2018 Proxy Voting Guidelines Corporate Governance Principles - Electronic version
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2018 Proxy Voting
Guidelines
Corporate Governance
Principles
Electronic versionThe Ethos Foundation is composed of more than 220 Swiss pension funds and other
tax-exempt institutions. Ethos was founded in 1997 and aims at promoting socially re-
sponsible investment as well as a stable and prosperous socio-economic environment.
The company Ethos Services SA conducts asset management and advisory mandates
in the field of socially responsible investment (SRI). Ethos Services offers a wide range
of SRI-funds. The company also provides proxy voting reports including voting recom-
mendations, a shareholder engagement programme, as well as sustainability and cor-
porate governance ratings and analyses of listed companies. Ethos Services is owned
by the Ethos Foundation and several of its members.
The association Ethos Académie allows private individuals to take part in the activities
of Ethos. This non-profit and tax-exempt organisation was launched in 2012 by the
Ethos Foundation and has currently about 200 members. It conducts outreach activities
in the field of socially responsible investment, including an electronic news service,
organising conferences and debates, supporting the exercise of shareholders’ voting
rights and the funding of studies.
www.ethosfund.ch
2018 Proxy Voting Guidelines
www.ethosacademie.ch
Corporate Governance
Principles
17th edition
® © Ethos, December 2017. Reproduction in full, or in part, is prohibited without the consent
of the Ethos, Geneva. Quotations are authorised with an indication of the source.Table of contents
IN TR OD UC TI O N 7 5.3 Capital increase for a specific purpose, with pre-emptive rights 37
5.4 Capital increase for a specific purpose, without pre-emptive rights 37
1 . Pr e a m b le 9
5.5 Share repurchase with cancellation or capital reduction via
2 . Implica tio ns of the Imple me nta t io n of the Minde r reimbursement of par value 38
In it ia t iv e 13 5.6 Share repurchase without cancellation 38
2.1 “Governance” votes 13 5.7 Capital reduction via cancellation of shares 39
2.2 “Remuneration” votes 15 5.8 Cancellation or introduction of a class of shares 39
5.9 Removal or introduction of a limit on voting rights 39
2 0 1 8 P ROX Y VO T IN G G U ID EL I N ES 19
5.10 Removal or introduction of an opting out or opting up clause 40
1 . A cco u nts , D iv i de n d a n d D i sc ha r ge 21 5.11 Introduction or renewal of anti-takeover provisions 40
1.1 Annual report and accounts 21
1.2 Discharge of the board of directors 21 6 . Me r ge r s, A c q ui si ti o ns , a n d Re l oca ti o ns 41
6.1 Proposals for mergers, acquisitions, and relocations 41
1.3 Allocation of income and dividend distribution 23
7 . A me n d me n ts t o the A r t ic le s of A ss oc ia t i on 42
2 . Boa r d of D ir e ct or s 24
7.1 Various amendments to the articles of association 42
2.1 Election or re-election of non-executive directors 24
2.2 Election or re-election of executive directors 26 7.2 Fixing of the minimum and maximum board size 42
7.3 Modification of the length of the mandate of directors 43
2.3 Election or re-election of the chairman of the board of directors 27
7.4 Modifications of the articles of association related to the Minder
2.4 Election or re-election of the members of the remuneration
ordinance 43
committee 27
2.5 Grouped elections or re-elections of directors 28 8 . Sha r e ho l de r Re s ol ut i on s 46
3 . A ud it F ir m 29 9 . Ot he r Bu si ne s s 47
3.1 Election or re-election of the audit firm 29 9.1 Resolutions not featured on the agenda 47
9.2 Election or re-election of the independent representative 47
4. Boa r d a n d Ex e c ut iv e Re mu ne r a t i on 31
4.1 Remuneration system and incentive plans 31 A ppe ndix 1 : Inde pe nde nce cr ite r ia for the me mbe r s of
4.2 Remuneration report 31 the b oa r d of dir e ct or s 48
4.3 Total remuneration amount for the board of directors 31 A ppe n dix 2 : Ma x im u m n um be r o f e x te r na l ma n da te s 50
4.4 Amount of fixed remuneration for the executive management 32
A ppe ndix 3 : Re quir e me nts with r e ga r d to the
4.5 Maximum amount of variable remuneration (prospective or
r e mu ne r a t i on sy ste m 51
retrospective vote) 32
4.6 Total remuneration amount (fixed and variable) for the executive A ppe ndix 4: Re quir e me nts with r e ga r d to v a r ia ble
management 33 r e mu ne r a t i on ( b on us a nd lo n g -te r m i nce nt iv e pla ns ) 54
4.7 Length of employment contracts and of notice periods of the A ppe ndix 5 : Re quir e me nts with r e ga r d to the
members of the executive management 35 r e mu ne r a t i on r e por t 57
5 . Ca p ita l Str uct ur e a n d S ha r e h o lde r Ri g hts 36 A ppe n dix 6 : Sha r e h ol de r Re s o lu ti o ns 59
5.1 Changes in the capital structure 36
5.2 Capital increase without specific purpose 36
2 | | 3COR P ORA TE GO VE RNA NC E P RI NC I PL ES 61 6 . Me r ge r s, A c q ui si ti o ns a n d Re s tr u ct ur i n g 117
1 . A cco u nts , D iv i de n d a n d D i sc ha r ge 63 6.1 General remarks 117
1.1 Annual report 63 6.2 Acquisition or merger by absorption 118
1.2 Financial report 64 6.3 Merger by combination 119
1.3 Allocation of income and dividend distribution 65 6.4 Situations akin to mergers 120
1.4 Political and charitable donations 67 6.5 Company spin-offs 120
1.5 Discharge of the board of directors 68 7 . A me n d me n ts t o the A r t ic le s of A ss oc ia t i on 123
2 . Boa r d of D ir e ct or s 71 8 . Sha r e ho l de r Re s ol ut i on s 125
2.1 Board duties 71 8.1 History 125
2.2 Board structure 72 8.2 Analysis of shareholder resolutions 127
2.3 Board composition 72 8.3 Impact of shareholder resolutions 129
2.4 Board size 75 9 . Ot he r Bu si ne s s 131
2.5 Independence of directors 76
2.6 Committees of the board of directors 78
2.7 Separate offices of chairman of the board and Chief Executive
Officer (CEO) 81
2.8 Information on nominees proposed for election to the board of
directors 82
2.9 Board’s election modalities 83
2.10 Characteristics of directorships 83
3 . A ud it F ir m 87
3.1 Fairness of the accounts 87
3.2 Appointment of the external audit firm 87
3.3 Independence of the external audit firm 87
4. Boa r d a n d Ex e c ut iv e Re mu ne r a t i on 93
4.1 The issues 93
4.2 Transparency of the remuneration system 93
4.3 Structure of the remuneration system 95
4.4 Competence with regard to remuneration 101
5 . Ca p ita l Str uct ur e a n d S ha r e h o lde r Ri g hts 105
5.1 Share capital 105
5.2 Capital increase 106
5.3 Capital reduction 110
5.4 Share repurchase without cancellation 112
5.5 Protection measures 112
4 | | 5Introduction
Introduction
| 7Introduction
1. Preamble
