Focus: Corporate reporting

Corporate governance report: culture in black and white

Patrick Balkanyi
Partner, Assurance

In a corporate governance report you demonstrate how your organisation’s
farsightedness is working in the interests of stakeholders, particularly investors, and how you are putting this vision into practice in the form of appropriate, structured measures. So your corporate governance report is a way of creating lasting transparency. How far you go is up to you to decide.

Various interpretations of corporate governance – and by extension the corporate governance report – have gained currency in the business world. We see the corporate governance report as the documentation an organisation puts together to show how it has set up management and oversight structures, how these structures work in practice, and how they tie in with issues such as corporate culture, ethical behaviour and compliance. Good corporate governance is a guarantor of responsible, competent and transparent management geared to sustainable corporate success, and should work to the benefit of the organisation itself, its owners and external stakeholders.

A product of history

The regulatory efforts to establish reporting on corporate governance were prompted by a series of corporate scandals and collapses around the turn of the millennium.
Several years later the financial crisis underscored the urgent need for disclosure of this type of information. And the issue came to a head once again with the emotionally charged vote on the Swiss ‘Minder Initiative’ in March 2013, which led to the formulation and enactment of the Ordinance against Excessive Compensation at Listed Companies (VegüV/ORAb).

Broadly established

The duty to disclose principles of corporate governance derives from various regulatory frameworks and recommendations on both a national and international level:

Swiss Code of Obligations (CO)

Although the CO doesn’t stipulate a duty to produce a corporate governance report, Art. 716a does set down the non-transferable, inalienable duties of the board of directors. A corporate governance report contains a detailed description of the way the board operates, the division of duties within it, the role and composition of all board committees, and the demarcation of powers and responsibilities.

SIX Exchange Regulation

The Directive on Information relating to Corporate Governance issued by SIX on 1 September 2014 applies to all issuers whose equity securities have their primary or main listing on the SIX Swiss Exchange.
It’s designed to ensure that entities provide investors with certain key information in an appropriate form. The SIX Directive also sets down the information that has to be provided by companies subject to the Excessive Pay Ordinance.


The Swiss Code of Best Practice for Corporate Governance of 2002 established corporate governance as a tool for self-regulation. The most recent editions, published in 2007 and 2014, emphasise the concept of sustainable corporate success as the lodestar of meaningful corporate social responsibility.


FINMA circulars 2008/24 (governing supervision and internal control at banks) and 2008/32 (corporate governance, risk management and internal controls at insurers) formulate the regulatory corporate governance requirements for financial service providers and insurers in concrete terms.


The 2004 update of the OECD Principles of Corporate Governance pushed the corporate governance agenda forward in OECD member and non-member countries, and provided precise guidance for country-specific legislative and regulatory initiatives.

Weighty content

A corporate governance report presents the organisation and governance of a company at a specific cut-off date. Specifically it shows what duties are the responsibility of the board of directors, what committees are a constitutive part of the board (e.g. the audit committee, compensation committee and governance and nomination committee), who their members are, and what is discussed in these committees. As part of the annual report, the corporate governance report is public and thus subject to the critical scrutiny of diverse stakeholders. The formal objectives and scope of corporate governance reports are set out in detail in the SIX Directive. The components include group structure, shareholders, capital structure, board of directors, executive committee, compensation, shareholdings and loans, shareholders’ participation rights, changes of control and defence measures, auditors and information policy.

Going the extra mile

More fundamental, existential questions underlie the regulatory disclosure requirements: What does an organisation understand by ‘good’ governance? What is its strategy? How does this strategy influence corporate governance? How does the organisation respond to key risks? How is the organisation managed and supervised? With all this in mind it’s a good idea for the people responsible for the strategic management of the organisation to look at these questions in detail and make sure the corporate governance report provides credible answers to them. This is the only way of showing readers clearly and understandably how the company is conscientiously stewarding and developing value and resources.

Complex levels of responsibility

Responsibility for the corporate governance report lies with the board of directors. Ideally the board will lay down the structure of the content of the report; after all, this describes how the directors perceive and perform their management and oversight responsibilities. To this extent a corporate governance report is a powerful management tool that the board of directors can use to express and emphasise its credibility in terms of strategy and selecting, rewarding and overseeing management.

