Reference: CapLaw-2020-24

The Swiss Parliament has adopted a motion requiring the Swiss government to propose a new regulation addressing the conflicts of proxy advisers. The primary focus seems to be on ISS and to a lesser extent on Glass Lewis for their potential dual role in advising institutional investors on voting recommendations and listed companies on corporate governance and compensation. In the absence of a physical presence of these proxy advisers in Switzerland, it remains unclear how the required legislation could be effectively enacted.

1) Proposal for new legislation in Switzerland

Thomas Minder, member of the Council of States submitted a parliamentary motion on proxy advisers on 23 September 2019. In this motion, the Swiss government was asked to propose legislation, for example by amending the Financial Market Infrastructure Act, to address the issue of conflicts of interests of proxy advisers. The legislation required by the motion should be designed to both disclose and avoid conflicts of interests of proxy advisers. It should also consider international developments on this topic. The motion was adopted by the Council of States on 3 June 2020 after being adopted by the National Council. Therefore, the Swiss government is tasked to provide a proposal how to regulate proxy advisers to mitigate conflicts of interests.

In the reasoning for the motion, Mr. Minder identified conflicts of interests of proxy advisers analyzing Swiss listed companies and offering advisory services to the very same companies on corporate governance and compensation. On a more polemic note, the motion also alleges that some proxy advisers recommend no votes for compensation systems of companies in order to be retained as advisers on a re-design of such systems by these companies. ISS, the big elephant in the room offering both proxy advice to investors as well as corporate governance advice to listed companies, was not specifically mentioned but seems to have been the primary target of the motion.

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Previously published in Cap Law

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