Institutional investors are entrusted guidelines and corporate governance
with managing assets on behalf of a principles are also based on Ethos’
large number of beneficiaries. It is Charter, which is grounded in the con-
therefore their fiduciary duty to protect cept of sustainable development
and enhance the long-term interests of where corporate decisions are shaped
the end-owners they represent. Ethos not only by financial, but also by social,
considers active share ownership as a environmental and corporate govern-
means of obtaining higher long-term ance considerations. In this respect,
returns and contributing to the efficient Ethos is convinced that loyalty in the
functioning of the financial markets. relations between a company and its
Voting at shareholder meetings and en- various stakeholders contributes sub-
gaging in sustained dialogue with com- stantially to the company’s long-term
panies are two basic elements of ac- sustainability and its future value. For
tive ownership. This document sets this reason, Ethos’ approach is reso-
out Ethos’ proxy voting guidelines and lutely inspired by a long-term vision of
corporate governance principles. a company.
These are the references that underpin
both Ethos’ dialogue with investee Ethos’ proxy voting guidelines and cor-
companies and the vote at shareown- porate governance principles serve a
ers’ general meetings. dual purpose. First, they set out the po-
sition on essential issues of corporate
Ethos considers that best practice in governance of an institutional investor
corporate governance is indispensable committed to sustainable develop-
for the implementation of a strategy ment and responsible investment. Sec-
based on corporate social responsibil- ondly, they allow a systematic and con-
ity, as well as to ensure adequate sistent exercise of shareowner voting
mechanisms of control. Ethos’ voting rights aiming at promoting the long-
guidelines and corporate governance term interests of a company’s share-
principles are based first and foremost owners and other stakeholders.
on the main codes of best practice in
corporate governance. Adhesion to The proxy voting guidelines provide de-
corporate governance best practice is a tailed explanations of Ethos’ voting rec-
fundamental principle of corporate so- ommendations on the different issues
cial responsibility and is necessary to submitted to the vote at general meet-
ensure adequate control mechanisms ings. These recommendations are con-
and limit risk for investors. The voting structive in spirit since a shareowner
| 9Introduction
should be able to trust the board of di- awareness of environmental and social general meetings of Swiss listed com-
rectors and ratify its proposals. Never- challenges vary considerably from panies. They must vote in the interest
theless, where careful scrutiny leads to country to country, Ethos can be led to of their beneficiaries. This is as the
the conclusion that the board’s pro- adapt its voting positions to the partic- case when the vote assures the pros-
posals are not in line with the long-term ularities and realities of each market. perity of pension funds in a sustainable
interests of the shareowners and other manner. Ethos considers that its voting
stakeholders, an abstain or oppose The voting guidelines and principles of guidelines respect in full the demands
vote might be appropriate. corporate governance are revised an- of article 22 of the Minder ordinance.
nually.
Ethos’ analysis is based on the “sub-
stance over form” principle. Thus, 2018 edition
when proposals put to the vote are
contrary to Ethos’ spirit, as laid down in The 2018 edition has been reviewed
its Charter, Ethos will oppose them de- and adapted to the ongoing develop-
spite an apparent adherence to form. In ments in legislation and best practice.
light of the diversity and complexity of
some situations, Ethos reserves the As for Switzerland, the current edition
right, should the need arise, to adopt a takes namely into account:
position not explicitly foreseen in its
· The Swiss Code of Best Practice
guidelines. In such cases, a clear and
for Corporate Governance of econ-
documented explanation of the ra-
omiesuisse (February 2016).
tionale underlying its position is pro-
vided. · The Corporate Governance Di-
rective (CGD) of the Swiss stock
This document is divided into nine sec- exchange SIX Exchange (Decem-
tions covering the main issues in the ber 2016).
field of corporate governance. The prin-
· The ordinance against excessive re-
ciples establish high standards regard-
muneration (Minder ordinance)
ing the attitude expected from compa-
nies toward their shareholders and
Regarding the Minder ordinance, arti-
other stakeholders. The voting guide-
cle 22 stipulates that pension funds
lines take into account the current
subject to the Swiss Federal Law on
state of corporate governance in Swit-
Vesting in Pension Plans (FZG) must
zerland and abroad. Given that corpo-
exercise their voting rights at annual
rate governance standards, the legal
and regulatory framework, as well as
10 | | 11Introduction
2. Implications of the Implementation of
the Minder Initiative
On March 3, 2013, the Swiss people notably that people with executive
accepted with a large majority the pop- functions in the company cannot be
ular initiative ”against excessive remu- members of the board and therefore of
neration”, the so-called Minder initia- the remuneration committee. This
tive that gives extensive rights to the committee must also consist in major-
shareholders of Swiss listed compa- ity of independent members.
nies, in particular with regard to approv-
ing board and executive remuneration. Moreover, the principles regarding the
tasks and competencies of the remu-
Following the acceptance of the neration committee should be featured
Minder initiative and pending the revi- in the articles of association and there-
sion of company law by the parliament, fore approved by the shareholder gen-
the Federal council issued the Ordi- eral meeting.
nance against excessive remunera-
tions (Minder ordinance), which en- 2.1.2 Independent representative
tered into force in full on December 31,
2015. The existence of an “independent rep-
resentative” of shareholders is neces-
2.1 “Governance” votes sary to allow the shareholders to vote
by proxy ahead of the meeting. Follow-
2.1.1 Board of directors ing the entry into force of the Minder
initiative, the independent representa-
The Minder foresees certain rules with tive is put to annual (re)election by the
regard to board elections and to the shareholders. For Ethos, independ-
functioning of the remuneration com- ence is fundamental to ensure the
mittee. All the members of the board credibility of the representative of the
are put to re-election every year individ- shareholders.
ually.
