new rules based on minder initiative and ordinance of 14 june 2013

New rules based on Minder initiative and ordinance of 14 June 2013Jörg KilchmannPartner, KPMG in Switzerland

25 June 2013

kpmg.ch

2© 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

Overview on selected topics of the draft ordinance issued by Federal Council on 14 June 2013 (VgdA)

On 14 June 2013, the

Federal Council issued

the fist draft of the

ordinance.

Input of interested groups

expected to be submitted

until 28 July 2013

Final approval of VgdA by

Federal Council end of

November 2013

Coming into force of VgdA

on 1 January 2014

kpmg.ch/Legal

General Provisions Content

Scope of VgdA Applicable to all corporations in the sense of Art. 620 et seq. SCO (Aktiengesellschaften) which have shares listed in Switzerland or abroad (Art. 1 VgdA)

Relation to existing law The provisions of the VgdA prevail over contrary provisions of the SCO (Art. 1 para. 2 VgdA). That means for listed Swiss corporations among other things:

- Notes to the financial statements set forth in Art. 663bbis SCO to be replaced by the Compensation Report (Art. 13 – 17 VgdA)

- Election of chairman and members of the board of directors governed by Art. 2 and 3 VgdA (Art. 710 and 712 SCO not applicable to listed corporations any more)

- Representation by corporate bodies or custodian banks governed by Art. 11 VgdA (Art. 689c and 689d SCO not applicable to listed corporations any more)

- Indication of the independent representative governed by Art. 8 et seq. VgdA (Art. 689c SCO not applicable to listed corporations any more)

- Delegation of management possible only to natural persons (Art. 6 VgdA; Art. 716b SCO not applicable to listed corporations any more and therefore, delegation to legal entities not possible any more

Effective Date Coming into force: 1 January 2014Extensive transitional provisions (Art. 26 – 32 VgdA)


Overview on selected topics of the draft ordinance issued by Federal Council on 14 June 2013 (VgdA) kpmg.ch/Legal

Selected Areas Content

Compensation Compensation Committee: Only members of the board of directors are eligible for the Compensation Committee (Art. 7 para. 2 VgdA)

Prohibited compensations: VgdA prohibits termination or other payments, advance payments and premiums for the acquisition or sale of business but does not further define the scope and meaning of these expressions (Art. 20 and 21 VgdA). However, the explanatory report on the ordinance argues that sign-on bonuses have to be treated differently from compensations paid in advance

Compensation Report: The VgdA introduces the concept of a Compensation Report (Art. 13 VgdA) with content similar to Art. 663bbis SCO (Art. 14 – 16 VgdA) to be prepared annually and mandatorily by the board of directors (Art. 5 VgdA) and to be examined by the Auditor

Approval of compensation by AGM: The shareholders vote annually on the aggregate sum of the fixed compensation of the board of directors, executive management and advisory board for the period until the next general meeting of the shareholders (Art. 18 VgdA) and on the aggregate sum of the variable compensation of the board of directors, executive management and advisory board for the past financial year (Art. 18 VgdA)

In the event of a negative vote, the board of directors may submit a different proposal at the same general meeting. If there is no such proposal or if there is a negative vote on such new proposal, the board of directors have to call for a new general meeting within three months (Art. 18 para. 2 VgdA)

The articles of association may provide for a different solution whereby the following conditions have to be met: (i) AGM to approve the compensation annually and (ii) on separate votes on compensations for the board of directors, the management and the advisory board, and (iii) the vote of the AGM must be binding (Art. 18 para. 3VgdA)




Compensation Content of the Articles of Association regarding compensation: The Articles of Association must contain provisions governing

- Obligations and competencies of the Compensation Committee (Art. 7 para. 4 VgdA and Art. 12 para. 1 lit. 3 VgdA)

The following kinds of compensations are only allowed if the Articles of Association contain corresponding provisions governing the details as follows:

