When the world went into lockdown in March/ April 2020, everyone expected the worst for the economy: market crashes, sky-rocketing unemployment numbers and a wave of insolvencies. While it is safe to say that some countries struggled more than others, Switzerland weathered the crisis well, even exceeding pre-Covid-19 activity in some areas.
One of the wealthiest countries in the world, Switzerland’s GDP has been on a steady increase and almost tripled in the last 20 years. Projections also show tangible growth from 2020 to 2021, underlining the fact that the pandemic had little to no impact on the Swiss economy. This was also witnessed by Thierry Calame, who in January 2022 becomes the new managing partner of one of the leading Swiss powerhouses, Lenz & Staehelin: ‘The pandemic continued to be the largest challenge. However, thanks to the robust Swiss economy there has not been any economic downturn in 2021, but rather a significant recovery.’
Common narrative
The story of how Switzerland fared during the pandemic is a familiar one. From mid-March until May 2020, it was hit by the first wave; in this period, as dictated by the Federal Council, all non-essential shops had to close, working from home where possible was mandatory, and social gatherings were strongly limited. However, the summer saw life return to normal for Swiss residents, and the power to decide on what measures to take was handed back from the federal level to the cantons again.
‘The pandemic continued to be the largest challenge. However, thanks to the robust Swiss economy there has not been any economic downturn in 2021, but rather a significant recovery.’
Thierry Calame, Lenz & Staehelin
When the second wave hit in October 2020, the rise in Covid-19 cases and the excess mortality worried cantons; but they managed to get the situation eventually back under control without enforcing mandatory home working, for instance. The arrival of the vaccine was seen as a major boost to getting things under control, even though the initial roll-out was not seen as a success story. As of late November 2021, around 65% of the population had received both doses of the vaccine, with booster shots to follow. Switzerland was also one of the first European countries to introduce the 3G-rule – where you have to show proof you are either vaccinated, recently tested or recovered to participate in public life. With cases on the rise again and a new variant appearing, discussions about having a 2G – vaccinated or recovered – or even compulsory vaccination are circulating but the population agrees strongly on one thing: no more lockdown.
Aside from a partly liberal approach to lockdown, the reasons for Switzerland’s smooth sailing included the measures introduced by the government to assist businesses. More than CHF65bn ($71bn) was set aside at the beginning of the pandemic; a large part of it was made available as emergency loans for struggling businesses, and additional loans for the start-up scene were also handed out.
‘While sectors such as sports, events, travel and hospitality were inevitably the ones that had to take some hits, other industries that Switzerland is well known for were quickly back to thriving again.’
Another key measure to protect against the feared wave of insolvencies was the introduction of a waiving of the obligation to declare insolvency for several months. While sectors such as sports, events, travel and hospitality were inevitably the ones that had to take some hits, other industries that Switzerland is well known for – banking and finance, life sciences, technology – were quickly back to thriving again.
Covid-19: a catalyst
‘Over the last 12 months, we have seen a very strong M&A market which exceeds pre-Covid activity levels,’ says Calame. His firm was recently involved in a series of large-cap M&A transactions, often in the life sciences area, including representing Roche in the purchase of Novartis’ stake in Roche in late 2021. He credits the pandemic to some extent with having an accelerating effect on the digitalisation efforts of not only businesses but also law firms: ‘They have equally embraced remote technologies, artificial intelligence and document automation to increase the efficiency, flexibility and speed of the work. Due to the implementation of digital technologies, workflows are becoming streamlined and more efficient, which in turn enables businesses to reduce operational costs.’
This is also noted by Urs Feller, head of the dispute resolution practice at Prager Dreifuss: ‘The crisis has surely given the legal proceedings a boost into the digital age. We have noted good transitions of most parts of the economy to digital processes, as well as in courts.’