The Minder ordinance also stipulates
Since 1 January 2014, the shareholders that the independence criteria regard-
are called to elect the chairman of the ing the external auditor must be ap-
board and the members of the remu- plied by analogy to the independent
neration committee in additional sepa- representative of the shareholders. In
rate votes. Ethos’ conditions foresee
| 13Introduction
particular, close links between the gov- cases, a distinction should be made be- who did not work during the notice pe- Minder ordinance includes 3 minimum
erning bodies of the company or an im- tween mandates in listed and non riod. requirements:
portant shareholder on the one hand, listed companies or other institutions.
· The shareholders must approve the
and the independent representative (or These distinctions aim at allowing a It should be noted that the Minder or-
remuneration every year.
persons closely linked to him) on the more precise assessment of the work- dinance prohibits severance payments.
other hand are incompatible with the load that the maximum number of In order to circumvent this rule, many · The shareholders must vote sepa-
notion of independence of the inde- functions entails. This should also al- companies have included in their arti- rately on the amounts to be paid to
pendent representative. low determining whether the mem- cles of association the possibility to in- the board of directors, the execu-
bers of the board and executive man- clude compensated non-compete tive management and the advisory
2.1.3 Statutory provisions agement are in a position to carry out clauses in the employment agree- board.
their responsibilities with the required ments of the members of the execu-
· The vote of the shareholders is
The Minder ordinance stipulates that diligence. tive management. In principle, the arti-
binding.
certain provisions with regard to the cles of association specify the duration
functioning of the company’s govern- The question of maximum number of of such clauses and the payments to
Additional provisions, especially vote
ing bodies must necessarily be written mandates acceptable to Ethos in the which the beneficiary is entitled.
modalities, must be stipulated in the
in the articles of association. framework of the Minder ordinance is
company’s articles of association
treated in appendix 2 of the voting 2.2 “Remuneration” votes
A. Maximum number of mandates guidelines.
2.2.2 Voting modalities
With the entry into force of the Minder
To ensure that the members of the B. Executive contracts initiative, Switzerland is one of the
The voting modalities must be stipu-
governing bodies have sufficient time countries where the shareholders of
lated in the articles of association. In
to devote to the exercise of their man- The maximum termination period must listed companies have the most rights
principle, the companies request a pro-
date with the required diligence, the be stipulated in the articles to avoid ex- with regard to setting board and exec-
spective (ex ante) vote on the board’s
maximum number of mandates held by ecutive contracts circumventing the utive remuneration. The shareholders
fees. Regarding the remuneration of
the members of the board of directors, ban on severance by way of long notice now have the non-transferable right to
the executive management, the com-
the advisory board (if any) and the ex- periods or lengthy contracts. According vote on the total amounts of remuner-
panies can propose:
ecutive management in governing bod- to the Minder ordinance, neither the ation not only for the board of directors,
ies of other legal entities must be set contract length nor the notice period but also for the executive management · a single vote on the maximum
in the articles of association. should exceed one year. It is however and if relevant for the advisory board. amount
not clear what remuneration the exec-
· separate votes for the fixed and var-
Ethos is of the opinion that it is im- utives are entitled to (fixed salary and 2.2.1 Mandatory requirements
iable parts
portant to set a maximum number of target bonus, or total remuneration
mandates for members of the execu- package including shares and options). As of 2015, Swiss listed companies are Companies can also opt between:
tive management and for non execu- Ethos is of the opinion that in principle, required to submit the amounts of re-
· prospective (ex ante) votes, by re-
tive board members separately to re- only the fixed remuneration should be muneration for the governing bodies to
questing a maximum budget
flect their different status. In both paid to an employee upon termination the vote of the shareholders. The
14 | | 15Introduction
· retrospective (ex post) votes on the can receive their fixed salary for the Regarding the long-term variable remu-
remuneration that they want to pay past financial year. neration, the precise performance tar-
at the end of the performance pe- gets set are in general less commer-
riod, when performance can be as- Regarding the short-term variable re- cially sensitive and can be based on ex-
sessed muneration (annual bonus), Ethos con- ternal, which cannot be influenced by
siders it preferable to hold a retrospec- the company. Their publication is there-
A. Separation of the votes tive vote on the effective amount de- fore less problematic for companies
termined based on the performance and the required transparency can be
Ethos is of the opinion that the votes achieved. With retrospective votes, sufficient to allow a prospective vote.
on fixed remuneration should be sepa- companies can make a precise pro- One must not lose sight of the problem
rate from those on variable remunera- posal instead of requesting a high max- posed by the calculation of the amount
tion. In fact, the fixed remuneration is imum amount, while the amount effec- that the companies must get approval
known in advance, whereas the varia- tively paid is often much lower than the for and which, in the case of certain
ble remuneration is conditional upon maximum amount. In addition, with plans, may seem excessive since it
achievement of past or future perfor- retrospective votes, shareholders corresponds to the maximum potential
mance objectives. Ethos also consid- avoid the risk of undue payment of the (theoretical) value in case the benefi-
ers that it would be preferable to sepa- maximum amount. When a company ciary exceeds all the objectives set at
rate the votes on short-term and long- nonetheless wishes to vote on the the beginning of the performance pe-
term variable remuneration (generally maximum bonus amount prospec- riod.
share based plans). When companies tively, it is indispensable that the trans-
ask for a single amount for the entire parency as regards the remuneration
variable remuneration, it is important system be very high. In particular, it is
that they give an explanation on the necessary that the shareholders know
breakdown of the amount into short- the precise performance targets. Un-
term bonus and long-term incentive fortunately, this is rarely the case,
plan. since this is considered by the compa-
nies as commercially sensitive infor-
B. Prospective or retrospective votes mation, which they are not willing to
disclose in advance. In addition, the re-
For the fixed remuneration, Ethos con- muneration system described in the ar-
siders that a prospective vote is the ticles of association must set a cap on
best solution. It would be difficult to ar- the variable remuneration with regards
gue that members of the executive to base salary.
management must wait until the next
annual general meeting to be sure they
16 | | 172018 Proxy Voting Guidelines
2018 Proxy Voting Guidelines
| 192018 Proxy Voting Guidelines
1. Accounts, Dividend and Discharge
Situations that do not fall under a specific recommendation are to be assessed in
light of Ethos’ Principles of corporate governance.
