Subsidiary governance is emerging as one the key topics in
the theory and practice of corporate governance, yet very
few best practice principles have been developed in this
important realm. This is mainly because of the complexities
and variables involved. It is for these reasons that traditional
approaches by parent companies to subsidiary governance
have been ad hoc rather than strategic.
This issue of the Hawkamah Journal contains four separate
articles on subsidiary governance, each with its own
perspective on corporate governance in group companies.
This first article “Scanning for Scope” examines the concept
of subsidiary governance and argues that the topic needs a
“multi-lens” approach. This is then followed by three articles
in which the authors share their perspectives on the matter.
SUBSIDIARY GOVERNANCE
SCANNING FOR SCOPE
The case for Subsidiary Governance
Much has been written about the importance of good
corporate governance at the helm of an organization.
However, the reality is that corporate governance
challenges are far wider and more complex in most
corporations with vast subsidiary networks. It is no longer
sufficient to view corporate governance as simply the way
in which the board at headquarters operates. Subsidiaries
are a common feature of modern-day business structures,
as corporations operate across multiple jurisdictions
and business areas, and as recent scandals (such as the
BP oil spill in the Gulf of Mexico) clearly demonstrate, if
subsidiary governance in these entities is not adequately
addressed, it can have a disproportionate impact on the
group as a whole.
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Hawkamah issue02 56pages.indd 10
The challenge, in essence, relates to how corporate
governance principles can be cascaded, consistently and
effectively, down to the level of subsidiaries. The issue is
partly about how parent companies should control their
subsidiaries, but such an approach may run the risk of stifling
innovation at these companies. The key issues in subsidiary
governance relate to alignment, efficiencies, information
flow, compliance, risk management, as well as many others.
The variables
Developing a comprehensive group-wide corporate
governance strategy is difficult as subsidiaries are very
heterogeneous. Firstly, they come in all sizes, ranging from
special purpose vehicles to multinational corporations.
Secondly, subsidiaries are established for a variety of
Subsidiary Governance: Scanning for Scope
Article by Alec Aaltonen
9/19/13 10:07 AM