Recent scandals, such as BP’s Deepwater Horizon oil spill in the Gulf of Mexico, clearly demonstrate that entities which operate across multiple jurisdictions and business areas must ensure that their subsidiaries in these regions are adequately governed. The alternative may be that, as in BP’s case, a failure in one regional entity comes to have a disproportionate impact on the group as a whole.
Global subsidiary governance, as a subset of the much broader subject of corporate governance, is becoming more important to multinational organisations of all kinds, not just corporate giants such as BP. Issues such as alignment with group goals and objectives; efficiencies; information flow; regulatory compliance; companies act compliance and risk management apply to many private equity funds and family offices.
Yet despite the apparent importance of all of these issues, the approach by parent organisations to global subsidiary governance appears to have been mostly ad hoc and underfunded; just as the approach to corporate governance has been.
In particular, pressure on costs means that boards are loath to spend more than the absolute minimum on the internal departments needed to exercise proper governance.