1.1 Annual report and accounts
VOTE FOR the board of directors’ proposal, however:
OPPOSE if one of the following conditions applies:
a. The information presented to the shareholders does not meet corpo-
rate governance best practice standards.
b. Serious doubts are raised concerning the quality, sincerity and compre-
hensiveness of the information provided.
c. The annual report was not made available sufficiently in advance of the
general meeting.
d. The board of directors refuses to disclose important information that is
firmly requested, or responds to legitimate requests for supplementary
information in an unsatisfactory manner.
e. There are serious and demonstrable failings in the statement of ac-
counts.
1.2 Discharge of the board of directors
VOTE FOR the board of directors’ proposal, however:
OPPOSE if one of the following conditions applies:
a. The external auditors’ report expresses reservations concerning the
board’s conduct of the company, or reveals serious shortcomings in
the exercise of board members’ duties or deficiencies of the internal
control system.
b. A shareholder resolution or question or any other factual element reveal
serious deficiencies in the board’s conduct of the company’s affairs.
| 212018 Proxy Voting Guidelines
c. Legal proceedings have been instituted or a criminal conviction is 1.3 Allocation of income and dividend dis tribution
brought against the board of directors or the Supervisory Board con-
VOTE FOR the board of directors’ proposal, however:
cerning the conduct of the company’s affairs.
OPPOSE if one of the following conditions applies:
d. There is profound disagreement concerning the management of the
company’s affairs or the Board’s decisions. a. The proposed allocation of income seems inappropriate, given the fi-
nancial situation and the long-term interests of the company, its share-
e. Serious shortcomings in corporate governance constitute a major risk
holders and its other stakeholders.
for the company and its shareholders.
b. The proposal replaces the cash dividend with a share repurchase pro-
f. The size of the board of directors has persistently remained below 4
gramme.
members.
c. The dividend is replaced by a reimbursement of nominal value of the
g. There is a strong deterioration of the company’s financial situation due
shares that substantially deteriorates the shareholders’ right to place
to successive poor financial results, large impairments or significant
an item on the agenda of the annual general meeting.
new provisions for litigation costs.
h. The company is in a situation of capital loss, of over indebtedness, in a
definitive moratorium, or there is a material uncertainty on the ability of
the company to continue as a going concern.
i. The board of directors has made decisions that constitute a major en-
vironmental or social risk or it does not recognise the major environ-
mental/social issues that the company faces.
j. The company is involved in an accident that seriously harmed the em-
ployees’ health, local communities or the natural environment.
k. There are well grounded accusations against the company for serious
violations of internationally recognised human rights of employees, lo-
cal communities, or the company is complicit in such violations along
the supply chain.
l. The company refuses to recognise the negative impact of some of its
products or its operations on humans or the natural environment.
22 | | 232018 Proxy Voting Guidelines
2. Board of Directors
Situations that do not fall under a specific recommendation are to be assessed in i. The nominee has held an executive function in the company during the
light of Ethos’ principles of corporate governance. last three years and the board of directors includes too many executive
or former executive directors with respect to national standards of cor-
porate governance.
2.1 Election or re-election of non-executive directors
VOTE FOR the proposal of the board of directors or of certain shareholders, how- j. The nominee has held executive functions in the company during the
ever: last three years and he will sit on the audit committee.
OPPOSE if one of the following conditions applies: k. The nominee is the chairman of the audit committee and the company
is facing serious problems related to the accounts, the internal control
a. Insufficient information is provided concerning the nominee or the in- system, the internal or external audit, or in terms of business ethics.
formation does not allow evaluating his expected contribution to the
board of directors. l. The nominee is chairman of the nomination committee and one of the
following is true:
b. The nominee was implicated in a serious controversy in the past or - The board renewal is insufficient.
does not have a good reputation or his activities and attitude are not
- The board composition is unsatisfactory.
irreproachable.
m. The nationality/origin/domicile of the new nominee is overrepresented
c. The number of mandates held by the nominee is excessive in light of
on the board without justification.
the type of mandates and the maximum limit required by national
standards on corporate governance (for Switzerland, see appendix 2). n. The new nominee has a nationality/origin/residence other than the
country where the company is incorporated and the board does not
d. The nominee has been a member of the board for more than 20 years
include any members with nationality/origin/residence in/of the country
and there is no valid reason (e.g. he is not a founding member or major
of incorporation.
shareholder, possesses no specific competencies, etc.) to justify his
(re-)election. o. The nominee was employed by the audit firm as partner in charge of
the audit of the company’s accounts (lead auditor) during the past 2
e. The nominee is 75 or older or 70 years or older upon first appointment
years.
and there is no substantial justification for his nomination.
p. The nominee has attended too few board meetings (in principle less
f. The nominee does not meet Ethos’ independence criteria (see appen-
than 75%) absent compelling and justified reasons.
dix 1) and the overall board independence is not sufficient with respect
of national standards of corporate governance. q. The nominee is the lead director, but does not meet Ethos’ independ-
ence criteria (see appendix 1); in particular due to a conflict of interest.
g. The nominee has a major conflict of interest that is incompatible with
his role as board member.
h. The nominee is a representative of a significant shareholder who is suf-
ficiently represented on the board. Under no circumstances should a
shareholder control the board.