As Switzerland is a federal republic with 26 cantons as member states, the cantons are responsible for organising the cantonal courts themselves. When halfway through 2020 the power to decide the measures to counter the pandemic was largely handed back to the cantons, one of the main challenges was the discrepancy of restrictions and approaches. This has put the focus even more on Justitia 4.0, a project to digitalise the country’s entire justice system by 2026. Its main goal is to develop an exchange platform for electronic legal communications and electronic court files. It is evident that authorities, law firms and businesses alike are taking the pandemic as a learning experience to be better prepared, should another comparable crisis happen. But despite the challenges, everyone had to adapt quickly as business returned back to normal faster than some estimated. Whether it was transactional, disputes or regulatory work, after a two-to-three-month dip in Q2 2020, demand for legal support was higher than ever.
‘The crisis has surely given the legal proceedings a boost into the digital age. We have noted good transitions of most parts of the economy to digital processes, as well as in courts.’
Urs Feller, Prager Dreifuss
As one of the mid-sized full-service law firms in Switzerland, Prager Dreifuss can also look back on two busy years. Says Feller: ‘We have been able to continue this positive trend. All teams have had a successful year with complex and demanding work across all practice areas, in particular in dispute resolution, cross-border financing and insurance law.’
While digitalisation of the legal profession has been fast-tracked in the last couple years in Switzerland, another topic that has been around for some time also received renewed attention: ESG (environmental, social and corporate governance). With companies, investors and consumers all emphasising the importance of ESG best practice, law firms have witnessed a wave of interest from clients on how best to integrate this into their businesses.
One of the main challenges for counsel and clients alike is the fact that Switzerland, like many other jurisdictions, doesn’t have a unified code of conduct. Since it signed the Paris Agreement in 2017, there has been a wave of public and private sector initiatives: the monitoring of climate-related financial risks by the Swiss Financial Market Supervisory Authority (FINMA); transparency obligations for resources extraction companies; a gender equality corporate law reform; and support for sustainable finance by industry groups. According to Nicolas Piérard, who is a partner in the finance and corporate practices at Borel & Barbey: ‘The demand for ESG financial products and services from investors and clients has grown significantly in recent years. In this context, early November, FINMA issued guidance on preventing and combating greenwashing to ensure that investors are not deceived regarding the alleged sustainability of products and financial services.’
However, at this point there is very little sign of enforcement of the initiatives; the track record of FINMA opening investigations or proceedings is limited, as is related litigation. The pressure on businesses comes primarily from investors and consumers at the moment.
At the forefront
‘Switzerland continues to see an increase in the volume of investments in private equity and venture capital structures. After the uncertainty created by the pandemic, M&A deals started to pick up at the end of 2020, in particular in the information and communications technology and biotech sectors,’ says Piérard. His firm Borel & Barbey has been active in Geneva since 1907 and, according to him, ‘general corporate, private equity investments, financial services, construction and real estate, and employment disputes were among the busiest areas in the last year.’
Thanks to its diversified market, Switzerland is an attractive place to look for opportunities for a variety of PE funds. Lately, particularly attractive targets have been Swiss SMEs in the industrial, TMT and consumer goods sectors, and the majority of investors are from Europe. Switzerland’s traditionally flourishing start-up scene also survived the pandemic without a hit. In 2019 and 2020, investment into Swiss start-ups totalled just over CHF2bn ($2.2bn) on an annual basis for the first time. By July 2021, this amount had already been raised. The high activity in this space is only enhanced by Switzerland ranking number one in the Global Innovation Index, a spot it held for more than ten years.
Another hurdle for the Swiss market is its relationship with the EU, with only a number of bilateral agreements defining the rules of play between the parties. For the past 13 years, there have been on-and-off efforts to reach an overarching agreement, so it came as a shock when Switzerland withdrew from negotiations completely in May 2021. Bern cited the EU’s state aid rules as a particular reason for its withdrawal, as well as issues around freedom of movement.
‘Switzerland continues to see an increase in the volume of investments in private equity and venture capital structures.’
Nicolas Piérard, Borel & Barbey
Calame reports: ‘Switzerland’s withdrawal is currently causing challenges ranging from regulatory certification hurdles for the medical device sector to a reduction in electricity security and severe limitation of opportunities for Swiss researchers to participate in Horizon Europe, the EU’s most ambitious framework programme for research and innovation ever.’
