SWITZERLAND Law and Practice Contributed by: Mariel Hoch, Dominic Leu and Fabienne Perlini-Frehner, Bär & Karrer
11.7 Company Prevention and Response to Activist Shareholders As shareholder activism has gained traction in Swit- zerland, preparing and implementing preventative and defensive measures has become a part of corpora- tions’ routines. Regarding preventative measures, the board of direc- tors may try to identify and reduce existing exposure of the company to shareholder activists, such as through minimising undervaluation, board instability and large cash reserves combined with a comparably low dividend payout ratio or fewer M&A transactions involving the company. Additionally, the executive management should con- tinuously monitor and assess the company’s share- holders to identify potential shareholder activists among them. If shareholder activists emerge, the company should be prepared to address and consider its legitimate concerns open-mindedly and politely in a private setting. Following a close examination of the concerns raised, the dialogue between the company and the shareholder activists should continue, espe- cially to preserve the consistency and credibility of the board’s engagement. If no satisfactory solutions can be negotiated, the board of directors may opt for defensive measures, such as: • responding clearly and comprehensively to the shareholder activists; • using committed and consistent board communi- cation; and • engaging with their major shareholders and signifi- cant proxy advisory firms to secure their support.
If the company identifies the shareholder activists that are more likely to go public with their demands, an effective approach is to slightly relent towards their position with a moderate alternative. Other defensive measures are to include defensive provisions in the articles of association, such as: • restrictions on the transfer of shares or on voting rights; or • the introduction of super-voting shares or super- majorities for specific resolutions to be taken by the shareholders’ meeting. However, such provisions would need to be intro- duced before an activist becomes involved, as they are unlikely to be supported by key shareholders at a shareholders’ meeting or may be considered undue restrictions from a corporate governance perspective. In addition, Swiss law and regulations already pro- vide for some effective impediments that shareholder activists must overcome, particularly: • the lack of access to the company’s share register; • the duty to disclose shareholdings pursuant to the FinMIA; and • the mandatory tender obligation.
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