Governance professionals recognize that the corporate governance landscape is constantly evolving, reflecting new risks and priorities that naturally arise in a changing business environment. However, it often takes time for official corporate governance codes to be updated. One example is the Swiss Code of Best Practice in Corporate Governance, which was revised and republished in February 2023 for the first time since 2014. The changes are a response to new legal requirements and underscore the importance of environmental, social, and governance (ESG) reporting, along with strengthened internal controls and risk management systems.
Context and significance of governance codes
Corporate governance codes aim to establish sound and transparent business practices to minimize risks and reassure stakeholders that a company is operating soundly. By building trust, these codes attract investment and lay the foundation for a stable economy. However, the factors that contribute to trust are constantly changing, and over the past decade, the exclusive focus on financial transparency has given way to a more comprehensive perspective. Various stakeholders now demand deeper insight into corporate ethics and practices related to environmental, social, and governance issues.
Important innovations in the Swiss Code
The revised Swiss Code of Best Practice for Corporate Governance includes several important changes, particularly in the areas of ESG, non-financial reporting, risk management and internal controls.
(1) ESG and non-financial reporting
One of the most important changes is the increased consideration of ESG factors. Companies are now encouraged to consider sustainable interests, encompassing economic, social, and environmental objectives. The board of directors is expected to define these interests by considering the perspectives of various stakeholders, including employees, business partners, customers, and society at large.
Non-financial reporting also received greater emphasis. The Code requires compliance with legal requirements, but at the same time allows flexibility to go beyond the legal provisions if necessary. Reports should be based on internationally recognized standards, and the Board of Directors must approve and sign these reports before presenting them to the Annual General Meeting. This change underscores the growing importance of transparency and accountability in non-financial matters.
The importance of ESG reporting is expected to continue to grow. In summer 2024, the Swiss Federal Council launched a consultation on expanding ESG reporting requirements through significant amendments to the Swiss Code of Obligations. These changes would increase the number of organizations required to report on non-financial measures from 300 to more than 3,500 and align reporting more closely with the EU Corporate Sustainability Reporting Directive (CSRD). This could ultimately lead to further changes to the Code of Best Practices in Corporate Governance.
One of the most important proposed changes requires companies within the scope to have their sustainability reports reviewed by independent third parties. This would have significant implications for the verification and assurance of reporting quality.
(2) Risk management
The Code has redefined risk management to cover strategic, operational, legal, financial, market, and reputational risks. The Board of Directors is responsible for conducting an annual risk assessment and using the results to guide oversight and adjust internal control systems. This proactive approach ensures that risk management is integrated into the company’s broader governance framework.
(3) Internal control system
The updated Code places greater responsibility on the Board of Directors for ensuring the existence of an effective internal control system. The system should be tailored to the company’s needs and designed to improve operational efficiency, compliance, and the reliability of both financial and non-financial reporting. Internal audit is mandated to conduct an independent assessment of the effectiveness of the control system and to report the findings to both senior management and the Board of Directors.
Impact on governance, risk and compliance teams
The revision of the Swiss Code presents a number of challenges and opportunities for governance, risk, and compliance (GRC) professionals. These include:
Identifying material non-financial risks : Companies must identify and analyze environmental and social risks and integrate them into their formal risk management processes. This includes determining which risks are material and require board attention.
Developing a framework for non-financial reporting : The importance of accurate and relevant non-financial reporting has increased, requiring structured data collection and reporting processes across departments.
Designing and Implementing Internal Controls Outside of Finance : Extending internal controls to departments outside of finance can be challenging both practically and culturally. Developing a positive control culture is critical to success.
Ensuring assurance for the board : GRC teams must ensure that data is reliable and accessible to provide solid assurance to board members. This allows them to confirm the effectiveness of risk management and internal control systems.
Establish an integrated reporting structure : Managing the large amounts of data required for effective risk management and internal control reporting requires careful planning and execution to minimize administrative burden.
Leveraging technology to ensure regulatory compliance
With the expansion of corporate governance, technology plays a critical role in simplifying compliance. Many companies rely on governance platforms that unify GRC activities and provide visibility at both high-level and granular levels. Automation can minimize data errors and increase confidence in internal controls. A user-friendly interface supports a positive GRC culture, while comprehensive reporting capabilities link data to results, helping companies build a meaningful picture of risk management and internal controls.
The recent updates to the Swiss Code of Best Practice for Corporate Governance reflect a shift toward greater accountability and transparency in business practices. By adapting to regulatory changes and emphasizing ESG factors, the Code aims to help companies achieve sustainable success. For GRC professionals, these changes offer an opportunity to enhance their skills and ensure compliance in a rapidly evolving regulatory environment.
For further information on designing governance practices to meet the requirements of the Code, please see our white paper.
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