24 | | 252018 Proxy Voting Guidelines
2.2 Election or re-election of executive directors 2.3 Election or re-election of the chairman of the board of directors
VOTE FOR the proposal of the board of directors or of certain shareholders, how- VOTE FOR the board of directors’ proposal, however,
ever:
OPPOSE if one of the following conditions applies:
OPPOSE if one of the following conditions applies:
a. Ethos could not support the election or re-election of the nominee to
a. In companies listed in Switzerland, the nominee to the board of direc- the board of directors.
tors is also a permanent member of the executive management.
b. The nominee is also member of the executive management and the
b. Insufficient information is provided concerning the nominee. combination of functions is permanent.
c. The nominee was implicated in a serious controversy in the past or c. The corporate governance of the company is unsatisfactory and the di-
does not have a good reputation or his activities and attitude are not alogue with the shareholders is difficult or does not lead to the desired
irreproachable. outcomes.
d. The nominee chairs or will chair the board permanently and the share- d. The board of directors refuses to implement a shareholder resolution
holders cannot vote separately on the election of the chairman of the that received support from a majority of votes during previous general
board. meetings.
e. The nominee serves or will serve on the audit committee or the remu- e. The board has not established a nomination committee and one of the
neration committee and the shareholders cannot vote separately on the following is true:
election to the committee. - The board renewal is insufficient.
f. The nominee chairs or will chair the nomination committee. - The board composition is unsatisfactory.
g. The nominee serves or will serve on the nomination committee when f. The company’s financial performance has been unsatisfactory for sev-
the overall composition of the latter does not guarantee the commit- eral years.
tee’s independence (in principle when the majority of its members are
not independent or it already includes an executive director). 2.4 Election or re-election of the members of the remuneration
committee
h. The board of directors includes too many executive and former execu-
tives with respect to national standards of corporate governance. VOTE FOR the board of directors’ proposal, however,
i. The overall board independence is not sufficient with respect of na- OPPOSE if one of the following conditions applies:
tional standards of corporate governance and the shareholder struc-
a. Ethos could not support the election of the nominee to the board of
ture.
directors.
j. The nominee is a representative of a significant shareholder who is suf-
b. The number of mandates held by the nominee is excessive in light of
ficiently represented on the board. In no case should a shareholder con-
the types of mandates and the maximum limit required by national
trol the board.
standards on corporate governance (for Switzerland see appendix 2).
26 | | 272018 Proxy Voting Guidelines
3. Audit Firm
c. The nominee is not independent according to the criteria in appendix 1 Situations that do not fall under a specific recommendation are to be assessed in
and the committee does not include at least 50% independent mem- light of Ethos’ principles of corporate governance.
bers.
d. The nominee does not meet Ethos’ independence criteria (see appen- 3.1 Election or re-election of the audit firm
dix 1) and the committee includes all board members. VOTE FOR the board of directors’ proposal concerning the election or re-election
e. The nominee receives a remuneration that is excessive or not in line of the external audit firm, however,
with generally accepted best practice standards (see appendix 3). OPPOSE if one of the following conditions applies:
f. The nominee holds an executive function in the company. a. The name of the audit firm is not disclosed before the annual general
g. The nominee was member of the remuneration committee during the meeting.
past financial year and one of the following points is true: b. The term of office of the audit firm exceeds the lesser of 20 years and
- The remuneration system of the company is deemed very unsat- the length foreseen by national standards of best practice.
isfactory.
c. The breakdown of the services provided by the audit firm is insufficient
- The transparency of the remuneration report is deemed very in-
to allow an informed assessment of the auditor’s independence.
sufficient.
- Unscheduled discretionary payments were made during the year d. The fees paid to the audit firm for non-audit services exceed audit fees,
under review. absent compelling justification by the company.
- The amounts paid out are not in line with the company’s perfor- e. The aggregate fees paid to the audit firm for non-audit services during
mance or with the remuneration components approved by the the most recent three years exceed 50% of the aggregate fees paid
annual general meeting. for audit services during the same period.
- The exercise conditions for a variable remuneration plan were
f. The independence of the audit firm is compromised by links between
modified in the course of the financial year.
partners of the audit firm and/or the auditors in charge of the audit of
h. The nominee was member of the remuneration committee in the past the accounts and the company (Directors, major shareholders, audit
when this committee made decisions fundamentally in breach with committee members, senior managers).
generally accepted best practice standards.
g. The fees paid by the company to its audit firm exceed 10% of the ex-
ternal auditor’s turnover.
2.5 Grouped elections or re-elections of directors
h. The lead auditor has recently been severely criticised in connection
VOTE FOR if there is no major objection to the nominees standing for (re)election.
with his fulfilment of a similar mandate.
OPPOSE if the board of directors’ proposal on the (re-)election of one or more i. The company accounts or the auditing procedure determined by the
directors is considered detrimental to the interests of the company and its share- audit firm have been subject to severe criticism.
holders.
28 | | 292018 Proxy Voting Guidelines
4. Board and Executive Remuneration
j. The auditor failed to identify fraud or proven weaknesses in the internal Situations that do not fall under a specific recommendation are to be assessed in
control system that have had a significant negative impact on the com- light of Ethos’ principles of corporate governance.
pany’s financial results.
4.1 Remuneration system and incentive plans
VOTE FOR the board of directors’ proposal, however,
OPPOSE if one of the following conditions applies:
a. The information provided to the shareholders is insufficient to assess
the principles, structure and components of the remuneration system
(see appendices 3 and 4).
b. The structure of the remuneration is not in line with generally accepted
best practice standards (see appendices 3 and 4).
4.2 Remuneration report
VOTE FOR the board of directors’ proposal, however,
OPPOSE if one of the following conditions applies:
a. The remuneration report does not respect the rules in appendix 5 con-
cerning transparency or the pay-for-performance connection.
b. The non-executive directors receive remuneration other than a fixed
amount paid in cash or in shares.
c. The use of the remuneration approved is not considered as being in
line with the proposal put forward at the previous annual general meet-
ing.
4.3 Total remuneration amount for the board of directors
VOTE FOR the board of directors’ proposal, however,
OPPOSE if one of the following conditions applies:
a. The information provided by the company is insufficient.
b. The remuneration planned for or paid out to one or several members is
significantly higher than that of the peer group.