Negotiations were picked up again in November 2021, with the EU requesting that Switzerland propose a timetable on how a framework agreement can be reached. The main agenda is to find an alignment of Swiss and evolving EU laws, a mechanism to settle disputes, and regular contributions to EU funds. A significant disbursement of cohesion funds, given the green light by the Swiss parliament in Q3 2021, was taken as a sign of goodwill, but there is still a long way to go. ‘Notwithstanding this, we are confident that Switzerland and the EU will find a pragmatic way forward to continue the successful partnership and economic relations,’ says Calame.
Place to be
Regardless of its quarrels with the EU, Switzerland has always been seen as a favoured place to settle down for various reasons. Since the beginning of the pandemic, governments around the world have paid out trillions of dollars in their efforts to combat the crisis, which will ultimately result in a rise in taxes. Currently, Switzerland is only one of four countries to adopt a recurring annual wealth tax, which offers HNWIs and UHNWIs much-required certainty. Fabian Teichmann, managing partner at Teichmann International, says: ‘We have experienced an increasing demand for relocations to Switzerland among private clients.’ Beyond the tax situation, wealthy private clients also famously value the Swiss lifestyle and its education system but, according to Teichmann: ‘Switzerland’s key advantage continues to be its unparalleled stability. While compliance practices may be a bit more demanding in Switzerland compared to other jurisdictions, clients continue to appreciate the high level of security.’ That is also mirrored in the real estate market: prices for prime locations in Zürich and Geneva as well as for larger, rural homes have not dropped since the pandemic began.
‘Prices for prime locations in Zürich and Geneva as well as for larger, rural homes have not dropped since the pandemic began.’
However, despite the obvious attractions of Switzerland to wealthy private individuals and international businesses, apart from a few exceptions, the market is traditionally dominated by independent full-service law firms and boutiques. And there are different reasons for that: ‘Considering Switzerland’s various specificities, including four official languages spoken in different regions of the country, independent firms build better connections with local business or regulators through their day-to-day activities and contacts,’ says Piérard.
Feller echoes that sentiment: ‘As an independent law firm, we encounter significantly less conflict-of-interest situations as firms forming part of global networks. The current form of co-operation with the London Magic Circle firms or other major law firms around the world seems to meet their expectations and is also much welcomed in domestic matters.’ Teichmann agrees, as he sees his clients appreciate that ‘being independent guarantees efficient chains of command.’
‘While compliance practices may be a bit more demanding in Switzerland, clients continue to appreciate the high level of security.’
Fabian Teichmann, Teichmann International
Calame concludes: ‘Independent firms in Switzerland typically possess a strong base of local clients with international operations. This gives them to some extent direct access to global markets without having to rely on cross-border networks to generate business.’
There is little sign of anything on the horizon to upset the status quo for law firms dominating the Swiss legal market. Not even Covid. And given the success enjoyed by a flourishing independent legal market thus far, why would disruption be welcome? LB
L500 EMEA 2021 – Switzerland top-tier rankings
Banking and finance: Geneva
Firm
Lenz & Staehelin
Schellenberg Wittmer
Banking and finance: Zurich
Firm
Bär & Karrer
Homburger
Lenz & Staehelin
Niederer Kraft Frey
Commercial, corporate and M&A
Firm
Bär & Karrer
Homburger
Lenz & Staehelin
Niederer Kraft Frey
Dispute resolution: Arbitration
Firm
Bär & Karrer
Homburger
LALIVE
Lenz & Staehelin
Pestalozzi
Schellenberg Wittmer
Dispute resolution: Litigation
Firm
Bär & Karrer
Homburger
Lenz & Staehelin
Niederer Kraft Frey
Pestalozzi
Schellenberg Wittmer
Fintech
Firm
Bär & Karrer
Kellerhals Carrard
Meyerlustenberger Lachenal
MME Legal | Tax | Compliance
Niederer Kraft Frey
Healthcare and life sciences
Firm
Bär & Karrer
CMS
Homburger
VISCHER