Context (PDF)

Objectives and purpose

The “Guidelines for institutional investors governing the exercising of participation rights in public limited companies” (hereinafter referred to as “Guidelines”) describe best practices relating to the exercising of participation rights. Other aspects of responsible investment such as appropriate dialogue between institutional investors and companies are only addressed indirectly and should in no way be prevented.

By voluntarily adopting these guidelines, institutional investors send a clear signal that they take their responsibility towards their clients seriously. In this way, they thus underscore their acceptance of their obligation to recognise and duly implement participation rights.

Background information

In summer 2011, economiesuisse, institutional investors, proxy advisors and regulatory authorities joined forces to formulate the Guidelines. This move was made in response to growing political pressure on institutional investors to exercise their rights in a more systematic manner. Alongside the “Swiss Code of Best Practice for Corporate Governance” (hereinafter referred to as “Swiss Code”), which is addressed to companies listed on the stock market, these Guidelines supplement the existing self-regulation instruments relating to good corporate governance in the area of participation rights. In this way, the Swiss economy is able to position itself among the leading financial centres in this area.

In exercising their participation rights, institutional investors such as pension funds, Insurance companies and investment funds bear a great deal of responsibility. In view of this it is essential that, in the same way as listed companies, they have the necessary corporate good governance instruments at their disposal for exercising participation rights. For capacity reasons, the majority of institutional investors are unable to carry out in-depth analyses of the items on the agendas of general meetings of shareholders of all companies in which they hold shares, and they therefore call on the services of proxy advisors. This means that the latter significantly influence individual votes at the general meetings of shareholders of listed companies. It is often the case that the principles and processes according to which institutional investors exercise their participation rights, and proxy advisors make their specific recommendations, are not sufficiently communicated and disclosed. Furthermore, proxy advisors sometimes find themselves faced with conflicts of interests.

The notion that institutional investors should have their own corporate good governance instruments at their disposal for exercising participation rights is by no means new. In Switzerland, Article 49a, paragraph 2b of the Swiss Federal Ordinance on Supervision in Occupational Pension Plans has for a number of years stipulated that the governing body of an occupational pension fund must formulate regulations that are to be applied in the exercising of the rights of shareholders in the fund. In addition, Article 23, paragraph 1 of the Collective Investment Schemes Act for investment funds stipulates that membership and creditor rights associated with investments must be exercised by the fund management independently and exclusively in the interests of the investors. In their respective codes of conduct, the Association of Swiss Pension Fund Providers (ASIP) and the Swiss Funds Association (SFA) also partially address the exercising of participation rights by institutional investors. In England, a document entitled “UK Stewardship Code” was published in July 2010 which formulates a specific code of conduct for institutional investors in the form of seven principles. Similar codes are currently in preparation in various other countries. In addition, the “Green Paper on the EU Corporate Governance Framework” published by the European Commission in 2011 and the recently published “Action Plan: European company law and corporate governance – a modern legal framework for more engaged shareholders and sustainable companies” also address these issues in detail.

The Guidelines represent a pragmatic Swiss approach. In the same way as in the Swiss Code for Swiss listed companies, in these Guidelines the best practices for institutional investors are described in the form of principles and do not specify detailed requirements. They are to be reviewed on a periodical basis and updated as necessary.

Voluntary adoption

The Guidelines form an integral part of the self-regulation mechanism that institutional investors and proxy advisors can abide by voluntarily if they are fundamentally in agreement with the defined principles. Even if they voluntarily adopt the cited principles, however, they still have the option of deviating from individual regulations (principle of “comply or explain”).

Although it is ultimately up to each institutional investor and proxy advisor to decide whether to voluntarily abide by the Guidelines, in order to secure their acceptance it is important that they receive broad recognition and support. On the other hand, recognition of the Guidelines offers the involved organisations an opportunity to present themselves as firm supporters of the principles of good corporate governance in the exercising of participation rights.

Concluding remarks

The authors hope that the investment community will acknowledge and welcome the Guidelines, since it is their own interests that are at stake, as well as those of Swiss listed companies and ultimately the smooth functioning of the market and the Swiss economy in general.