30 | | 312018 Proxy Voting Guidelines
c. The proposed increase relative to the previous year is excessive or not b. The maximum amount that can be effectively paid out in case of over-
justified. achievement of targets is significantly higher than the amount re-
quested at the general meeting.
d. The non-executive directors receive remuneration other than a fixed
amount paid in cash or in shares. c. The structure and conditions of the plans do not respect generally ac-
cepted best practice standards (see appendix 4).
e. The remuneration of the non-executive chairman largely exceeds that
of the other non-executive board members without adequate justifica- d. Past awards and the amounts released after the performance/blocking
tion. period, described in the remuneration report, do not allow confirmation
of the link between pay and performance.
f. The remuneration of the executive members of the board (excluding
the executive management) is excessive or is not in line with generally e. The remuneration committee or the board of directors have excessive
accepted best practice standards (see appendix 3). discretion with regard to awards and administration of the plan, for ex-
ample in re-adjusting the exercise price, extension of the exercise pe-
4.4 Amount of fixed remuneration for the executive management riod, amendment to the performance criteria or in replacing one plan by
another, without prior shareholder approval.
VOTE FOR the board of directors’ proposal, however,
f. The requested amount does not allow to respect the principles men-
OPPOSE if one of the following conditions applies: tioned in appendix 3, in particular the maximum proportion between
a. The information provided by the company, in particular with regard to fixed and variable remuneration.
the different components of the fixed remuneration or the number of
beneficiaries, is insufficient. 4.6 Total remuneration amount (fixed and variable) for the
executive management
b. The fixed remuneration planned for or paid out to one or several mem-
bers is significantly higher than that of a peer group. VOTE FOR the board of directors’ proposal, however,
c. The proposed increase relative to the previous year is excessive or not OPPOSE if one of the following conditions applies:
justified.
a. The information provided is insufficient for shareholders to assess the
relevance of the maximum requested amount (see appendix 3).
4.5 Maximum amount of variable remuneration (prospective or
retrospective vote) b. The total amount calculated on the basis of available information allows
for the payment of significantly higher remunerations than those of a
VOTE FOR the board of directors’ proposal, however,
peer group.
OPPOSE if one of the following conditions applies: c. The maximum amount that can be effectively paid out in case of over-
a. The information provided is insufficient for shareholders to assess the achievement of targets is significantly higher than the amount re-
plans’ features and functioning (see appendix 4). quested at the general meeting.
32 | | 332018 Proxy Voting Guidelines
d. The remuneration structure and the maximum requested amount are 4.7 Length of employment contracts and of notice periods of the
not in line with generally accepted best practice standards (see appen- members of the executive management
dix 3).
VOTE FOR the board of directors’ proposal, however,
e. Past awards and the amounts released after the performance/blocking
OPPOSE if one of the following conditions applies:
period described in the remuneration report do not allow confirmation
of the link between pay and performance. a. The employment contracts and notice periods exceed one year.
f. The remuneration committee or the board of directors have excessive b. The formulation of the contract allows for the payment of severance
discretion with regard to awards or have paid out undue remuneration payments higher than those prescribed by best practice.
during the previous financial year.
c. The contracts include non-compete clauses that could lead to exces-
sive payments.
34 | | 352018 Proxy Voting Guidelines
5. Capital Structure and Shareholder
Rights
e. The length of the authorisation exceeds the lesser of 24 months and
the length foreseen by local standards of best practice.
Situations that do not fall under a specific recommendation are to be assessed in
light of Ethos’ principles of corporate governance.
5.3 Capital increase for a specific purpose, with pre-emptive rights
5.1 Changes in the capital structure VOTE FOR the board of directors’ proposal, however,
VOTE FOR the board of directors’ proposal, however, OPPOSE if one of the following conditions applies:
OPPOSE if one of the following conditions applies: a. The purpose of the proposed capital increase (for example an acquisi-
tion or merger) is incompatible with the long-term interests of the ma-
a. The amendment contravenes the “one share = one vote” principle, jority of the company’s stakeholders, with regard to the amount of new
unless the company’s long-term survival is seriously undermined. capital requested and the financial situation of the company.
b. The amendment is intended to protect management from a hostile b. The proposed capital increase exceeds the maximum percentage ac-
takeover bid that is compatible with the long-term interests of the ma- cepted by local standards of best practice, or the company’s needs,
jority of the company’s stakeholders. given the relevance of the pursued objective.
5.2 Capital increase without specific purpose 5.4 Capital increase for a specific purpose, without pre-emptive
VOTE FOR the board of directors’ proposal, however, rights
OPPOSE if one of the following conditions applies: VOTE FOR the board of directors’ proposal, however,
a. The requested authority to issue shares, with tradable pre-emptive OPPOSE if one of the following conditions applies:
rights, for general financing purposes, exceeds the lesser of 50% of a. The information provided to shareholders so that they can assess the
the issued capital and the maximum percentage accepted by local terms, conditions and the purpose of the capital increase is insuffi-
standards of best practice. cient.
b. The requested authority to issue shares, without tradable pre-emptive b. The purpose of the proposed increase (for example an acquisition,
rights, for general financing purposes, exceeds the lesser of 15% of merger or employee incentive plan) is incompatible with the long-term
the issued capital and the maximum percentage accepted by local interests of the majority of the company’s stakeholders, with regard
standards of best practice. to the amount of new capital requested and the financial situation of
c. In case of approval of the request, the aggregate of all authorities to the company.
issue shares without tradable pre-emptive rights for general financing c. The amount requested is too high in light of the stated purpose.
purposes would exceed 20% of the issued share capital.
d. The proposed increase exceeds the lesser of one-third of the capital
d. The dilution due to the capital increases without pre-emptive rights in and or the maximum percentage accepted by local standards of best
the past three years has been excessive. practice.
36 | | 372018 Proxy Voting Guidelines
e. The capital requested is intended to fund a share-based incentive plan d. The ability of the company to pay a dividend is critically undermined by
the main characteristics of which are incompatible with Ethos’ guide- the repurchase of the shares.
lines for such plans (see appendix 4).
e. The company can proceed to selective share repurchases.
