To prevent any deterioration of shareholder rights linked to the revision of Swiss law on public limited companies, the Ethos Foundation is strengthening its voting guidelines for the 2023 annual general meeting (AGM) season. Ethos fears in particular a transfer of power from the AGM to the board of directors in connection with the introduction of the capital fluctuation margin, the fact that it will be more complicated for shareholders to include an item on the agenda of an AGM or the possibility for companies to organise exclusively virtual AGMs. Ethos is also strengthening its expectations in terms of climate reporting and concerning succession plans for boards of directors.

Each year, the Ethos Foundation updates its voting guidelines based on recent developments in corporate governance and sustainability, as well as changes in the legal framework. This document, published in three languages, is essential as all analyses and voting recommendations made by Ethos to its clients are based.

For its 2023 edition, Ethos took into account the revision of the Swiss law on public limited companies (included in the code of obligations). While some of the new provisions have already entered into force in 2021, in particular the introduction of gender quotas within the governing bodies, the majority will apply from 1st January 2023. Companies will then have two years to comply and adapt their statutes accordingly.

However, it appears that some of these new provisions could lead to an involuntary deterioration of the rights of shareholders, in particular with regard to the inclusion of an item on the agenda of an annual general meeting (AGM). To prevent this from happening, Ethos sent a letter to all the chairpersons of the SPI Index in October to alert them of the risks identified and to inform them of the changes made to its voting guidelines as a result.

Three particular points of attention

Firstly, Ethos will carefully and critically examine any proposal that aims to adapt the threshold necessary to include an item on the agenda of an AGM. Indeed, the new law provides that this must be set at 0.5% of the capital at most. However, in most companies this threshold is currently expressed in nominal value of the capital. As a result, among the 48 companies of the SMI Expanded, 23 currently have a threshold of less than 0.5% of the capital. Therefore, the change required by the new code of obligations could complicate the task of shareholders who would like to add an item on the agenda (see the list of companies concerned).

Ethos will therefore recommend opposing the modification of the Articles of Association if the adaptation of the nominal value to a percentage of the capital would lead to a deterioration of the threshold necessary to include an item on the agenda of an AGM.

Secondly, Ethos has introduced limits on the use of the capital fluctuation band in its guidelines. This new system, which will replace the current authorised capital under the new law, will allow the board of directors to ask shareholders to include in the articles of association the authorisation to increase (up to 150%) or reduce (up to 50%) the company's share capital for a maximum of five years without having to revert to the shareholders. This can be particularly problematic in the event of a capital increase without preferential subscription rights or a reduction that would go against the interests of the stakeholders.

To allow shareholders to keep control over the use of this margin, Ethos has introduced transparent limits in its voting guidelines. Regarding the capital increase, the upper limit must not exceed 20% of the issued capital, including a maximum of 10% without preferential rights, to be accepted. For the capital margin reduction, the authorisation must not exceed 5% of the issued capital without adequate justification. If these limits are exceeded, Ethos will recommend opposing the modification of the articles of association.

Third, Ethos considers that physical AGMs should remain in place except in extraordinary circumstances authorised by the authorities. The new company law also allows companies to organise hybrid meetings (face-to-face and virtual) – which Ethos considers to be good practice – without any adaptation of the articles of association. Ethos will therefore oppose any amendment to the articles of association that would allow a company to hold virtual AGMs exclusively.

Maximum term of office reduced to 16 years

Ethos has also adjusted its guidelines regarding the re-election of board members. In order to ensure adequate succession on the boards, the Ethos guidelines now provide for a term limit of 16 years instead of 20 years. This reduction reflects market practices and a greater need for renewal in the boards of directors, in particular to meet the requirements of independence and diversity.

Ethos proxy voting guidelines 2023

Main changes compared to the 2022 edition

Corporate Governance
General meetings