Basel, 21 June 2006 - In its Position Paper the Swiss Bankers Association (SBA) welcomes the modernisation of Swiss company law. In particular, the SBA welcomes the possibility of companies holding their general meetings in a decentralised manner or using electronic tools and it also welcomes the relaxation of the requirement for a certain minimum par value of a company’s stock. The SBA believes that the reforms should protect the fundamental liberal principles of the existing law as well as the scope for entrepreneurial self-determination. The SBA is critical of some individual points which, in its opinion, would lead to a weakening of the position of Boards of Directors. In particular, the SBA rejects the planned abolition of the right of banks to exercise the voting rights attached to stock they hold in safekeeping and the planned abolition of bearer shares. It also disapproves of the proposal to limit the liability of auditors only.

The Swiss Bankers Association welcomes the revision of the Company Law as a timely modernisation of the existing law. The SBA welcomes the possibility given to companies to hold their general meetings in a decentralised manner and with the use of electronic tools. The SBA also approves of the increased flexibility given to capital structures thanks to the relaxation of the requirement for a certain minimum par value of a company’s stock and it also welcomes the introduction of a so-called "capital band". However, the reforms as a whole should further promote and develop the fundamental liberal principles of the existing law. In particular, the scope for entrepreneurial self-determination should be safeguarded and the existing possibilities for self-regulation should be taken into account.

The SBA sees a problem in the draft law’s plan to structurally weaken the power of Boards of Directors vis-à-vis the shareholders and believes this to be inappropriate. People correctly expect a company’s Board of Directors to take responsibility for the running of the business. However, the Board can only fulfil its duties if it has the corresponding discretion to take action and implement measures. In view of this the SBA cannot accept the proposal to make Boards of Directors liable for re-election every year, nor can it accept the proposal to drastically lower the thresholds for a variety of shareholders’ rights. The draft law should also avoid mixing the responsibilities of the General Meeting, the Board of Directors and the Executive Board with regard to determining the remuneration of members of the Board of Directors and the Executive Board. One possibility would be for the General Meeting to have responsibility for determining the salaries of members of the Board of Directors if the company’s articles of association make provision for this. (See position paper for more details on this point).

In the SBA’s opinion, the sum effect of all the draft law’s proposed measures would not be to strengthen the position of shareholders as desired from the point of view of corporate governance. Rather, the sum effect would be to weaken the position of the Board of Directors and with it the ability of the company to take action and get things done. For example, making members of Boards of Directors stand for re-election every year would have every member concentrating on a good short-term performance to secure his or her re-election rather than focussing on long-term strategic issues. This in turn would give rise to the increasing danger of the company’s management being diverted from its duties when it was facing difficult situations. Once a Board of Directors has been entrusted with leadership duties and the corresponding responsibility it must have the possibility of taking action independently of the shareholders. The strength a Board of Directors currently derives from this independence is a locational advantage in Switzerland today, but this advantage would be called into question by the draft law’s proposed changes as mentioned above.

The SBA also rejects the proposal to abolish bearer shares because this measure would unnecessarily and inappropriately limit a company’s freedom to structure its capital base according to its individual needs.

Furthermore, the SBA supports the retention of portfolio representation. The system of portfolio representation and independent proxies has proved its worth. It allows satisfied shareholders to vote at General Meetings without wasting time and energy and it is in any case indispensable should bearer shares be retained.

Finally, the SBA fundamentally rejects the proposal to introduce limits to liability just for auditors. The SBA cannot understand why auditing companies should receive this privilege. If the issue of liability is to be covered by the reforms, then the SBA expects the principle to be applied universally so that Boards of Directors are also included.

Note to journalists
The full text of the SBA’s position paper containing additional arguments is available in German only www.swissbanking.org PDF.

Contacts
Thomas Sutter	James Nason
Head of Communications Switzerland	Head of International Communications
Swiss Bankers Association, Basel	Swiss Bankers Association, Basel
Tel. +41 61 295 92 06	Tel. +41 61 295 92 15
Fax +41 61 272 53 82	Fax +41 61 272 53 82
www.swissbanking.org	www.swissbanking.org