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Corporate governance of and within subsidiaries is frequently overlooked.

Corporate governance issues arise in two ways. First, as a direct consequence of the way the the parent company directs, controls or otherwise manages its subsidiaries. Secondly, the approach taken by the subsidiary itself to corporate governance.

Each subsidiary has the inherent ability to damage not only itself but also its parent and other Group companies. Damage can be financial and reputational. Overseas subsidiaries pose a higher risk, particularly if they involve a non-core business activity or are
not closely integrated.

However the corporate governance risk arising from subsidiaries can be successfully mitigated by taking appropriate steps. We believe that there should not be a corporate governance failure within a Group structure in relation to its subsidiaries if these steps are taken.

The optimum approach that a Group should adopt to its subsidiaries will depend upon its own unique circumstances but common themes may include:

  • Technology solution: when is a technology solution appropriate, what would it offer, what would it cost and what is the market leading product?
  • Board: how is local board perceived by the Parent company? is it empowered? what criteria determine selection of its directors? how is its performance measured? how are directors trained on Group policies?
  • By what process does the Group achieve a consistent and timely distribution of its internal material, initiatives, etc, and how are these effectively embedded?
  • By what process are the Group’s risk and control policies adopted, adapted and embedded within a subsidiary? how does the Parent monitor compliance?
  • How does the Group set out its relationship with subsidiaries particularly those that are not 100% owned?
  • What protection should a Group seek for its stake in a joint venture?

Majlis has the experience to guide a Group through the challenge of successfully managing the risk associated with its subsidiaries.

For more information please contact the Corporate Governance Department of Majlis Partners