Director Duties under Swiss Law

The duties owed by directors of a Swiss stock corporation to the company are codified in a single, deceptively simple provision — Art. 717 of the Swiss Code of Obligations — and elaborated through the case law of the Swiss Federal Supreme Court, the structure of the surrounding articles of the Code, and the commentary of generations of Swiss scholars. This article states the standard, its practical content, and the implications for a board that takes its duties seriously.

1. The statutory standard

Art. 717 OR reads, in its two paragraphs, as follows:

The members of the board of directors and third parties entrusted with managing the company shall perform their duties with all due diligence and shall safeguard the interests of the company in good faith.
They shall treat the shareholders equally to the extent that the circumstances so require.

Three things follow from the text. First, the duties attach not only to formally appointed directors but to any person entrusted with managing the company, including executive officers and, under the Swiss Federal Supreme Court’s settled doctrine, persons who perform management functions without formal appointment (the de facto director, or faktisches Organ). Second, the duty of diligence and the duty of loyalty are stated together but constitute distinct obligations that operate on different axes: diligence is about the quality of performance, loyalty about its direction. Third, the beneficiary of the duty is the company itself; the equal-treatment duty in para. 2 governs the board’s relationship with shareholders but does not reorient the primary obligation.

Art. 717 does not stand alone. It is read alongside Art. 716a OR, which enumerates seven non-delegable duties of the board; Art. 716b OR, which permits the board to delegate management subject to the company’s articles and organisational regulations; and Art. 754–760 OR, which define the civil consequences of breach. Together these provisions form the skeleton of Swiss director duty. Art. 717 supplies the standard; Art. 716a the floor; Art. 754 the consequence.

2. The duty of diligence

The diligence owed under Art. 717 is the care that a reasonably diligent director would apply in comparable circumstances — an elastic standard whose content is informed by the company’s size, sector, financial position, and the complexity and urgency of the decision at hand. It is not a counsel-of-perfection standard: a director is not liable because, with hindsight, a better decision could have been identified. It is the conduct of the director at the moment of decision that is measured, not the outcome that followed.

The Swiss Federal Supreme Court has progressively articulated a doctrine that, in its practical effect, resembles the common-law business-judgment rule without precisely replicating it. The Court gives meaningful deference to decisions that are (a) taken within the director’s competence, (b) made on the basis of adequate information, (c) free of conflict of interest, and (d) oriented toward the company’s interest. When those conditions are met, courts are reluctant to second-guess the substantive merits of the decision. When they are not met — where the director acted without adequate information, ignored a manifest conflict, or pursued extraneous interests — the deference falls away and the court reviews the conduct directly. The leading modern formulation is BGE 139 III 24 (2012), with the information-sufficiency limb developed in its progeny.

The practical import is that the duty of diligence is primarily procedural rather than substantive. A board protects itself not by reaching the correct answer — which can rarely be established in advance — but by asking the right questions, securing adequate information, considering the material alternatives, and recording the reasoning contemporaneously. Swiss courts reviewing director conduct look first at process; substantive merits enter only when the process is found wanting.

3. The duty of loyalty

The duty of loyalty commands that directors act in the company’s interest in good faith. Its core applications are four.

Conflicts of interest. A director with a personal interest in a matter must disclose the conflict and, depending on its nature, recuse from the deliberation. Since the 2023 revision the rule is codified at Art. 717a OR: members of the board and of the executive management must inform the board without delay and completely about conflicts that concern them, and the board must take the measures necessary to safeguard the company’s interest. The governing principle is that the director owes undivided loyalty to the company; divided loyalty is, as a matter of Swiss doctrine, no loyalty at all. Procedural safeguards — disclosure, recusal, engagement of independent advice — are how divided loyalties are managed where they cannot be eliminated.

Transactions with the company. A director entering into a contract with the company must ensure arm’s-length terms and adequate procedural protection. Swiss law does not categorically prohibit such transactions, but the director cannot act for both sides of the transaction; the company must be represented independently, and the board must be in a position to ratify the terms on informed grounds.

Corporate opportunities. A director may not take for themselves, or divert to a third party, a business opportunity that belongs to the company. What constitutes a corporate opportunity is a contextual question turning on the company’s scope of activity, the circumstances in which the opportunity came to the director, and whether the company is in a position to pursue it.

Primary beneficiary. The duty of loyalty runs to the company, not to any particular shareholder — not even a controlling one. A director instructed by a majority shareholder to act against the company’s interest is not relieved of the duty by that instruction. This matters in two recurring situations: in shareholder-appointed boards of wholly or majority-owned subsidiaries, and in close companies where controlling shareholders issue informal instructions. The Swiss rule is that the instruction does not displace the duty.

Art. 717 al. 2 adds a separate strand: directors must treat shareholders equally to the extent the circumstances so require. This is not absolute; it permits differentiated treatment where justified (by class, by structural role, by contractual arrangement), but it prohibits arbitrary favouritism of one shareholder group over another.