- Amount of pension payments, credits and loans to members of the corporate bodies (Art. 12 para 2 lit. 1 VgdA)- Bonus and participation plans for the members of the corporate bodies (Art. 12 para. 2 lit. 2 and 3 VgdA )- Additional compensation amounts for members of the management appointed after approval of the fixed

compensation (Art. 12 para. 2 lit. 5 VgdA in connection with Art. 19 VgdA)

General Meeting of the Shareholders (AGM)

AGM to elect annually- Chairman of the board of directors (Art. 2 lit. 1 VgdA and Art. 4 VgdA)- Members of the board of directors (each member to be elected separately) (Art. 2 lit. 2 VgdA and Art. 3 VgdA)- Members of the compensation committee (each member to be elected separately). Only members of the board of

directors are eligible for the compensation committee (Art. 2 lit. 2 VdgA and 7 para. 2 VgdA)- (An) independent (in the sense of Art. 728 SCO) representative(s) of voting rights (Art. 2 lit. 3 VgdA and Art. 8 – 10

VgdA)




General Meeting of the Shareholders (AGM)

Corporate bodies and custodian banks may no longer act as representatives of voting rights (Art. 11 VgdA)

Electronic remote voting mandatory for instruction of independent representative of voting rights (Art. 9 para. 3 VgdA)

Annual approval of the compensations as set forth in Art. 2 lit. 4 VgdA, Art. 18 VgdA and 19 VgdA (see above)

Pension Funds The provisions contained in VgdA apply only - for pension funds governed by FZG (Freizügigkeitsgesetz SR 831.42; Art. 22 para. 1 VgdA), and- only for such shares which are owned directly by such pension funds (Art. 22 para. 1 VgdA)Pension funds may abstain from voting or completely refrain from voting if this is in the interest of the insured persons (Art. 22 para. 3 VgdA)Pension funds are required to implement a regulation which governs the basic principles of how to determine the interest of their insured persons (Art. 22 para. 4 VgdA)

Disclosure required at least once a year in a report (Art. 23 VgdA)

Criminal Provisions Only violations with intent (Vorsatz) are penalized and only members of the board of directors, management and advisory board are subject to the criminal provisions (Art. 24 para. 1 VgdA)Responsible persons of the pension funds are only subject to a monetary penalty


Transitional Provisions kpmg.ch/Legal

1 January 2014 1 January 2015 1 January 2016

On 1 January 2016 the following completed:

- Articles of Association and Regulations of listed companies compliant with law

VgdA comes into force on 1 January 2014- Termination or other payments, advance

payments and premiums for the acquisition or sale of business are prohibited

- Corporate bodies and custodian banks no longer allowed to act as representatives

- Delegation of management only to natural persons

- Criminal Provisions

On 1 January 2015 the following completed:- Articles of Association and Regulations of

Pension Funds compliant with the law- Employment agreements (with

management or others in charge with governance) compliant with law

- Obligations of Pension Funds in connection with voting and disclosure applicable

First AGM after 1 January 2014- Board of Directors to elect the

independent representative for first AGM

- Chairman, members of the board of directors and members of the compensation committee as well as independent representative to be elected in first AGM

- At the moment unclear whether Compensation Report has to be prepared already at this first AGM

Second AGM after 1 January 2014

- Board of Directors has to prepare the Compensation Report for second AGM

- Approval of the fixed compensation for the period until next AGM and approval of the variable compensation for the last financial year

- Electronic remote voting in connection with the instruction of independent representative possible


Comparison between requirements of the Minder Initiative and the provisions of VgdA kpmg.ch/Legal

Area of regulation and reference to VgdA

New rules based on Art. 95 para. 3 and 197 lit. 10 of the Constitution with corresponding VgdA provisions:

Differing or additional rules in VgdA

Election of the chairman and the members of the board of directors as well as the members of the compensation committee (Art. 2 lit. 1 and lit. 2; Art. 3; Art. 4; Art. 7)

AGM to elect annually- Chairman of the board of directors (Art. 2 lit. 1

VgdA and Art. 4 VgdA)- Members of the board of directors (each member

to be elected separately) (Art. 3 VgdA)- Members of the compensation committee (each

member to be elected separately) (Art. 2 lit. 2 VgdA and Art. 7 VgdA)

