GOVERNANCE OF SUBSIDIARIES
CREATING A MORE ROBUST AND COHERENT GOVERNANCE SYSTEM
Companies around the world are seldom characterized by
a simple structure. They may be complex groups of legal
companies, but they can also include substantially stand
alone divisions and branches. All of these are here termed
subsidiaries. This article explores the implications of
this reality after briefly considering some manifestations
of weaknesses in corporate governance. It concludes
that boards must pay more attention to the structure
of a company’s operations in structuring corporate
governance arrangements.
The general approach to corporate governance
Around the world, good corporate governance is
acknowledged as crucial for corporate performance.
Moreover, there is widespread acceptance about how this
objective might be achieved: company boards should be
predominantly part-time and act as a check and balance
on senior executives. Boards should oversee financial
reporting systems and internal controls including
risk management, and appoint and dismiss senior
management. Such powers are best underpinned by
effective shareholder rights.
Under this model it is argued that the function of the
board is not to run the company on a day to day basis
as that is the prerogative of senior management. The
internal organization of a company is thus predominantly
in the hands of management. There is also an extensive
management literature covering areas such as multiproduct firms.
This single company approach is, however, inadequate in
practice and in underpinning both advice to companies
and in thinking about policy.
Problems often occur at some “distance” from the
main company.
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