Deloitte examines outdated governance practices that put corporations and their subsidiaries at risk

New York, NY, 12 October 2016 - According to a new report from Deloitte Global, organizations need to take a fresh look at how they oversee their subsidiaries or risk costly financial and reputational damage. The report, “Subsidiary Governance: Governance in a Multidimensional Environment,” outlines new strategies board directors can take to develop stronger subsidiary governance frameworks. The report is featured in the latest issue of On the Board’s Agenda, produced by Deloitte Global’s Center for Corporate Governance.

For decades, organizations established subsidiaries to expand their operations, move into new markets, or protect themselves against risk. Historically the governance of these subsidiaries has often been an afterthought with little consideration being given to the entire extended organization. Yet customers and other stakeholders often view parent organizations and their subsidiaries as a single entity and there have been instances where the courts have held parent organizations ultimately responsible for their subsidiaries. Meanwhile, regulators want a greater understanding of the governance practices of parent organizations and their subsidiaries.

For organizations that are either parents or subsidiaries of other entities, the board’s job is very complex, explained Dan Konigsburg, managing director of Deloitte Global’s Center for Corporate Governance. “They have a fiduciary duty to act in the best interests of the organization, but fulfilling that responsibility effectively is often a complex process within a complicated governance environment. Parent boards cannot simply impose all of their governance practices on their subsidiaries. The goal of this report is to raise awareness of issues boards face and highlight leading practices to better align the governance of parents and their subsidiaries.”

Olivia F. Kirtley, director of U.S. Bancorp, Papa John’s International, and ResCare Inc., brings expertise to this issue, sharing her insights about the importance of transparency and accountability between parent and subsidiary organizations, as well as how to effectively manage risks, and how technology can facilitate subsidiary oversight.

Select leading practices discussed throughout this issue include:

• Assigning a senior executive to be directly responsible for managing the organization’s subsidiaries, overseeing their governance practices, and ensuring they’re aligned with the parent’s requirements so the organization can better manage the risk exposures in its extended ecosystem.
• Holding joint meetings or having common directors to assist with building transparent and accountable relationships between parent boards and subsidiary boards.
• Balancing risk oversight and internal control processes between the parent and subsidiary organizations that can strengthen the entire organization from a risk oversight and mitigation perspective. 

To learn more about leading practices boards are taking to improve subsidiary governance, you can read the latest issue of On the Board’s Agenda.

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