- Each member of the compensation committee must be a member of the board of directors (Art. 7 para. 2 VgdA)

Prohibited agreements(Art. 6; Art. 21)

- The members of the corporate bodies may not enter into additional consultation or employment agreement with another group company

- The management of the company may not be entrusted to a legal person (Art. 6 VgdA)

- Art. 21 VgdA allows such additional agreements if (i) compensation of such agreements are in accordance with the law and (ii) AGM approved such compensation

Proxy rules(Art. 2 lit. 3; Art. 8 – 10; Art. 11)

- AGM to appoint annually (an) independent representative(s) of voting rights (Art. 2 lit. 3 VgdA and Art. 8 – 10 VgdA)

- Corporate bodies and custodian banks may no longer act as representatives of voting rights (Art. 11 VgdA)

- Independence of such independent representative is to be governed by Art. 728 SCO (Art. 8 para. 2 VgdA; the same independence rules as for the Auditor apply)






Modernisation of AGM(Art. 9)

Shareholders must be provided with the possibility for electronic remote voting (Art. 9 para. 3 VgdA)

The draft VgdA deals with the electronic remote voting only in connection with the instruction of the independent representative(s) of voting rights (Art. 9 para 3 VgdA)

Compensation provisions in the Articles of Association(Art. 12; Art. 18; Art. 19)

The Articles of Association must contain provisions governing

- Number of external mandates of members of the corporate bodies (Art. 12 para 1 lit. 1 VgdA)

- Duration of employment agreements of members of the executive management (Art. 12 para. 1 lit. 2 VgdA)

- Amount of pension payments, credits and loans to members of the corporate bodies (Art. 12 para 2 lit. 1 VgdA)

- Bonus and participation plans for the members of the corporate bodies (Art. 12 para. 2 lit. 2 and 3 VgdA)

The Articles of Association must contain provisions governing

- Obligations and competencies of the Compensation Committee (Art. 12 para. 1 lit. 3)

The following kinds of compensations are only allowed if the Articles of Association contain corresponding provisions governing the details as follows:

- Amount of pension payments, credits and loans to members of the corporate bodies (Art. 12 para 2 lit. 1 VgdA)

- Bonus and participation plans for the members of the corporate bodies (Art. 12 para. 2 lit. 2 and 3 VgdA)

- Additional compensation amount for members of the management appointed after approval of the fixed compensation (Art. 12 para. 2 lit. 5 VgdA in connection with Art. 19 VgdA)

- Provisions differing from the process for the approval of the compensation by the General Meeting set forth in Art. 18 VgdA (Art. 12 para. 2 lit. 6 VgdA)






Approval of compensation by AGM(Art. 2; Art. 12; Art. 18; Art. 19)

General Meeting to vote annually on the aggregate sum of compensation of board of directors, executive management and advisory board (Art. 2 lit. 4, Art. 18 and Art. 19 VgdA)

The provisions contained in the draft VgdA differentiate as follows (Art. 18 and 19 VgdA):

- Vote on the fixed compensation for the period until the next AGM

- Vote on the variable compensation for the last financial year

- In the event of a negative vote, the board of directors may submit a different proposal at the same AGM. If there is no such proposal or if such new proposal is disapproved, the board of directors has to call for a new AGM within three months

- The Articles of Association may provide for a different set of rules (Art. 18 para. 3 VgdA) solution whereby the following conditions have to be met:- AGM to approve the compensation annually- Separate votes on compensations for the board of

directors, the management and the advisory board- the vote of the AGM must be binding

- If the Articles of Association provide for an additional compensation amount for members of the management appointed after approval of the fixed compensation (Art. 12 para. 2 lit. 5 VgdA), no approval by AGM is required (Art. 19 para. 2 VgdA)






Prohibited compensation(Art. 20; Art. 21)

