Clarification on the rights and duties of the board of directors in a recent court judgement – a general overview
In a landmark judgment dated 20 March 2018, the Swiss Federal Supreme Court clarified that any member of the board of directors (the “Board Member”) of a Swiss stock corporation may take action to enforce his/her right to information and inspection pursuant to art. 715a of the Swiss Code of Obligations. The court based its decision, inter alia, on the fact that such right of action ensures that Board Members are able to perform their legal duties as the highest management and supervisory body of a company, making clear the fact that, in addition to their rights, the Board Members also have various duties. Swiss corporate law does not provide a comprehensive overview of the rights and duties of the board of directors (the “Board”), making compliance ever more difficult in practice. We take the opportunity of this recent judgement to provide a short overview on the rights and duties of Board Members under Swiss law.
Rights of Board Members
As a general rule, the Board may pass resolutions on all matters not reserved to the general meeting by law or the articles of association. Accordingly, the Board Members have to familiarize themselves with the rules of competence as detailed in the articles of association and any organizational regulations in place.
Besides this general presumption of competence in favour of the Board, corporate law contains numerous regulations specifying the rights of Board Members. These rights can be categorized as follows in the sense of a simplified, non-exhaustive list:
- Right to information and inspection: Entails the right to request information on any company business from any person entrusted with the management of the company.
- Participation rights: Any Board Member may address to the chairman a reasoned request for convocation of a board meeting. Consequently, Board Members also have the right to attend and cast their vote at meetings.
- Issuing of directives: As the supreme management body, the Board has the right to issue the necessary directives in connection with the overall management of the company.
Duties of Board Members
In general, the Board is responsible for the overall management of the company and has the duty to perform all tasks related to the management of the company, unless such tasks are delegated in a legally admissible manner. The daily management of the company may be delegated but not the ultimate management, i.e. the setting of overall goals and corporate politics and the determination of the means to achieve such goals. It is important to note that delegation does not relieve from overall responsibility and the Board is responsible for the appointment and dismissal as well as the overall supervision of the persons entrusted with managing the company, in particular with regard to compliance with the law and the articles of association. This includes an obligation to ensure that the persons selected for the management have the skills and qualifications necessary therefor.
In addition to this general responsibility for the overall management of the company, the law details numerous other obligations of the Board Members, including the following:
- Duty of care and loyalty: Board Members must perform their duties with all due diligence and safeguard the interests of the company in good faith. This includes an obligation of secrecy and, if need be, an obligation to refrain from involvement in handling matters affecting their personal interests.
- Participation in meetings: Board Members have an obligation to participate in meetings of the Board.
- Duty to be informed: In order to perform their duties and to make decisions appropriate to the situation, Board Members have an obligation to inform themselves and obtain relevant information.
- Equal treatment of shareholders: Board Members must afford the shareholders equal treatment in like circumstances.
It is important for Board Members to have a clear view of their rights and obligations as each Board Member may be held personally liable for his/her actions.
In addition to what has been mentioned, the law details various other rights and duties of the Board. Such rights and duties are not always apparent at first glance and our practical experience shows that Board Members often lack an understanding of their rights and duties, in particular if being exposed to Swiss law for the first time. Deloitte offers workshops in various forms to train Board Members in their understanding and awareness of their rights and duties and on how they can use their rights to ensure compliance.
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