Governance of Subsidiary Companies
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Transcript of Governance of Subsidiary Companies
Governance of Company Subsidiaries
Derek Hendrikz Consulting
derek hendrikz
A subsidiary company is a company
controlled by a holding company.
The word subsidiary refers to
‘supplementary’
Derek Hendrikz Consulting
“…it is no longer appropriate for groups to
focus only on parent company
governance.”
Jonathan Gibson
Derek Hendrikz Consulting
You will only understand the risk
attached to subsidiaries when
something goes wrong.
Derek Hendrikz Consulting
Legal Risks…
• Personal exposure for directors and officers
• Legal and regulatory compliance failure
• Potentially unauthorised commitments
• Greater financial, tax, commercial and
operational risk
Derek Hendrikz Consulting
Good Subsidiary Governance Practice…
• The establishment of a subsidiary board
(subsidiaries will still have their respective
boards);
• Explicit group management philosophy;
• Group decision-making policies and guidelines;
• Central governance policy stipulating subsidiary
governance framework;
Derek Hendrikz Consulting
Good Subsidiary Governance Practice (cont)…
• Clearly defined relationship between parent and
subsidiary;
• Clear reporting structure between subsidiaries and
parent company;
• Clarifying the rights and responsibilities of the
subsidiary’s board and management;
• Independent audit committee.
Derek Hendrikz Consulting
Subsidiary is a separate legal entity…
• Directors of the subsidiary are responsible for the affairs of a
wholly-owned subsidiary;
• The directors of the subsidiary must act in the best interests of
the subsidiary - even where in conflict with the parent company;
• The directors of a subsidiary are subject to the statutory and
regulatory duties under applicable local laws;
• Governance practices for the subsidiary need to be consistent
with the purpose for which the subsidiary was established.
Derek Hendrikz Consulting
Typical subsidiary governance problems…
• Regulatory conflicts;
• Commercial or managerial conflicts;
• Conflicts between the interests of subsidiaries;
• Conflicts between the organisational and
national cultures of the parent and the
subsidiary.
Derek Hendrikz Consulting
The Primary Aspects of Subsidiary Management…
• Separate Entities;
• Management;
• Liabilities; and
• Independence.
Derek Hendrikz Consulting
Standardize the following questions…
• Do we have common governance principles in place?
• What is the process for creating new subsidiaries?
• Who can approve them & what is the criteria?
• How is a subsidiary’s life cycle tracked?
• Who is responsible for dissolving unnecessary subsidiaries?
• How are the directors selected for subsidiary boards?
• Who are the corporate secretaries?
Derek Hendrikz Consulting