Switzerland is often singled out as the prime model for a stable economy – apart from a temporary blip in 2009 following the global economic crisis, GDP growth has moved consistently upwards. The country’s strong employment figures and national debt position have only underlined its positive reputation even more. But when Covid-19 hit, not even Switzerland could roll with all the punches it had to take, and continue growing.
That said, at the end of 2020 the economic activity was only 2% below its pre-crisis level – a strong bounceback, especially compared to other European countries. While Switzerland remains locked down for the first quarter of 2021, the prognosis for the year ahead looks promising.
But economic performance aside, Switzerland’s pristine copybook was blotted in its handling of the Covid-19 crisis. The country’s handling of the first wave was received positively and proved effective; after it introduced a nationwide partial lockdown in mid-March 2020, infection and mortality rates fell quickly. The country was re-opened in May and the Swiss could enjoy a summer with few worries, with case numbers being close to zero at times. However, the second wave then hit hard: infection levels spiked with high speed from late August on, leading to hospitals getting close to being overwhelmed in late autumn.
‘Many small employers are under financial distress but so far the provided state aid has prevented a wave of insolvencies.’
Stefan Breitenstein, Lenz & Staehelin
As it was down to the 26 individual cantons to introduce their own restrictions, these were often inconsistent and confusing – for example, Switzerland’s decision to allow ski resorts to remain open was highly controversial, especially since neighbours France and Germany decided against it. As of March 2021 Switzerland, which has a population of close to 8.5 million, had more than 9,300 deaths – one of the highest per capita rates in Europe. Even though Switzerland was quick to approve two vaccines at the beginning of the year, the government seemed to have not ordered enough batches to meet its first targets. The rollout was also widely criticised as disorganised and slow.
To assist and save struggling businesses, the government developed a twofold package, the so-called ‘corona loans’. It introduced ‘Covid-lite’ loans with a principal amount of up to CHF500,000 (€462,000), available to all Swiss companies that did not turn over more than CHF500m in the previous year and ‘Covid-plus’ loans, with a principal amount of up to CHF20m (€18.5m). The application process was praised for being straightforward as the company in question simply had to submit an online declaration to a participating Swiss bank. The government initially set the bridge loan programme to be at CHF20bn but later increased it to CHF40bn.
In addition, the Swiss Federal Council enacted the Covid-19 insolvency ordinance from April to October, which took away the obligation on companies to report excessive debts within that timeframe, causing the level of bankruptcies to be only slightly above trend. While there is no certainty that some bankruptcies have only been delayed by the programmes, they have at least prevented the worst for the time being. The Swiss government also quickly moved to introduce and ultimately extend measures to protect the country’s workforce through its €14bn furlough scheme, which was lauded on an international as well as on a national level. Throughout the year, almost two million people made use of this scheme. This meant that even when shops, restaurants and leisure facilities were closed for much of the first year of the pandemic, the unemployment rate did not spike. While it was at a ten year high of 3.7% in January 2021, this is still a moderate rate compared to many other countries.
The new normal
The response from the legal sector with regards to measures taken by the government to save the economy have been positive. Stefan Breitenstein, managing partner of Lenz & Staehelin, says: ‘In lockdown 1.0, everyone seemed very pessimistic but the market was very robust overall. Many small employers are under financial distress but so far the provided state aid has prevented a wave of insolvencies.’
His firm can look back on a strong 2020, with increases in revenue, profit, and headcount. It remained busy throughout the year as well, taking a lead role in several multibillion-euro transactions, including acting as lead counsel to Sunrise Communication Group in Liberty Global’s acquisition of all its shares for CHF6.8bn (€6.2m) which Breitenstein says showcased Lenz & Staehelin’s strength across different practice groups. He doesn’t expect a decrease in new instructions either: ‘Clients keep looking for high-quality services across all sectors. Despite the lockdown, we remain accessible, flexible and agile – that is the strategy.’
‘In these times of uncertainty, more than ever, clients look for a trusted adviser and an efficient person they can have direct contact with.’
Caroline Clemetson, Schellenberg Wittmer
The expectation from clients that their lawyers step up their game has also been witnessed by Caroline Clemetson, a member of Schellenberg Wittmer’s management committee: ‘In these times of uncertainty, more than ever, they look for a trusted adviser and an efficient person they can have direct contact with. Clients also expect you to be more reactive as they know you are not travelling.’
