Board composition

Board size

The average number of directors on an SMI board is 10.7 members, a negligible change from the 10.9 recorded in our 2021 survey. The average on SMI Mid boards is 8.3 directors, representing a drop from 9.7 members seen in 2021. Taken together on the SMI Expanded, this gives an overall average board size of 9.3.

The smallest board in our sample is again found at EMS-Chemie Holding, at four members. The largest board is once more recorded at Compagnie Financière Richemont, with 16 members, three of whom — chair, CEO, and CFO — are executive directors. However, the Richemont total marks a 20% drop from 20 in 2021.

The roles of chair and chief executive

Nine CEOs currently serve as board directors, one more than observed in our 2021 review. Four of the nine are found at SMI companies and the rest at SMI Mid companies. Schindler Holding, a member of the SMI Mid, combines the roles of chair and CEO. EMS-Chemie in the SMI Mid combines the roles of vice chair and CEO.

Executive chairs are seen at two SMI boards, compared with four among SMI Mid boards.

Mostly, a clear separation between the role of CEO and chair prevails, in line with the Swiss Code of Best Practice for Corporate Governance.

Senior independent director and vice chair

The Swiss Code of Best Practice for Corporate Governance (§19) recommends that boards should establish dual leadership structures by separating the role of chair from the top position on the executive board. If such an arrangement is not possible, the Code recommends ensuring that adequate control measures are in place. These may include appointing a lead independent director (LID) who is empowered to convene and chair board meetings if necessary.

In the Swiss market, only 25% of SMI boards and 7% of their SMI Mid counterparts have a lead independent director. In contrast, the overwhelming majority of SMI Expanded boards (ie, at SMI and SMI Mid boards as a whole) currently maintain the vice-chair role.

Independence

84% of board members of SMI Expanded companies in Switzerland are deemed independent, down from 90% recorded in the 2021 Board Index. Among chairs deemed independent, the proportion is 75%.

Independence

	SMI Expanded	SMI	SMI Mid
Independent board members	84%	86%	79%
Independent chairs	75%	80%	71%

In Europe only the Netherlands, where 87% of its directors are deemed independent, records a greater degree of independence among its board members. Germany and Italy record 73% and 60% independent board members, respectively. In France slightly more than 50% are considered independent.

However, criteria for independence vary between geographies. One of the Swiss Code of Best Practice for Corporate Governance (§14) recommendations is that directors should “have no or comparatively minor business relations with the company”. This allows directors to be remunerated in shares, which is a widespread practice in Switzerland but would conflict with the requirements for independence applied in Germany or the UK, for example. In the USA, most S&P 500 boards provide stock grants to non-executive directors in addition to a cash retainer, and 11% of those boards grant stock options. However, 93% of US boards have share ownership guidelines that require directors to own a certain number of shares or a multiple of the retainer value within a specified number of years. As in Switzerland, the aim is to align directors’ interests with those of shareholders.

Age of directors

The average age of SMI and SMI Mid non-executive directors (excluding chairs) is 59.5, down slightly from 60.5 in 2021. Among SMI companies, the youngest board sits at Credit Suisse Group, where the average age is 55.9 years. Zurich Insurance has the oldest board, with an average age of 63.3. The youngest board in the SMI Mid is that of Straumann Holding, with an average age of 55.1 years; the oldest, with an average age of 70.6, sits at Lindt & Spruengli Group.

Chairs in the SMI have an average age of 63.5 years, making them slightly older than their SMI Mid counterparts, whose average age is 63.4. The average age of chairs across the SMI Expanded is 63.4.

New directors

The overall rate of board refreshment across the SMI Expanded was 12% in 2022 — that is, 11% among SMI boards and 12% among SMI Mid boards. Overall, the rates reflect rising board refreshment, compared with the 8% rate recorded in 2021.

In total, 53 new non-executive directors (17 more than last year) were appointed in the 12 months to 31 May 2022, more than half of them to SMI Mid boards.

The average age of newly appointed NEDs is 56.5 across the SMI Expanded. Among SMI boards newly appointed NEDs are aged 58.4 on average, and among SMI Mid boards their average age is 54.9.

When reviewing the data, we noticed that Swiss dual-national directors were classified as Swiss in some cases and as foreign in others. Hence, we opted to examine this group separately.