4. Delegation and oversight

Swiss corporate law strikes a deliberate balance between a board that manages and a board that oversees. Art. 716a OR reserves to the board, without possibility of delegation, a defined set of duties: overall management and the issuing of instructions; determining the organisation; shaping accounting, financial controls, and financial planning; appointing and dismissing senior management; overall supervision of management, including compliance with law and the articles; preparing the business report, convening the general meeting, and implementing its resolutions; filing for moratorium and notifying the court in the event of over-indebtedness; and — for listed companies, since the 2023 revision — preparing the compensation report (Art. 716a Ziff. 8 OR).

Art. 716b OR permits the board to delegate day-to-day management subject to two conditions: authorisation in the articles of association, and a written set of organisational regulations that allocate responsibilities. The regulations are the primary governance document in any Swiss company of meaningful size: they define who decides what, who reports to whom, and where the board retains competence. In the liability case-law, their content is frequently decisive.

Delegation, however, never relieves the board of its supervisory obligation — the cura in custodiendo that runs alongside the non-delegable duties of Art. 716a. A board that delegates competently chosen, adequately instructed, and appropriately supervised management has discharged its duty of care; a board that delegates and then stops looking has not. The Swiss Federal Supreme Court has held directors liable for failures of oversight even where the operational misconduct was by management, not the board, when the board failed to establish or follow through on the supervisory structures Art. 716a requires. BGE 113 II 52 (1987) and its progeny remain the anchor for duty-of-care liability arising from supervisory failure; Art. 716a, introduced in the 1991 company-law reform and in force from 1 July 1992, now supplies the structural frame of non-delegable duties the later case-law continues to interpret.

5. Consequences of breach

Civil liability for breach of director duty is governed by Art. 754–760 OR. The elements are those familiar from Swiss tort doctrine adapted to the corporate context: breach of duty, damage, causation, and fault (negligence or intent). The burden of proof is ordinarily on the claimant, although the Swiss Federal Supreme Court has in some circumstances eased the burden where information asymmetries favour the defendant.

Standing to bring the liability action depends on the company’s status. The company itself may sue, and frequently does once board composition has changed. Individual shareholders may bring the action on the company’s behalf (the claim accrues to the company). In bankruptcy, the bankruptcy administration and — under conditions set by Art. 757 OR — individual creditors acquire standing. The statute of limitations was reformed by the 2020 stock-corporation act (in force 1 January 2023): Art. 760 OR now provides a relative period of three years from knowledge of the damage and of the liable person, and an absolute period of ten years from the harmful conduct. The limitation is suspended for the duration of a special-investigation procedure. Where the harmful conduct also constitutes a criminal offence, the longer criminal-prescription period applies.

The shareholders' resolution of discharge (Entlastung) binds the company and those shareholders who voted in favour, subject to important carve-outs: it does not bind the company once bankruptcy proceedings open, and it does not bind dissenting or absent shareholders. Its practical effect is narrower than it is sometimes assumed to be; a board that relies on annual discharge as a liability release is relying on a partial shield.

Criminal liability can attach in parallel. Intentional breaches of fiduciary duty may engage Art. 158 StGB (unfaithful management); insolvency-related offences (Art. 163 ff. StGB) may attach in distressed situations; sector-specific provisions (financial services, competition) add further layers. Civil and criminal tracks proceed independently but often together.

6. What this means for boards

The doctrine, in its settled state, produces a practical agenda that is less onerous than it sometimes appears.

Meeting practice. Genuine deliberation is the structural condition on which the business-judgment deference rests. A board that rubber-stamps management proposals without substantive discussion surrenders the procedural protection the doctrine offers. Reasonable preparation time before decisions, opportunity for questions, and actual exchange among members are not procedural niceties — they are the content of the duty.

Information quality. Directors are entitled to, and obliged to seek, information adequate to the decision. Where briefing papers are thin, where management’s answers to questions are evasive, where critical data are withheld, the diligent director does not proceed; they push back, ask for more, defer. Swiss courts reviewing liability have repeatedly emphasised the director’s active obligation in this regard: information does not merely flow to the board; the board draws it.

Minutes. The minutes are the primary documentary evidence in any subsequent liability case. They should reflect the deliberation that actually took place, not a sanitised summary of the conclusion. Dissent — when expressed — should be recorded expressly; silence is ordinarily taken as concurrence. Where the board consults external advice, the fact, source, and substance of the advice should appear in the record.

External advice. Where the board lacks the technical competence a decision requires — legal, financial, industrial — the diligent board obtains external advice. Reliance on that advice will ordinarily discharge the duty of care, provided the advisor is suitably qualified, independent of interested parties, adequately instructed, and the advice is given due weight. Advice that is procured to ratify a conclusion already reached does not protect; advice taken seriously does.

Decisions under uncertainty. The difficult cases are those where the right answer is genuinely unclear at the moment of decision. Here the discipline is to document: the alternatives considered, the factors weighed, the risks identified, the reasons the chosen course was preferred. The Swiss courts do not require the right answer; they require a defensible process.

Escalation. The individual director who identifies a serious concern — a potential illegality, a looming insolvency, an unresolved conflict — must escalate. Silence in the face of known risk is the paradigmatic breach. Formal dissent recorded in the minutes is the minimum; persistent escalation, up to and including resignation where the concern cannot be addressed, is sometimes the duty.