Clemetson even goes so far as describing 2020 as ‘fantastic’ when it comes to the performance of the firm, praising the flexibility and foresight of its people. ‘Thanks to our office in Singapore, we saw the lockdown coming and we shifted everyone to remote working right away. Therefore, we got business done without any interruptions,’ she says. Standout matters include advising the Russian anti-doping agency in an international arbitration and assisting Swiss private investors in the acquisition of retailer Conforama.
Senior partner and chair of the board of directors at Bär & Karrer, Daniel Hochstrasser, gives a similar view: ‘Covid-19 has not had, so far, a profound negative effect on the Swiss economy.’ With high activity in the industrial, manufacturing and financial services sectors, Bär & Karrer can look back on a successful 2020 overall.
‘The effects were certainly less pronounced than we anticipated when we drew up contingency plans in March,’ says Hochstrasser. ‘In the end, we fortunately didn’t have to take any of the measures we had contemplated.’ A highlight for the firm was advising Libra Association on its bid to build a global payment system based on the Libra blockchain; a matter that combined expertise from its banking and finance, fintech and tax departments. But, he adds, one thing is for certain: ‘The way people work has probably changed forever.’
Novel territory
In the year leading up to the Covid-19 pandemic, companies based in international hubs in Europe had started to introduce the possibility of working from home on certain days of the week. However, in Switzerland, where it is fair to say that a more traditional approach prevails in certain aspects of the life, this idea was relatively unpopular – the firms Legal Business spoke to agreed that the idea of home working was historically uncommon and sometimes even frowned upon.
A federal supreme court ruling in 2019 held that if an employee is required to work from home, the company must pay a share of their rent. This decision certainly did not take a significant increase of people having to shift to permanent home offices into account. However, this forced development has brought an opportunity – management figures at Switzerland’s leading law firms say they have not seen a drop in productivity and that their more junior staff in particular have welcomed the flexibility home working has offered. The coronavirus removed the stigma of working from home quickly and all at once and it may also present a solution to a problem that has been a sore one for the country: gender equality. Switzerland has long lagged behind, with women only making up about a third of senior or management positions; a number that has barely changed over the last ten years. The increased and unstigmatised flexibility over when and where people may work could present an opportunity for women to combine career and motherhood in the future.
‘Covid-19 has not had, so far, a profound negative effect on the Swiss economy.’
Daniel Hochstrasser, Bär & Karrer
Another blessing in disguise turned out to be the speed in which technology had to be embraced in the wake of the pandemic. ‘A functioning home office was successfully created within weeks,’ says Christian Oetiker, who became managing partner at Vischer at the start of this year. ‘I am certain it will increase the flexibility of the workforce tremendously.’ He goes on to praise the efforts of his team: ‘For us lawyers and all our staff, it was certainly an intensive year, especially from a workload point of view. With our stronghold in the healthcare and energy sector, we see a lot of activity unaffected by Covid-19.’
Vischer opened an office in Geneva in September 2019 – adding to its existing locations in Zürich and Basel – and was recently active for NBE-Therapeutics in its sale to Boehringer Ingelheim for €1.18bn. ‘Despite the crisis, there are still significant transactions going on,’ adds Oetiker.
The solid dealflow and anticipated economic recovery is also why Beat Brechbühl, managing partner at Kellerhals Carrard, has no concerns for the future for independent law firms in the market. ‘It is too small for the very big international law firms. I could, however, imagine there to be more consolidation between Swiss firms in the future.’
A prominent tie-up is already in the pipeline: full-service law firms Meyerlustenberger Lachenal and Froriep have announced their merger, which will take place this summer. The new firm will focus on the hi-tech, innovative and regulated sectors, and will comprise 155 lawyers in four Swiss locations as well as offices in Madrid and London.
The country’s legal market has historically been dominated by independent full- service business law firms as well as local boutiques. The only exceptions are Baker McKenzie and CMS, which have managed to establish themselves over the years. Quinn Emanuel Urquhart & Sullivan also has a competitive offering, which is limited to its specialism in disputes and investigations.
