The so-called discharge vote is typically a formality at the bank's annual shareholders meeting that sees the UBS board securing protection from any legal action over their performance during the previous year.
But shareholder anxiety is running high after UBS was fined a whopping €3.7 billion ($4.1 billion) in February by a French court over encouraging customers to commit tax fraud.
UBS has denied the allegations announced plans to appeal.
At Thursday's meeting, 41.67 percent voted in favour of the discharge, with 41.64 percent voting against and 16.69 percent abstaining.
Because the board did not secure 50 percent, the discharge was “rejected”, UBS said in a statement (here in English).
“I interpret your decision as a reflection of your concern about uncertainty surrounding the ongoing court case in France and that you want to keep all possible legal options open. I can understand that,” UBS board chairman Axel Weber told shareholders, according the statement.
Weber also defended the bank's management, saying “France did not show in any way that UBS failed to comply with the regulations that applied at the time in France and Switzerland.
UBS, the world's largest private bank, had tried to negotiate a settlement to avoid the court showdown, but failed to agree on a fine with French prosecutors.
The court found UBS guilty of “aggravated money laundering” by helping clients evade French taxes between 2004 and 2012, estimating the breaches were “exceptionally serious”.
Five of six former UBS top officials received suspended prison sentences and individual fines of up to €300,000.
Several shareholder groups had called for disapproving the discharge motion also over the bonuses for bank executives, which were called “excessive” by the Swiss foundation Ethos following the French fine.
Shareholder revolts by refusing to back a company's executives at the annual shareholder meetings are very rare.
Last week shareholders of the German chemicals group Bayer rejected by 55 percent the discharge motion for management, angered about the costly acquisition of US rival Monsanto which finds itself under an onslaught of lawsuits over its popular Roundup weedkiller.