Nationalities of newly appointed directors

Nationalities of newly appointed directors

	2022			2021
	Swiss	Swiss + Foreign	Foreign	Swiss	Swiss + Foreign	Foreign
SMI	22%	13%	67%	29%	0%	71%
SMI Mid	21%	10%	69%	33%	4%	63%
SMI Expanded	21%	11%	68%	32%	2%	66%

First-time directors

Both SMI and SMI Mid companies are willing to appoint directors without prior board experience. In the cohort of newly appointed directors without prior board experience, women and foreigners are in the majority, reflecting the rising importance of diversity considerations for board recruitment.

First-time board members

				Nationality
	Total	Average age (years)	Women	Swiss	Swiss + Foreign	Foreign
SMI	12	59	67%	17%	8%	75%
SMI Mid	15	52.8	60%	20%	7%	73%
SMI Expanded	27	55.6	63%	19%	7%	74%

The background of chairs

The great majority of SMI Expanded chairs had a prior relationship with their company before assuming the role. It remains common practice to appoint a former CEO of the organisation, as we discuss below. Other chairs were promoted from a board position, which they might have joined as a designated successor for the chair in the first place, or after having emerged as a candidate for the position during the course of their board tenure.

The preferred path to the chair role is still to appoint the former CEO, as shown by the table below. The Swiss Code of Best Practice for Corporate Governance provides recommendations (§14) as to when board members qualify as independent. With respect to “independent chairs” we observed, however, that the following recommendations of the Code are not universally followed by companies: “Independent members shall mean non-executive members of the Board of Directors who have never been a member of the Executive Board, or were members thereof more than three years ago, and who have no or comparatively minor business relations with the company.”

Chairs who are previous CEOs of the same company

	Number of chairs	%
SMI	9	45%
SMI Mid	10	36%
SMI Expanded	19	40%

Length of service

Switzerland operates less restrictive limits on director tenure than most other European countries. Nevertheless, we observed two striking differences between SMI Mid and SMI companies.

First, SMI Mid companies tend to retain their directors longer than SMI companies, which may reflect a greater concern for tenure and age limits by SMI companies (see below).

Second, among SMI Expanded boards, we note that average tenure for male NEDs is 6.5 years, compared with 4.1 years for their female counterparts. This noticeably shorter average tenure among women directors serves as a reminder that the enriching effect of a greater female board presence is at an early stage.

Average tenure of all board members

	SMI Expanded	SMI	SMI Mid
All	6.2	5.5	6.9
Female	4.3	4.2	4.5
Male	7.2	6.2	8.0

Average tenure of chairs in role

	SMI Expanded	SMI	SMI Mid
All	5.1	4.8	5.3
Female	6.6	2.7	8.5
Male	5.3	5.1	5.5

The pattern is repeated among chairs — again, they are retained longer on average by SMI Mid companies than by SMI companies. The high degree of fluctuation in the data for female chairs is due to the small sample size, as only Logitech, Galenica, and the Swatch Group have female chairs.

In the SMI, the longest non-executive board tenure is seen at the Swatch Group, where average tenure is 17 years. The lowest average tenure, of 2.7 years, is recorded at Cembra Money Bank, SIG Group, and UBS Group. The chair of Flughafen Zurich has been in office for the longest period (22.4 years).

Term limits

We see a stark difference between SMI and SMI Mid when it comes to term and age limits. SMI companies are more sensitive to formalising board succession and rejuvenation using in equal measure age and term limits. 25% of SMI boards maintain an age limit, 20% a term limit, 20% both age and term limit.

The majority of SMI Mid boards (54%) do not have a formalised end point for membership on their boards.

Overboarding

Proxies and institutional investors are increasingly scrutinising chairs and directors with external board mandates. Their principle concern is to guard against directors over-committing across multiple sets of responsibilities, and in the process compromising their effectiveness as board members.

SMI Expanded companies limit the number of a director’s external mandates, but a slight discrepancy exists in relation to the recommendations made by the proxies and institutional investors. This discrepancy means that while most boards permit an additional four publicly listed boards, investors recommend a maximum of four boards for non-chairs.

A few board members sit on a high number of publicly listed boards, generally with a very international mix (one out of six mandates in the Swiss market). It is possible that these high number of commitments are often limited to transition years while the board members in question reorganise their portfolio of activities.