Know your company structure and its raison
d’etre. This principle has been enunciated by the Basel
Committee on Banking Supervision for banks. The main
bank boards should understand in which jurisdictions
and markets it operates and in what corporate form.
However, the principle also applies to companies in
general and should be taken into account in determining
the composition of the main board. Some companies are
now holding board meetings at subsidiaries around the
world allowing members to understand local conditions
and to evaluate local management. Meetings are also held
in major markets even though no foreign subsidiaries
might be involved.
Establish appropriate internal controls over subsidiaries
A number of large complex companies have established
special controls over their subsidiaries. For example, in
one big consumer goods company, subsidiaries are banned
from starting new legal subsidiaries unless approved by
the main board and by the office of the company secretary.
Moreover, the powers of attorney are very restricted and
are also subject to approval by the main board.
The situation can be more complex when for legal or
other reasons subsidiaries take a corporate form and
have their own boards. These are often internal boards
(i.e. staffed by company employees) but on occasion can
be problematic when it comes to following instructions
from the main board and central management (i.e. to
whom do directors owe loyalty). Problems are most acute
when there are other shareholders and also in the case
with joint ventures. Governance arrangements must take
these specifics into account.
case concerns the UK bank HBOS where the board and the
senior management were all drawn from retail banking.
When a newly merged company was formed, it included
significant treasury, commercial banking and investment
banking arms. These three divisions were responsible for
the collapse of the bank with senior management and the
board failing to exercise their responsibilities due to lack
of knowledge and experience.
What is to be done?
Clearly the current understanding of good corporate
governance practice needs to be further extended in
order to incorporate features of modern companies,
especially subsidiaries. However, the situation is complex
as companies are very heterogeneous. What is therefore
required is systematic work to identify key challenges
and identify good practices. At a later stage these might
be refined as principles for incorporation into existing
codes and laws.
In conclusion it is time to widen corporate governance
concepts to include subsidiaries where for better or
worse many decisions are taken.
Internal controls and risk management should ensure
a consistent system of checks and balances
In the case of HSBC noted above, the compliance manager
for the Mexican company did not report directly to the
head of group compliance but to the local board. This
would not have been problematic if the group compliance
had also been able to bring its concerns directly to the local
board, which was not the case. Many differen ????????)?????????????????????????????????????????)???????????????????????????????????????()?????????????????????????????????????)???????????????????????()%?????????????????????????????????????????)???????????????????????Q???????????????????)????????????????Q?????????????????????????)?????????????????????????????????????)?????????????????????????????????????????()A!=Q= IA!d? d?1 ?1Q=98() ???????????M??????????
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