Switzerland: Tone from the Top of the Alps

Written by Guillermo Iribarren on Thursday July 28, 2016

A high percentage of Switzerland's surface is covered by the Alps. The melting of glaciers, located at the top of the mountains, generates flows of clean – and essential - water for a wide range of ecosystems downstream. This natural geological phenomenon helps us to illustrate the importance of the commitment from the Board of Directors and Senior Management to implement compliance across all hierarchical levels in Swiss companies.

Switzerland overview

Switzerland is one of the least corrupt countries in the world: it ranked 7th among 186 countries with a score of 86 out of 100 in the Corruption Perception Index 2015 of Transparency International. The country also gets high scores, corresponding to better governance outcomes, in indicators such as the Corruption Control Index -reflecting perceptions of the extent to which public power is exercised for private gain-, and the Bribe Payers Index -ranking the likelihood of firms to bribe abroad [1].

On the other hand, the alpine country ranks first in the Financial Secrecy Index as the most opaque financial jurisdiction in the world [2]. In recent years, the public has been concerned about corruption in business and the private sector. For instance, a popular initiative approved in a 2013 Swiss referendum increased control over boards’ remuneration and introduced new rules on corporate governance (Ordinance against Excessive Remuneration in Listed Companies Limited by Shares [3]).

In September 2014, the Swiss Business Federation (economiesuisse) updated the Fundamentals of Effective Compliance Management [4], a comprehensive guide to compliance and ethics for Swiss companies. This paper supplements another guideline issued by economiesuisse: The Swiss Code of Best Practice for Corporate Governance [5], updated in early 2016. 

Swiss commitment to compliance at the top of organisations

What does compliance mean in Switzerland? It means “ensuring the observance of applicable legislation as well as commitment to self-regulatory standards (code of conduct, company directives, association codes, etc.). Private and public stakeholders expect every company to do business in accordance with the applicable standards. Seen from this perspective, compliance can also be defined as the state of integrity expected by the stakeholders on the basis of the social responsibility of the companies. Nowadays, the term “compliance” therefore typically involves a strong commitment to acting with integrity (“do the right thing”).” [6]

The top commitment to compliance and integrity in the Swiss business framework is clear. Both the Board of Directors and Senior Management have well-defined duties. Indeed, the Swiss Code of Best Practice for Corporate Governance established the following compliance duties and recommendations for the Board of Directors [7]:

• It has to supervise the “persons entrusted with the management of the company, specifically with regard to compliance with the law, the Articles of Association, regulations and directives in particular”. (These are non-transferable duties of the Board of Directors according to Swiss company law).
• It “should provide internal control and risk management systems that are suitable for the company”.
• It “should arrange the compliance function according to the specific nature of the company and issue an appropriate code of conduct”.
• It “should provide itself with an account at least once a year of whether the principles of compliance applicable to themselves and the company are sufficiently well known and are constantly respected”.

Likewise, an active Senior Management commitment to compliance, and therefore to acting with integrity, is one of the five elements of an effective compliance management system in Switzerland. This active top management commitment includes [8]:

• A maximum effort to acting with integrity and comply with the law. In other words, senior management must integrate these elements into the decision-making process and business strategy.
• Promoting integrity as a key element of the corporate culture.
• Embedding compliance and ethics into business operations.
• Implementing and enforcing the compliance and ethics program.

In summary, compliance and integrity are key components of day-to-day performance at the highest levels of organisations. These elements should be incorporated into the business strategy and operations. Also, stakeholders expect a maximum effort from the top level of companies to embed compliance and integrity into the corporate culture.

How to implement this top level commitment to compliance

There is increasing awareness in the market about how a culture of integrity and compliance improves both business performance and the confidence of investors. There is also research demonstrating that ethical companies are more profitable [9]. We also learn more and more about the benefits of stakeholders’ engagement.

However, we continue to see integrity scandals in the media. We see corporate reputations destroyed and billions in shareholder value lost. Furthermore, we see how citizens around the world have lost confidence in business and the private sector, meaning the free market.

We believe that changing business culture does not need to take an eternity. If top level commitment is present, then the compliance function can develop metrics to track progress as well as the organisation´s return on investment (ROI). Organisations also need to leverage the synergies between the compliance and HR functions. From this perspective, we see the implementation of top level commitment as a matter of transformation and corporate culture.

First, we should recognise that organizational change is a complex process. However, consistent research has revealed some key factors that are always present in successful transformation processes [10]:

• Role modeling: “I see my leaders, colleagues and staff behaving differently”.
• Fostering understanding and conviction: “I understand what is asked of me and it makes sense”.
• Reinforcing with formal mechanisms: “I see that our structure, processes and systems support the changes I am being asked to make”.
• Developing talent and skills: “I have the skills and opportunities to behave in the new way”.

Second, corporate culture is about people and behaviours. For example, In July 2016, the Chartered Institute of Personnel Development (CIPD) of the United Kingdom issued a comprehensive research report on managing corporate culture [11].

This report included the following top-level recommendations for leaders with regards to understanding, measuring and developing corporate culture:

• Apply a values lens to board decision processes.
• Lead cultural change from the top, and evidence its impact on the business.
• Develop leadership capability in line with cultural and behavioural values, and communicate its importance effectively.
• Align measures of performance, reward and culture to address issues of high pay and ensure that reward decisions take cultural alignment into account.
• Invest in building HR and people management strategy and capability which focuses on leadership and management culture, and embeds cultural values across all levels of the organisation.
• Build a culture of engagement and voice, communicating the importance of open and transparent values via top–down and bottom–up engagement processes.
• Create employee voice and whistleblowing processes that protect employees who speak out about cultural and behavioural issues, and ensure that the board takes effective action to rectify concerns.
• Seek evidence that all HR processes, including recruitment, induction, training and performance management, reinforce and align with the desired behavioural norms and values.

In summary, the Board of Directors and Senior Management have to implement a transformation process aimed at changing organisational culture as a part of the social responsibility of the company. The outcome of this cultural change has to be more integrity and compliance in business strategy and operations, more efficiency, and more profitability. As the melting process at the top of the Alps illustrates, a renewed clean - and essential - culture will flow throughout your organisation.

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[1] See https://www.transparency.org/country/#CHE_DataResearch

[2] See http://www.financialsecrecyindex.com/PDF/Switzerland.pdf

[3] See (French) https://www.admin.ch/opc/fr/classified-compilation/20132519/201401010000/221.331.pdf

[4] See (English) http://www.economiesuisse.ch/sites/default/files/downloads/compliance_e_web.pdf

[5] See (English) http://www.economiesuisse.ch/sites/default/files/downloads/economiesuisse_swisscode_e_web.pdf

[6] See page 7 of Fundamentals of Effective Compliance Management.

[7] See articles 9, 10, 20, and 21 of the “Swiss Code”.

[8] See page 8 ídem.

[9] See Does Business Ethics Pay? http://www.ibe.org.uk/userfiles/doesbusethicpaysumm.pdf

[10] See The four building blocks of change http://www.mckinsey.com/business-functions/organization/our-insights/the-four-building-blocks--of-change

[11] See A duty to care? Evidence of the importance of organisational culture to effective governance and leadership http://www.cipd.co.uk/hr-resources/research/duty-care-evidence-organisational-culture.aspx