Board composition & evaluation

Board size

The average number of directors on an SMI board is 10.2 members, down from the 10.7 recorded in our 2022 survey. The average among SMI Mid boards is stable, at 8.3 directors. Taken together on the SMI Expanded, this gives an overall average board size of nine.

The smallest board in our sample is again found at EMS-Chemie, 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. Both boards remain unchanged since last year.

The roles of chair and chief executive

Seven CEOs currently serve as board directors, two fewer than observed in our 2022 review. Four of the seven are found at SMI companies and three at SMI Mid companies.

In the main, a clear separation between the role of CEO and chair prevails, in line with the Swiss Code of Best Practice for Corporate Governance. However, Schindler, a member of the SMI Mid, combines the roles of chair and CEO and EMS-Chemie in the SMI Mid combines the roles of vice chair and CEO. In the period under review, the CEO of the SMI company Holcim was elected to the chair position. It is noteworthy that the company made it clear that a CEO successor would be announced within the next 12 months and that the roles were only to be combined for a limited duration.

Executive chairs are seen at two SMI boards and three SMI Mid boards:

• Compagnie Financiere Richemont SA
• Partners Group Holding AG
• Dufry AG
• Lindt & Spruengli AG
• Schindler Holding AG

Independence

92% of board directors (NEDS) of SMI Expanded companies in Switzerland are deemed independent. Among chairs, the proportion deemed independent is 79%.

Also see the section “Background of chairs”, which explores more fully chairs’ previous affiliations with their companies.

Proportion of independent board directors in Europe

	%
UK	94%
Switzerland	87%
Italy	67%
Nordics	56%
France	55%
Germany	53%

The proportion of independent board directors in Switzerland is among the highest in Europe, at 92%, a share slightly above that recorded in the UK (FTSE 150), which represents the largest European market.

However, criteria for independence vary between geographies. The Swiss Code of Best Practice for Corporate Governance (§14) recommends that directors should “have no or comparatively minor business relations with the company”. This allows directors to be remunerated in shares. This practice is widespread in Switzerland but would conflict with the requirements for independence applied in Germany or the UK, for example.

In the US, most S&P 500 boards provide stock grants to NEDs in addition to a cash retainer, and only 7% of boards grant stock options to directors, compared with 20% a decade ago. However, 93% of US boards disclose having share ownership guidelines that typically require directors to acquire 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.

Similarly, whereas in the UK board members who have served tenures of more than nine years from the date of their first appointment would generally no longer be considered as independent according to the UK Corporate Governance Code 2018 (Section 2, Provision 10), in Switzerland, tenure and independence are not typically linked (see also section ‘Length of service’).

Age of directors

	SMI Expanded	SMI	SMI Mid
Average age of non-executive directors	59.5	59.6	59.5
Average age of chairs	64.7	64.1	65.2

The average age of SMI and SMI Mid non-executive directors (excluding chairs) is 59.6, unchanged from 2022.

Chairs in the SMI have an average age of 64.1 years, making them slightly younger than their SMI Mid counterparts, whose average age is 65.2. The average age of chairs across the SMI Expanded is 64.7.

New directors

The overall rate of board refreshment across the SMI Expanded was a stable 12% in 2023 — that is, 11% among SMI boards and 12% among SMI Mid boards, unchanged from 2022.

In total, 49 new non-executive directors (four fewer less than last year) were appointed in the 12 months to 31May 2023.

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; among SMI Mid boards their average age is 54.9.

There is a noticeable age difference between newly appointed male and female directors. The average for new male directors is 59.7 years, compared with 55.1 for their female counterparts.

Swiss dual-national directors are classified as Swiss in some cases and as foreign in others, so we have opted once more to examine this group separately.

Nationalities of newly appointed directors

	Swiss	Swiss & Foreign	Foreign
SMI	40%	5%	55%
SMI Mid	39%	3%	58%
SMI Expanded	40%	4%	57%

Gender of newly appointed directors

	Male	Female
SMI	50%	50%
SMI Mid	55%	45%
SMI Expanded	53%	47%

Board renewal: departures and first-time directors

Both SMI and SMI Mid companies are willing to appoint directors without prior board experience.

Half of the 20 new directors appointed by SMI companies during the period under review were first-time directors, with no prior experience on a publicly listed board. SMI Mid companies appointed 29 new directors, of whom 11 (38%) were first-time directors.

Men accounted for 54% of first-time directors across SMI Expanded companies. However, they also accounted for 74% of the departures. Thus, although a minority (46%) of the new appointees are women, the overall refreshment rate of women in the boardroom continues to climb.

First-time directors joined at a higher average age than the cohort of directors who recently left the boards of SMI Expanded companies. First-time board members are on average 57.2 years old, and have served an average of 0.35 years (i.e., those who joined after the 31 May 2022 research cut-off date for our 2022 Board Index).

The average age of members departing from current SMI Expanded boards was 63.3 years; their average length of service was 8.44 years.

Nationality

	Swiss	Swiss & Foreign	Foreign
Board members leaving	11	1	30
First-time board members	12	2	12

Gender, age and tenure

	Male	Female	Age (years)	Tenure (years)
Board members leaving	31	11	63.3	8.44
First-time board members	14	12	57.2	0.35

The background of chairs

Given the outstanding importance of the chair position, boards put particular emphasis on getting succession right, which in many cases translates into an approach that aims to reduce the risk of getting it wrong. Boards prioritise candidates who bring a range of experience, to ensure they come as close as possible to what will be expected of them as chair.