Members of corporate bodies may not receive- termination or other payment (Art. 20 lit. 1 VgdA)- advance payment (Art. 20 lit. 2 VgdA)- premiums for the acquisition or sale of

businesses (Art. 20 lit. 3 VgdA)

- Art. 20 VgdA prohibits such compensations. Art. 21 VgdA prohibits such compensations also for members of corporate bodies having an additional agreement with a group company

- The explanatory report on the ordinance clarifies the issue that sign-on bonuses are to be treated different from compensations paid in advance

Pension funds as shareholders(Art. 22; Art. 23)

Pension funds - must use their voting rights in the interest of their

insured persons (Art. 22 para. 1 and 2 VgdA)- must disclose how they have voted (Art. 23

VgdA)

- Applies only for pension funds governed by FZG (Freizügigkeitsgesetz SR 831.42; Art. 22 para. 1 VgdA), and

- only for such shares which are owned directly by such pension funds (registered in the share ledger; Art. 22 para. 1 VgdA)

- Pension fund may abstain from voting or completely refrain from voting if this is in the interest of their insured persons (Art. 22 para. 3 VgdA)

- The superior body of the pension fund has to implement a regulation which governs the basic principles of how to determine the interest of their insured persons (Art. 22 para. 4 VgdA)

- Disclosure required at least once a year in a report (Art. 23 VgdA)






Criminal provisions(Art. 24; Art. 25)

Violations against the provisions of the initiative shall be punished with custodial sentence up to three years and monetary penalty up to the equivalent of six yearly compensations (Art. 24 and 25 VgdA)

- Only violations with intent (Vorsatz) are penalized and only members of the board of directors, management and advisory board are subject to the criminal provisions (Art. 24 para. 1 VgdA)

- Responsible persons of the pension funds are only subject to a monetary penalty



Area of regulation New rules based on Art. 95 para. 3 and 197 lit. 10 of the Constitution with corresponding VgdA provisions:


Transitional provisions / Coming into force(Art. 26 – 33)

Until the coming into force of the legal provisions (implementing the initiative) implementing provisions have to be enacted by the Federal Council within one year upon the approval of the Initiative (Art. 26 – 33 VgdA)

- VgdA comes into force on 1 January 2014 (Art. 33 VgdA)- Articles of Association and Regulations of listed

corporations have to be compliant on 1 January 2016 and those of pension funds on 1 January 2015 (Art. 27 VgdA)

- Employment agreements have to be compliant on 1 January 2015 (Art. 28 VgdA)

- Election of the members of the board of directors and compensation committee: first AGM after 1 January 2014 (Art. 29 VgdA; the board of directors has to take care of the duties of the compensation committee until the obligations and competencies of the compensation committee are implemented in the Articles of Association)

- The board of directors elects the independent representative(s) of voting rights for the first AGM after 1. January 2014 (Art. 30 para. 1 VgdA) and the electronic remote voting in connection with the instruction of the independent representative(s) of voting rights has to be possible at the second AGM after 1. January 2014 (Art. 30 para. 2 VgdA)

- Approval of the fixed and variable compensation for corporate bodies by the AGM applicable at the second AGM after 1. January 2014 (Art. 31 para. 1 VgdA)

- Obligations of Pension Funds on voting and disclosure come into force on 1 January 2015 (Art. 32 VgdA)

Jörg KilchmannPartnerAttorney-at-Law, LL.M.KPMG in SwitzerlandT: +41 (0)58 249 35 73E: [email protected]

Contact:

© 2013 KPMG AG/SA, a Swiss corporation, is a subsidiary of KPMG Holding AG/SA, which is a subsidiary of KPMG Europe LLP and a member of the KPMG network of independent firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss legal entity. All rights reserved. The KPMG name, logo and “cutting through complexity” are registered trademarks or trademarks of KPMG International.

The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

new rules based on minder initiative and ordinance of 14 june 2013

News & Politics

vgda kpmg

kpmg agsa

force of vgda

vgda relation

subsidiary of kpmg europe

vgda election of chairman

final approval of vgda

listed corporations