Brechbühl is happy with his firm’s performance, particularly as it was instructed in a Swiss-wide procurement project originating from the crisis. It is acting for four government-accredited loan guarantee organisations responsible for the Covid bridging loans to uncover possible credit abuses, persecute possible fraudsters and recover the unlawfully obtained loans for the next seven years. He expects that ‘some companies might use this crisis as a reset button in order to strategically adapt and rebrand. Furthermore, clients have become more budget – and liquidity – conscious.’
This is a trend that is also observed by Christoph Lang, chair of Pestalozzi: ‘Large corporations already implemented e-billing systems before Covid-19 to try to keep fees down. This might be amplified through the pandemic.’ He and Laurent Killias – the firm’s arbitration practice head – are clear on the reasons why the country has navigated the crisis fairly smoothly: ‘Overall, Switzerland is in the lucky position of being a wealthy economy to start with. Our structure enabled us to even benefit in some areas – if you look at all the pharmaceutical sector and banks for instance.’ This strong performance also extends to the Swiss legal profession. Says Lang: ‘Initially everybody got slightly nervous but the legal sector has been surprisingly stable. Our end-of-year report is positive.’
‘Inevitably, the pandemic has had a profound effect on all types of businesses. We have seen increased levels of activity in both our arbitration and litigation practices.’
Domitille Baizeau, LALIVE
And, according to Killias, this upward trajectory will remain: ‘In the fields of disputes and bankruptcies we will see the effects of the pandemic in the future – and for those, lawyers are needed.’ However, litigators in particular didn’t have it easy at the beginning of the pandemic: with the lockdown came the closure of Swiss courts and Swiss judges and lawyers were not accustomed to virtual proceedings.
Despite a new regulation that temporarily allowed the use of videoconferencing in civil trials entering into force in April 2020, just a month after the beginning of lockdown, some struggled. While the practice of remote hearings has been used in arbitration before, this 100% shift posed a challenge for all. The repeated delay of proceedings has created a backlog of cases; combining those with the much-anticipated disputes to arise from Covid – such as force majeure and insolvency-related claims, disputes practitioners can prepare themselves for some busy months ahead.
LALIVE already finds itself in this situation. ‘Inevitably, the pandemic has had a profound effect on all types of businesses. As a firm focusing on disputes and crisis-related work, we have seen increased levels of activity in both our arbitration and litigation practices,’ says Domitille Baizeau and André Brunschweiler, both members of the management board.
The consensus among interviewees is that there were a few weeks in early 2020 in which M&A transactions experienced a momentary slump but in the main work levels haven’t experienced a notable decline and, in some areas, there was actually an increase. Restructuring and employment teams saw a strong uptick in instructions as companies found themselves in novel territory. Although there were minimal IPO listings, capital market lawyers remained busy with debt work. Furthermore, as Baizeau and Brunschweiler highlight: ‘Switzerland’s “safe haven” reputation played particularly well during the pandemic, with banking and wealth management services continuing to prosper, as well, of course, as the pharmaceutical industry.’ The firm also notes an increase in asset recovery cases and in compliance/internal investigations. They conclude: ‘Even if it remains strong, the economic environment has evolved in Switzerland as has demand for legal services. Firms need to be able to adapt quickly to change and challenges, as we have.’
Onwards and upwards
‘As a lawyer, you’re definitely in the right place at the moment,’ says Homburger finance and capital markets partner René Bösch. Like its main rivals in Zurich and Geneva, Homburger did not see a decrease in business last year because – besides assisting its usual client base – it was also instructed in matters originating from the pandemic. The capital markets team had a particularly strong year in debt transactions, and a group at the firm advised FIFA on the set-up of the FIFA Covid-19 Relief Plan. Bösch gives a promising prognosis: ‘The economy remains remarkably resilient and I’m confident the other driving forces behind the Swiss economy will also survive.’
‘The economy remains remarkably resilient and I’m confident the other driving forces behind the Swiss economy will also survive.’
René Bösch, Homburger
He could be right: according to The Economist, real GDP will grow by 2.7% in 2021 after an estimated decline of roughly 3% in 2020 – this will mean a faster recovery in Switzerland than in regional peer economies. Real GDP could return to pre-crisis levels as early as 2022.
Of course, one of the biggest takeaways from this pandemic is that nothing can be said with absolute certainty. But Bösch sums up the sentiment shared by the Swiss legal community: ‘Even if progress is made in small steps, I am staying optimistic.’ LB