5.5 Share repurchase with cancellation or capital reduction via f. The length of the authorisation exceeds the lesser of 24 months and
reimbursement of par value the length prescribed by the local standards of best practice.
VOTE FOR the board of directors’ proposal, however, g. The purpose of the repurchase, such as financing an employee partici-
pation plan for example, is incompatible with the long-term interests of
OPPOSE if one of the following conditions applies: minority shareholders or with those of the majority of the company’s
a. The principle of equal treatment of shareholders is not respected . stakeholders.
b. The amount of the repurchase/reimbursement is excessive given the
5.7 Capital reduction via cancellation of shares
financial situation and perspectives of the company.
VOTE FOR the board of directors’ proposal, however:
c. The company may undertake selective share repurchases.
OPPOSE if the capital reduction is incompatible with the long-term interests of
d. The shareholders’ right to place an item on the agenda of the general
the majority of the company’s stakeholders.
meeting is significantly undermined.
e. The company proposes to cancel shares despite its significant capital 5.8 Cancellation or introduction of a class of shares
need.
VOTE FOR the cancellation of a class of shares and OPPOSE the introduction of
f. The share repurchase replaces the cash dividend. a new class of shares, unless one of the following conditions applies:
g. The ability of the company to pay a dividend is critically undermined by a. The long-term survival of the company is threatened.
the repurchase of the shares.
b. The proposal is contrary to the long-term interests of a majority of the
stakeholders of the company.
5.6 Share repurchase without cancellation
VOTE FOR the board of directors’ proposal, however, 5.9 Removal or introduction of a limit on voting rights
OPPOSE if one of the following conditions applies: VOTE FOR the removal and OPPOSE the introduction, unless one of the following
conditions applies
a. The amount to be repurchased exceeds a given percentage of the
share capital established in accordance with the rules of corporate gov- a. The long-term survival of the company is threatened.
ernance in the relevant country (in principle 10%).
b. The proposal contravenes the long-term interests of the majority of the
b. The repurchase price is too high. company’s stakeholders.
c. The share repurchase replaces the dividend in cash.
38 | | 392018 Proxy Voting Guidelines
6. Mergers, Acquisitions, and Relocations
5.10 Removal or introduction of an opting out or opting up clause Situations that do not fall under a specific recommendation are to be assessed in
VOTE FOR the removal and OPPOSE the introduction of an opting out or opting light of Ethos’ principles of corporate governance.
up clause. The replacement of an opting out clause with an opting up clause can
be accepted. 6.1 Proposals for mergers, acquisitions, and relocations
VOTE FOR the board of directors’ proposal, however,
5.11 Introduction or renewal of anti-takeover provisions
OPPOSE if one of the following conditions applies:
OPPOSE the board of directors’ proposal, unless the company provides a con-
vincing explanation that the proposed measure is one-time-only, necessary to pre- a. Given the scale of the proposed transaction, the acquisition, merger or
serve the long-term survival of the company and in line with the long-term inter- spin-off is not consistent with the long-term interests of the majority of
ests of the majority of the company’s stakeholders. the company’s stakeholders.
b. The “fairness opinion” was not done in compliance with the principles
of best practice.
c. The information available is not sufficient to make an informed deci-
sion.
d. The legislation and the corporate governance standards of the new
place of incorporation significantly deteriorate the rights of the share-
holders and other stakeholders.
e. The governance of the new entity is clearly worse than before.
f. The merger/acquisition does not respect international standards in re-
spect of human and labour rights and/or the environment.
40 | | 412018 Proxy Voting Guidelines
7. Amendments to the Articles of
Association
7.3 Modification of the length of the mandate of directors
Situations that do not fall under a specific recommendation are to be assessed in VOTE FOR the proposal of board of directors or of certain shareholders to de-
light of Ethos’ principles of corporate governance. crease the length of the mandates unless the proposal threatens the long-term
survival of the company.
7.1 Various amendments to the articles of association OPPOSE the proposal of the board of directors or of certain shareholders to in-
VOTE FOR the board of directors’ proposal, however, crease the length of the mandates.
OPPOSE if one of the following conditions applies: 7.4 Modifications of the articles of association related to the
a. The company fails to provide sufficient information to enable the share- Minder ordinance
holders to assess the impact of the amendment(s) on their rights and VOTE FOR the board of directors’ proposal, however
interests.
OPPOSE if one of the following conditions applies:
b. The amendment has a negative impact on the rights or interests of all
or some of the shareholders. a. Several amendments are submitted to shareholder approval under a
bundled vote and have positive, negative and neutral impacts on share-
c. The amendment has a negative impact on the long-term interests of holders’ rights and interests, but the negative impacts outweigh all oth-
the majority of the company’s stakeholders. ers.
d. The amendment constitutes a risk for the going concern. Modalities of the vote on remuneration by the general meeting (art. 18
e. Several amendments are submitted to shareholder approval under a Minder ordinance)
bundled vote and have positive, negative and neutral impacts on share- b. The proposed voting modalities stipulate a prospective vote on the
holders’ rights and interests and other stakeholders, but the negative maximum amount and the remuneration system described in the arti-
impacts outweigh all others. cles of association does not include caps on the variable remuneration,
or these caps exceed those of Ethos (see appendices 3 and 4).
7.2 Fixing of the minimum and maximum board size
c. The proposed voting modalities include the possibility to vote on
VOTE FOR the proposal of the board of directors or of certain shareholders unless changes to the remuneration retrospectively, even though the maxi-
the number proposed is not adequate for the size of the company and taking into mum amount has already been accepted prospectively.
account the local standards of best practice.
d. The board may propose that in case of refusal by the shareholders, a
new vote will be held at the same general meeting, even though the
second proposal is not known to the shareholders who are not physi-
cally present at the meeting.
