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Building Trust and Transparency in Subsidiary Governance
In today’s globalized business landscape, managing subsidiaries across regions and markets presents unique challenges, especially when it comes to fostering a strong, cohesive company culture that promotes good governance.
Trust and transparency emerge as critical pillars in subsidiary governance, ensuring alignment with the parent company’s values while respecting local nuances. This delicate balance requires a ‘bottom-up’ approach to governance that resonates across the entire organizational structure.
To delve deeper into these critical issues, Mercator® by Citco recently hosted an industry panel discussion, bringing together corporate governance experts from BP, GSK and the AVEVA Group Limited.
These experts explored innovative strategies and addressed persistent challenges faced by corporate secretarial teams in cultivating trust and transparency within subsidiary governance frameworks across global operations.
This article provides a summary of the key talking points.
Balancing Control with Communication
Central to the discussion was the defining the concept of transparency, and the role entity governance teams play in balancing disclosure with discretion. They must safeguard proprietary data and comply with regulations while ensuring effective information flow to stakeholders. This requires developing clear disclosure policies, implementing robust internal controls, and fostering effective communication channels. To achieve this on a global scale, some organizations are centralizing subsidiary governance frameworks.
Changing Perceptions of Subsidiary Governance
Building trust requires shifting the traditional leadership perception of subsidiary governance as a restrictive or purely administrative function to being that a valuable business partner. It’s crucial to develop user-friendly, accessible frameworks and for company secretaries to proactively engage with various business units. While challenging, this approach fosters a culture of openness and collaboration, ensuring governance practices are understood and effectively implemented across the organization, ultimately supporting long-term success and operational efficiency.
Centralized v. Decentralized Frameworks
The discussion revealed spectrum of approaches to governance – from highly centralized to flexible hybrid models. Some multinationals implement centralized frameworks with robust oversight, while others adopt more nuanced hybrid structures, featuring centralized governance in strategic markets and a more federal approach elsewhere.
Ultimately success hinges on striking a balance between centralized authority and local empowerment, fostering agile decision-making while maintaining consistent standards. Equally critical is establishing clear, bidirectional communication channels between parent companies and subsidiaries. This approach can help leverage global synergies while respecting local specifics.
Educating and Empowering directors
Effective governance relies on optimal board composition and ongoing director education. Organizations should assess training needs for new directors, integrate development with HR processes, and leverage company secretaries’ expertise to foster trust and transparency. Strengthening governance involves identifying board expertise gaps, tailoring training to industry challenges, facilitating peer learning, and utilizing technology for accessible resources. Regular evaluation and adaptation of education initiatives are crucial. Prioritising these elements creates robust governance frameworks that meet current needs, anticipate future challenges, and drive long-term success and stakeholder confidence.
Futureproofing boards
Futureproofing boards involves integrating junior directors and implementing diverse training strategies. Progressive organizations actively provide board experience to emerging talent, tailoring involvement to entity needs. Personalized, role-specific training developed and carried out by subsidiary governance professionals enhances director effectiveness. Comprehensive onboarding, including detailed explanations of company context and board dynamics, is crucial. This approach not only educates new directors but also showcases the value of the subsidiary governance team.
Sustainability Reporting Requirements
Sustainability reporting is an evolving area requiring increased attention. Collaboration with subsidiaries is necessary to ensure they provide essential information, with board involvement being crucial. Integrating sustainability reporting into existing processes can avoid duplication of efforts. The visibility of sustainability reporting has a significant impact on trust and transparency, with clear processes and delegation of accountabilities being essential.
Challenges of Joint Ventures
Joint ventures present distinct challenges in fostering trust and transparency, particularly regarding timely and accurate information exchange. One effective strategy put forward was to establish a dedicated joint ventures management team, tasked with developing robust information sharing protocols, implementing clear accountability processes, and facilitating open communication between all parties.
Navigating Cultural and Language Barriers
Overcoming language barriers in global markets demands a strategic approach to governance. Appointing local governance champions and establishing regional hubs with native language speakers enhances communication and compliance efforts. These localized structures bridge cultural and regulatory gaps, translating not just words but contextual nuances.
As corporate governance continues to evolve, our panellist’s insights provide valuable guidance for companies striving to enhance their governance frameworks and foster a culture of trust and transparency ins subsidiary governance.
Chris Butler OBE
Head of Operations, Mercator by Citco, Citco Mercator UAB
This article was originally published by Governance + Compliance Magazine.