Our analysis of the backgrounds of SMI Expanded chairs at the time of their appointment confirms that, as seen in our 2022 Board Index, most boards selected a chair who had previously served on the board of a listed company (80% of SMI chairs and 66.7% of SMI Mid chairs).

A majority of SMI Expanded companies opted to appoint one of their own NEDs to chair (55% of SMI and 66.7% of SMI Mid chairs). An NED may join a board as chair-designate in order to familiarise them with the company, prior to their stepping up to the chair role. Alternatively, an NED may have been identified as a candidate for the chair position after they joined the board.

 A sizable portion of SMI Expanded chairs have prior public company experience as chair or CEO. 25% of current SMI and 37% of SMI Mid have prior board chair experience. 35% of SMI and 22% of SMI Mid have previously served as a CEO.

A common path to the chair role remains the appointment of the former CEO, as shown in our table above. 40% of SMI and 26% of SMI Mid chairs were previously CEO of the same company. 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, however, we note that companies do not pursue universally the following Code recommendations: “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.”

Length of service

Switzerland operates less restrictive limits on director tenure than most other European countries. Nevertheless, the average tenure of board members at SMI Expanded companies is roughly on a par with many other European indices:

Tenure

Index	Tenure (years)
SMI Expanded	6.4
SMI	6.1
SMI Mid	6.7
UK	4.2
France	5.5
Italy	6.7

More striking is the demographic distribution by tenure of SMI Expanded boards. The group of directors who have served for more than the average are predominantly male, another reminder that gender diversification on boards is still a relatively recent development. As the graph illustrates, an equilibrium can only be reached over time in the more tenured groups (see below).

Term limits

We continue to note a sharp difference between SMI and SMI Mid when it comes to term and age limits. 75% of SMI companies have instituted formal tenure and age limits, compared with 48% of SMI Mid companies. SMI companies more actively formalise measures to manage board succession and rejuvenation, in particular by implementing age and term limits. 25% of SMI boards maintain an age limit, 25% a term limit, 25% both an age and a term limit.

The majority of SMI Mid boards (52%) do not apply formal limits on tenure; among those that do, a preference for age rather than tenure limits is apparent.

Overboarding

Proxies and institutional investors are increasingly scrutinising chairs and directors with external board mandates. Their principal concern is to guard against directors over-committing across multiple sets of responsibilities, and in the process compromising their effectiveness as board members. Most proxies adopt a point system, which in its simplified form counts:

Non-executive directors	1 point
Chair	2 points
Sitting executives	3 points

Applying this methodology, we analysed the commitments of board members of SMI Expanded companies and found that the overwhelming majority was below the six-point threshold at which proxies consider a person overboarded.

We also noted an interesting variation between genders (see graph below). On the one hand, female non-executive directors were disproportionately more frequently at capacity than their male counterparts. On the other hand, female board members found themselves also more often on just one board than their male colleagues.

Both observations are in line with expectations — established female NEDs are in particularly high demand while, in tandem, increased efforts to improve gender diversity have prompted a steady influx of a new generation of women directors who are still in the process of composing the rest of their board portfolios. Interestingly, however, no women were found among the group of NEDs that qualify as “overboarded”.

CEOs and executive committees

Analysis of our data showed that the majority of CEOs leading SMI Expanded companies were internal promotions (68%), compared with 32% hired externally.

Of those promoted internally, 59% had previously served in profit and loss (P&L) roles where they led substantial internal organisations. 34% of the promotions were from C-suite roles, most frequently CFO and COO positions. We noted one example of an NED promoted to the CEO role.

Those who were hired externally had served as CEOs, divisional CEOs, or board directors of external companies prior to their appointment.

Board evaluation, skill matrices, and composition

Thirty-five companies (74%) disclosed their approach to board evaluation in their annual corporate governance report or annual report: Thirty-three of these underwent an internal review during the fiscal year examined; only two companies underwent an external review. Twelve companies (26%) did not report having undergone any form of board evaluation during the period. More SMI companies (95%) commission board evaluations than among SMI Mid companies (59%).

External board evaluations are increasingly common across Europe. French companies had the highest proportion of externally facilitated reviews in 2023 (60%), followed by the UK (41%) and Italy (38%). In many countries, the governance code recommends that the board undergoes an externally facilitated board evaluation at least every three years.

Evaluation

	SMI	SMI Mid
External board evaluation	1	1
Internal evaluation	18	15
Not disclosed	1	11

The content of internally-led board evaluations can significantly differ among companies. Similarly, external board evaluations can range from detailed studies on board effectiveness to purely descriptive statements about board composition and skill matrices. The most sophisticated evaluations will analyse the board's operation and setup in light of the company’s strategic priorities (see also ‘Measuring board effectiveness’).

An analysis of the board’s composition presents the basis for any form of board evaluation. We’ve therefore analysed further how board composition is set out. Once more, we observed a sharp difference between the approaches taken by SMI and SMI Mid companies, as published in the relevant annual or governance reports. Among the SMI, 40% recorded a “skills matrix” for their boards, i.e. a breakdown of which board member contributes which area of expertise. 25% preferred to present the board’s aggregate skill set, without attributing specific skills to individual directors. 30% of the SMI companies did not disclose any detail relating to a board’s aggregate or individual skills matrix.

Among the SMI Mid, more than 55% of boards disclosed no information relating to aggregate or individual skillsets at their disposal.