On the auditors’ radar

There is no regulatory requirement for the corporate governance report to be audited. Even so, reading it is one of the duties of the auditors. The PS 720 and ISA 720 auditing standards [1] that apply in Switzerland require auditors to read documents containing audited financial statements and critically note any material discrepancies between the financial statements and the other information provided in these documents. The revised International Standard of Auditing (ISA) 720 [2] of April 2015 now requires the auditors to explicitly state in their report that they did not encounter any such discrepancies. The provisions of the International Auditing and Assurance Standards Board (IAASB) are usually adopted by EXPERTsuisse in the PS auditing standards and have been declared as obligatory requirements for Switzerland by the Federal Audit Oversight Authority (RAB/FAOA).

[1] Swiss auditing standard PS 720: ‘Auditors' responsibilities in connection with other information included in documents that contain the audited accounts.’ and ISA 720: ‘The Auditor’s Responsibilities Relating to Other Information in Documents Containing Audited Financial Statements

[2] The Auditor’s Responsibilities Relating to Other Information

Top marks for Swiss companies

In recent years SIX-listed companies have made substantial progress in terms of corporate governance, evolving significantly at both a structural and formal level. Rather than publishing a bare minimum of superficial information, they are now clearly describing and explaining how the board operates. Even so, Swiss companies still have room for improvement in terms of content; for example they could be disclosing how their risk management functions and providing specific information on how risks are covered.

Objective self-image

A good corporate governance report is easy to understand and highly objective. It presents the minimum content required by the SIX Directive concisely in only a few pages.
Although risk management is not a required component of corporate governance reporting, readers must be able to see what an organisation is doing to ensure risks are detected in good time and opportunities are identified, and what incentives and measures it uses to manage both sides of the risk/opportunity equation. Producing a corporate governance report involves the fine art of self-portrayal. An organisation has to combine its subjective knowledge of the true value that lies within it with the objectivity its stakeholders expect. By disclosing how board members are selected, the requirements they have to meet and the experience they’re expected to bring to the table, as well as their terms of office, responsibilities and the process of self-assessment, an organisation can create the necessary transparency in its governance system and policy. This not only gives readers greater clarity, but enables them to compare different companies.

Evidence of corporate culture in action

A good corporate governance report is an attractive opportunity for companies of all sizes, from Swiss family firms to listed multinationals, and a way for them to get a holistic view of themselves (see Integrated reporting). With the entry into force of the new requirements governing the audit report, the board now has to decide what additional information it wants to disclose in the corporate governance report to be able to respond with credible information if explanations are required on the basis of key audit matters (KAMs) identified by the auditors in their report (see New audit report). Additionally, in the future the corporate governance report could well evolve into a permanent feature of integrated reporting, providing a holistic account of risk management, KAMs, sustainability, ethical behaviour, brand value and other management and compliance issues, plus details of concrete measures taken to address these matters. A corporate governance report conceived in this way would provide evidence of how far corporate culture is really lived within the organisation, by both management and staff. A large group or family firm that discloses the core value it seeks to maintain, how it does so and how it responds to abuses of this value makes compliance into a key management criterion. Interpreted this way, a corporate governance report can help close gaps between communication and reality, and between the expectations of stakeholders and the organisation’s own image of itself.


The idea of a corporate governance report is to show your stakeholders as objectively as possible how your organisation is assuring the sustained development of value – regardless of whether you’re a family firm or a large corporation. Even though the report is a review presenting a snapshot at a specific point in time, it should also give an idea of how you’re addressing the challenges of the future. Taking a somewhat more progressive and holistic view of corporate reporting, a corporate governance report becomes a powerful tool for establishing your corporate culture in the long term, communicating it clearly, and systematically managing it – in particular in times of turmoil where you’re having to negotiate complex market mechanisms under the scrutiny of the public and your competitors.

Contact us

Patrick Balkanyi

Patrick Balkanyi

Partner and Leader Swiss GAAP FER, PwC Switzerland

Tel: +41 58 792 26 76

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