When Governance Ends through Inaction
Boards of Directors face a structural tension regarding mandate duration. While legal requirements clearly define the role of the general meeting and term limits, in practice these rules are not always consistently applied, leading to uncertainty and de facto extensions. The Federal Supreme Court decision clarifies that governance cannot be prolonged through inaction and that the general meeting must actively exercise its authority. Effective governance depends on clear accountability and functioning institutional processes, not on habit.
Background
This decision BGE 148 III 69 (4A_496/2021) forms part of a series of rulings (4A_387/2023, 4A_429/2023 and 4A_508/2023) addressing the duration of board mandates in light of statutory requirements and corporate practice.
The case concerns a company whose board members were elected for a one-year term, ending at the next annual general meeting. Under Art. 699 para. 2 CO, such a meeting must be held within six months after the end of the financial year. In the present case, however, no general meeting took place for several years.
Against this background, the central issue was whether the board members elected in 2019 remained in office or whether their mandate had already expired. Specifically, the question arose whether a board mandate can be implicitly extended in the absence of a general meeting, or whether it necessarily lapses after the statutory deadline.
Court Decision
The Federal Supreme Court addressed differing doctrinal views on the duration of board mandates. While some argue that mandates continue until the next general meeting, others support a strict temporal limitation.
The Court relied on a core governance principle: the election of the board is a non-transferable right of the general meeting. This competence must not be undermined by inaction. Allowing the board to extend its mandate by not convening a general meeting would impair shareholders’ rights.
Accordingly, the Court held that the board’s mandate expires no later than six months after the end of the financial year if no general meeting is held or if the election is not on the agenda. An implicit extension is excluded.
Implications
The decision confirms that corporate governance is based on formal legitimacy rather than practice. It reinforces the role of the general meeting and limits informal extensions of board mandates.
Failure to hold the general meeting in time under Art. 699 para. 2 CO may lead to an organizational deficiency within the meaning of Art. 731b CO if no valid board remains.
The decision also shows that the term of office is strictly tied to the statutory framework—particularly Art. 699 para. 2 CO—and that governance reaches its limits where key processes are not observed. Compliance with deadlines and procedures is essential for the company’s legitimacy and proper functioning.
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