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Overview of conflict of interest at the Board of Swiss companies


Representatives of large shareholders, e.g. major shareholders or controlling shareholders, are frequent on the Board of directors of Swiss companies. This regularly creates tensions at the Board, in particular between the major shareholder's need to information via its representative and the confidentiality obligations of the shareholder's representative towards the company, and conflicts of interest may arise. This is in particular true when there is an ongoing dispute between shareholders or between a shareholder and the company.

In such circumstances, it is important for the Board of directors to implement a protocol on how to deal with conflicted matters in order to guarantee a decision-making process beyond criticism and to safeguard the company's best interests. In practice, we have seen an increase in requests to assist with the implementation of a formal process.

In terms of good corporate governance, it is also crucial to protect the members of the Board of directors from a potential liability (the absence of conflict of interest is a key criterion developped by the Swiss Federal Supreme Court) and also for financial regulated institutions, such as banks or securities dealers, to maintain their proper business conduct (which is a license requirement imposed by the Swiss Financial Market Supervisory Authority (FINMA)).

Pratical process at the Board for conflicted matters

Although different approaches and modalities are possible in case of conflict of interest at the Board, the process to be implemented should, in our view, address at least the following main aspects. The process should be described in reasonable terms in written organizational rules.

Convening of Board meetings

Generally, the Chairman shall convene the meetings and, in his/her absence or if he is conflicted, the Vice-Chairman. There shall be only one invitation sent to all Board members outlining the agenda. It is recommended to include the mention conflicted/non-conflicted matter next to each item of the agenda, if possible by separating them into two different categories (conflicted vs non-conflicted).

The documentation related to conflicted matters should not be provided or made available to the conflicted Board member(s).

If necessary for the other board members, a more detailed road map (with more specific information and explanation on the conflicted matters) can be prepared and shared separately to the non-conflicted Board members.

Holding of Board meetings

All the matters listed in the agenda (conflicted and non-conflicted) must be discussed during one single meeting. No separate Board meeting should be held to discuss the conflicted matters, since the conflicted Board member(s) could argue that his/her right to participate has been breached (only one invitation and one formal meeting each time).

In case a conflicted matter has to be discussed during a Board meeting and the Chairman is conflicted, the meeting should be chaired by the Vice-Chairman.

The conflicted Board member(s) should be allowed to participate to the Board meetings only with respect to non-conflicted matters. When a conflicted matter is discussed, the Chairman should request the conflicted Board members to leave the meeting during the relevant deliberations and votes. Determination of the existence of a conflict

If the conflicted Board member(s) agrees with the conflicted character of the matter, he leaves the room during the relevant deliberations and votes and his/her exit is recorded in the minutes. Often, organizational rules grant the conflicted Board member(s) the right to make a statement before leaving the room.

If the conflicted Board member(s) objects to the conflicted character of the matter, then the other Board members should vote to decide whether the matter is conflicted. If it is decided that the matter is conflicted, then the conflicted Board member(s) should leave the room. If not, he can stay and vote on the matter. In both cases, the deliberations and votes are recorded in the minutes.

Minutes of Board meetings

If the conflicted Board member(s) requests to make a statement before leaving, it is preferable to allow him to make such statement. As mentioned, this is often provided for in company's organizational rules. After the Board meeting, two different versions of the minutes must be prepared: (a) redacted minutes for the conflicted Board member(s) containing only non-conflicted matters and (b) full minutes for the other members. The minutes containing the conflicted matters are confidential for the non-conflicted Board members.

If the entire agenda contains only conflicted matters, no minutes can be transmitted to the conflicted Board member(s).

Legal representation

If the overall matter becomes a dispute, it is advisable that the Board of Directors seeks assistance and potentially representation by the company's external counsel. In some specific cases, it might even be preferable to retain a separate counsel for the Board of Directors. It is further crucial that the external counsel retained always advises the Board as a whole, and refrains from giving any advice to individual Board members.

Restrictions on the transmission of information

The sharing of information is often one of the most sensitive aspects in a situation of conflict of interest, in particular when the conflict pertains to an ongoing dispute between a shareholder and the company. Such disputes may happen when a new shareholder has received its shares as part of the compensation to a sale it made to the company. Depending on the nature of the dispute (e.g. representations and warranties, valuation issues, post-closing items, etc.), the ban to information of the conflicted Board member(s) can become very extensive, going as far as an exclusion from any financial related information. For those reasons, the Board of Directors should pay a specific attention to how it handles this aspect in a conflict of interest situation.

Right to information against duty of confidentiality

Under Swiss law, all members of the Board of directors are subject to a duty of confidentiality and secrecy resulting from their duty of loyalty. In many cases, this obligation of confidentiality goes against the major shareholder's right to information. Indeed, Swiss corporate law does not give major shareholders a general entitlement to information over minor shareholders.

A shareholder's representative does not have a right to pass on confidential information of the company to the major shareholder. Such a transmission would require a decision of the full Board of directors.

In principle, all information of the company that is not publicly known, in particular if its disclosure could cause damage to the company, is subject to the duty of confidentiality of the shareholder's representative.

The obligation to maintain confidentiality relates to relative secrets and absolute secrets. The company is the owner of relative secrets and can itself decide on a release from confidentiality obligation or on a (selective) disclosure of confidential information. The preservation of absolute secrets is a statutory obligation (e.g. banking secrecy) or a contractual obligation towards third parties (e.g. non-disclosure agreement) and the company cannot decide alone on the disclosure of such secrets. The disclosure of absolute secrets would breach the shareholder's representative fiduciary duty and the relevant statutory or contractual provisions, unless the prior consent of all parties involved has been obtained.

Relative equal treatment

As a member of the Board of directors, a shareholder's representative shall treat all shareholders equally under the same conditions. This general principle of relative equal treatment also applies to the transmission of confidential information to shareholders.

As an exception, a privileged disclosure of relative secrets only to (major) shareholders may in somel cases be justified under Swiss corporate law if (i) there is an objective reason for the disclosure, (ii) the prevailing interests of the company require it and (iii) the unequal treatment is proportionate.


In order to protect their interests and preserve a decision-making process beyond criticism, Swiss companies should implement a dedicated process to manage situations of conflict of interest affecting Board members.

The shareholder's representatives at the Board of directors of Swiss companies do not have a special position within the Board: the disclosure of confidential information from the shareholder's representative to the major shareholder he/she is representing is only permitted under strict conditions.

Major shareholders of a Swiss company cannot claim privileged information status vis-à-vis other shareholders. Board members must always act in the interests of the company and comply with the principle of (relative) equal treatment of shareholders, also in case of situations of conflict of interest.