Top 10 best practices for Subsidiary Governance

In the last decade, subsidiary governance has emerged as its own discipline. Having a systematic approach to the management of international entities will not only result in transparency, control and consistency across jurisdictions, it also protects the directors and avoids monetary or criminal penalties and ultimately safeguards shareholders value.

Forward thinking organisations recognise that it can no longer be considered an ancillary service. General counsels and company secretarial officers understand this and are investing in their teams and resources to ensure a full 360 degree compliance of their corporate entities. Alongside this trend, a set of best practices has developed.

From our over 75 years of experience assisting multinationals with the maintenance of their subsidiaries in over 150 jurisdictions, we have distilled the top ten recommendations for those looking to maintain their corporate compliance to the highest standards:

1. Assess your capabilities

  • Ensure you have the capability, both internally and externally, to meet your subsidiary governance needs across all your entities
  • Track costs and expenditures to highlight areas where savings can be made without affecting your effectiveness
  • Be sure that management understands the costs associated with the maintenance of all entities in the corporate structure

2. Utilise technology

  • Make sure that you are leveraging the technology available to you, especially entity management systems (EMS)
  • Choose an EMS that meets your needs, covers all your subsidiary geographies and jurisdictions and is able to scale with the size of your organisation

3. Keep your information up to date

  • Develop a systematic workflow to manage and track all necessary information changes and updates
  • Make sure that there are strict controls on who can update your database and that no updates are made without first obtaining signed written consents or minutes
  • Assign responsibility for maintaining the original corporate records

4. Create strong internal processes

  • Put in place a set of policies, practices and procedures to manage your subsidiary governance
  • Make sure that all departments (Legal, Tax, Treasury, Accounting, Operations) are aware of and have signed off on actions to be taken
  • Assign calendar due dates for annual meetings, annual report filings, etc

5. Know and review your service providers  

  • Maintain a database of all your governance service providers. This is particularly important for international entities where you will need assistance from service providers for most in-country activities. Be very clear about what you can do in-house and what needs to be handled by an governance service provider 
  • Consolidation of service providers can provide time efficiency and cost benefits

 6. Make distinctions between jurisdictions

  • One of the fundamental complexities of subsidiary governance is the difference between jurisdictions. Make sure each jurisdiction is assessed on its own terms
  • For each separate jurisdiction, you will need an expert who can advise and assist in complying with local law

7. Protect your corporate integrity

  • Maintain corporate separateness – this is something to keep in mind when appointing subsidiary directors and officers
  • Remember to hold annual meetings and obtain approvals from the subsidiary’s board of directors and/or shareholders
  • Document all intercompany transactions (e.g., intercompany loans, intercompany sales or service agreements)

8. Create ownership for each responsibility

  • Clearly assign responsibilities of internal and external stakeholders
  • Provide subsidiary directors and officers with training to avoid any knowledge gaps
  • Survey your subsidiary directors and officers on an annual basis to confirm that all entities up to date, appointments are in order

9. Review your corporate structure regularly

  • Conducting a regular Compliance Health Check (CHC) is an excellent way to ensure that nothing has been missed or forgotten across your corporate structure
  • Review dormant entities to determine if they can be liquidated or dissolved

10. Don’t be a disconnected organisation

  • Don’t operate in a silo from other parts of your organization, like Human Resources, that can help you keep up to date on developments (e.g. officer change) affecting your subsidiaries
  • Develop a core team across the business to assist on subsidiary management issues
  • Talk to your peers outside the company regarding best practices and latest developments (and subscribe to newsletters like this one)

By Robert-Jan Kokshoorn, Head of Business Development, Global Subsidiary Governance Services

Citco GSGS Focus, Winter 2019