Governance of Subsidiary Companies
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Transcript of Governance of Subsidiary Companies
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Governance of Company Subsidiaries
Derek Hendrikz Consulting
derek hendrikz
![Page 2: Governance of Subsidiary Companies](https://reader031.fdocuments.net/reader031/viewer/2022022419/58828bf21a28abca6d8b55d9/html5/thumbnails/2.jpg)
A subsidiary company is a company
controlled by a holding company.
The word subsidiary refers to
‘supplementary’
Derek Hendrikz Consulting
![Page 3: Governance of Subsidiary Companies](https://reader031.fdocuments.net/reader031/viewer/2022022419/58828bf21a28abca6d8b55d9/html5/thumbnails/3.jpg)
“…it is no longer appropriate for groups to
focus only on parent company
governance.”
Jonathan Gibson
Derek Hendrikz Consulting
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You will only understand the risk
attached to subsidiaries when
something goes wrong.
Derek Hendrikz Consulting
![Page 5: Governance of Subsidiary Companies](https://reader031.fdocuments.net/reader031/viewer/2022022419/58828bf21a28abca6d8b55d9/html5/thumbnails/5.jpg)
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
![Page 6: Governance of Subsidiary Companies](https://reader031.fdocuments.net/reader031/viewer/2022022419/58828bf21a28abca6d8b55d9/html5/thumbnails/6.jpg)
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
![Page 7: Governance of Subsidiary Companies](https://reader031.fdocuments.net/reader031/viewer/2022022419/58828bf21a28abca6d8b55d9/html5/thumbnails/7.jpg)
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
![Page 8: Governance of Subsidiary Companies](https://reader031.fdocuments.net/reader031/viewer/2022022419/58828bf21a28abca6d8b55d9/html5/thumbnails/8.jpg)
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
![Page 9: Governance of Subsidiary Companies](https://reader031.fdocuments.net/reader031/viewer/2022022419/58828bf21a28abca6d8b55d9/html5/thumbnails/9.jpg)
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
![Page 10: Governance of Subsidiary Companies](https://reader031.fdocuments.net/reader031/viewer/2022022419/58828bf21a28abca6d8b55d9/html5/thumbnails/10.jpg)
The Primary Aspects of Subsidiary Management…
• Separate Entities;
• Management;
• Liabilities; and
• Independence.
Derek Hendrikz Consulting
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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