42 | | 432018 Proxy Voting Guidelines
Remuneration structure Maximum number of external mandates for the members of the board
of directors and the executive management
e. The structure of the remuneration is not in line with generally accepted
best practice standards (see appendix 3). l. The proposed maximum number of mandates is considered excessive,
i.e. it does not guarantee sufficient availability to fulfil the mandate with
f. The non-executive directors may receive remuneration other than a
the required diligence (see appendix 2).
fixed amount paid in cash or shares.
g. The information provided is insufficient for shareholders to assess the
variable remuneration plans’ features and functioning (see appendix 4).
h. The structure and conditions of the variable remuneration plans do not
respect generally accepted best practice standards (see appendix 4).
i. The remuneration committee or the board of directors have excessive
discretion with regard to awards and administration of the plan, for ex-
ample in re-adjusting the exercise price, extension of the exercise pe-
riod, amendment to the performance criteria or in replacing one plan by
another, without prior shareholder approval.
Reserve for new hires in the executive management
j. The amount available for new members of the executive management
is excessive.
Non-compete clauses
k. The articles of association include the possibility to introduce non-com-
pete clauses into employment contracts of the members of the exec-
utive management and one of the following conditions is met:
- The maximum duration of the non-compete is not specified or is
excessive.
- The maximum amount to be paid in consideration of the non-
compete is not specified or can be assimilated to a severance
payment.
44 | | 452018 Proxy Voting Guidelines
8. Shareholder Resolutions 9. Other Business
Situations that do not fall under a specific recommendation are to be assessed in Situations that do not fall under a specific recommendation are to be assessed in
light of Ethos’ principles of corporate governance. light of Ethos’ principles of corporate governance.
VOTE FOR a resolution submitted by an individual shareholder or a group of share- 9.1 Resolutions not featured on the agenda
holders if the following conditions apply:
OPPOSE any motion by the board of directors or any shareholders to vote on a
a. The resolution is clearly phrased and properly substantiated. proposal under the heading “Other business” (or “Miscellaneous”), if the pro-
b. The resolution respects the principles of best practice in corporate gov- posal was not disclosed and described in the agenda before the annual general
ernance. meeting.
c. The resolution is in line with the long-term interests of the majority of 9.2 Election or re-election of the independent representative
the company’s stakeholders.
VOTE FOR the board of directors’ proposal, however,
d. The resolution complies with the principles stipulated in Ethos’ Charter,
which is grounded in the concept of sustainable development. OPPOSE if one of the following conditions applies:
e. The resolution aims at improving the company’s corporate governance a. Insufficient information is provided concerning the nominee.
or to enhance the company’s social and environmental responsibility b. The nominee does not have a good reputation or his activities and atti-
(see examples in appendix 6). tude are not irreproachable.
c. The nominee’s independence is not guaranteed.
46 | | 472018 Proxy Voting Guidelines
Appendix 1: Independence criteria for the
members of the board of directors
l. Does not receive variable remuneration or options that represent a substantial
part of his total remuneration and does not participate in the company’s pen-
In Ethos’ view, in order to be deemed independent, a board member: sion scheme.
a. Is not an executive director or employee of the company or a company of the m. Does not hold options of a substantial intrinsic value.
same group, and has not held such a position in the past five years. n. Is not considered non-independent by the company.
b. Is not him/herself an important shareholder or does not represent an important
shareholder, a consultant of the company or another stakeholder (employees,
suppliers, customers, public bodies, the State).
c. Has not been involved in auditing the company accounts during the previous
five years.
d. Has not been a partner or a director of the audit firm that audits the financial
statements of the company during the previous three years.
e. Is not a close relative of or does not have business relations with a member
of the founding family, an important shareholder or an executive of the com-
pany.
f. Does not have any permanent conflicts of interest.
g. Does not hold any conflicting office or cross-directorship with another director
or with a member of the executive committee.
h. Does not hold an executive position in a political institution or non -profit organ-
isation to which the company makes or from which it receives substantial do-
nations in cash or kind.
i. Does not regularly receive any material direct or indirect remuneration from
the company except his director’s fees.
j. Has not been sitting on the board or has not been linked to the company for
more than twelve years (or less, depending on the codes of best practice that
apply in the country).
k. Does not receive remuneration of an amount that could compromise his inde-
pendence.
48 | | 492018 Proxy Voting Guidelines
Appendix 2: Maximum number of external Appendix 3: Requirements with regard to
mandates the remuneration system
The following limits are applied in order to define the conditions under which the Transparency
amendments to the articles of association or the (re-)elections of the members of
the board of directors can be accepted by Ethos. Approval of the remuneration system requires that the following elements should
be disclosed in principle:
For the following calculations, all the mandates at companies registered in the
commercial registry (or in a similar registry abroad) are taken into account. The
a. A detailed description of the principles and mechanisms of the remuneration
mandates at companies of the group count as one single mandate. The mandates
policy.
of chairman of the board in companies subject to an ordinary audit count double.
b. A detailed description of each of the components of remuneration, in particular
Ethos is aware that certain mandates can entail a particularly high workload, for
the bonus system and the long-term variable remuneration plans paid in eq-
example the chairman of the audit committee of a board of directors. In these
uity, options or in cash (see appendix 4).
situations, Ethos will assess on a case-by-case basis whether the nominee has
sufficient availability. c. A summary of the retirement plans of executive management.
BoD Exec. B. d. A description of the employment contracts of members of executive manage-
ment, including the sign-on and termination conditions for each member, in
Total number of external mandates* per person 15 5 particular in case of change of control or non-compete clauses.
of which: e. The market value at date of grant of each remuneration component.
- maximum number of mandates in companies sub- 8 2
ject to ordinary audit **
Structure (for the board of directors)
- maximum number of mandates in listed companies 4 1
Approval of the remuneration system requires that the following rules should ap-
* In addition to the mandate in the company to which the vote applies. ply in principle for the remuneration of the board of directors:
** An ordinary audit of the accounts (art. 727 Swiss Code of Obligations, as a. The remuneration of the board members must be in line with that paid at com-
opposed to limited audit) is obligatory for companies that, for two consecu- panies of a similar size and complexity.
tive financial years, fulfil at least two of the three following criteria:
b. The remuneration of the non-executive chairman should not significantly ex-
- Revenues greater than CHF 40 million ceed that of the other non-executive members without adequate justification.
- Balance sheet total greater than CHF 20 million c. Potential year-on-year increases proposed should be limited and duly justified.
- More than 250 full-time equivalents
d. The non-executive directors should not receive remuneration other than a
fixed amount in cash or shares.
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