR Accounting and Reporting Recommendations ;

Zurich: 2002 (www.fer.ch)

- Ann-Kristin Achleitner, Giorgio Behr, International Accounting

Standards (German), Munich: 2003

- Peter Böckli, Introduction to IAS (German), Zurich: 2000

- Stephan Glanz, Principles of consolidated financial reporting

(German), Zurich: 1997

- Luzi Hail, Conrad Meyer, Financial statement analysis and com-

pany valuation (German), Zurich: 2002

The search for the perfect playing field, p. 32–37

- Shareholder activism by Swiss pension funds (German), Hannes

Schobinger, thesis, University of Zurich: 2003

- Abolish the shareholder funfair ! (German), Dominik Flammer,

article in “Die Weltwoche”, February 1998

- Gains and games for shareholders (German), Susanne Rohmund,

article in “Cash”, June 2001

- The need for shareholder democracy (German), Walter Wittmann,

article in “Die Weltwoche”, April 2001

- Ethos, Swiss Investment Foundation for Sustainable Development

(www.ethosfund.ch)

- Center for Corporate Responsibility and Sustainability (CCRS)

(http://www.ccrs.unizh.ch)

- Stuart L. Gillan/Laura T. Starks: A Survey of Shareholder

Activism (1998)

(www.buec.udel.edu/gillans/www/pdf/activism_review.pdf)

- Robert A.G. Monks, The Need for Shareholder Activism (1996)

(http://www.ragm.com/archpub/ragm/value_added.html)

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