Overcoming subsidiary governance challenges

Subsidiary governance is a topic that many companies find challenging as they try to better manage the increasing complexity of their global entities. Computershare regularly speaks to corporate and financial services organisations to discuss this topic, focusing on the strategic and operational angles.

Here is a summary of the challenges we frequently hear from company secretaries and our recommendations to address the most prevalent issues.

The strategic lens

Role of subsidiaries is not always clear in delivering the corporate strategy

Companies are driven by their overarching corporate strategy, which informs goals, objectives and decision-making. However, when an organisation has multiple subsidiaries operating in different jurisdictions, there is a risk that strategy may not be clearly cascaded to each location. This may result in a lack of understanding at the subsidiary level and in some cases, misalignment with local business objectives that do not directly tie into the wider corporate strategic objectives.

Recommendations:

• Ensure clarity of corporate strategy at central and subsidiary level including how and where the subsidiary contributes.

Company does not see subsidiary governance as a priority

If companies do not proactively implement or mature a subsidiary governance framework, doing so may not become a priority until there is an issue that acts as a catalyst for change. Issues can include new regulations, a governance failure, a change at the executive level or auditor findings. However, gaining budget sign-off for subsidiary governance can often be a significant challenge.

Recommendations:

• Understand that the cost of remediating an issue is always much higher than the cost of being compliant, so putting a subsidiary governance framework in place from the outset can save time and money.
• Address the subsidiary governance “basics” in-house then outsource other activities to one strategic global partner to provide clear accountability, gain greater visibility and reduce costs.
• Implement a more defined framework to ensure the budget assigned to these activities is better deployed.

The operational lens

Organisational operations are not aligned with legal/compliance requirements

The business operating structure of a subsidiary involves the activities, processes and functions required to achieve business objectives, whereas the subsidiary governance requirements involve the legal entity structure and maintaining compliance in different jurisdictions. The challenge is these two structures are often not aligned.

Recommendations:

• Provide adequate training and education to subsidiary directors to support them in taking responsibility to help manage this gap.
• Engage with the human resources function to identify employees who could potentially fill subsidiary directorships.
• Be aware that the regulators, as well as HR and company secretaries, are watching the management of succession, development and diversity.

Lack of clarity over who is responsible for subsidiary management

With different legal and regulatory requirements in regions worldwide, subsidiary governance and compliance activities are often performed locally, either in-house or with the support of local law firms, with little or no head office visibility.

Recommendations:

• Implement dedicated ownership of subsidiary governance to help entities mitigate risk, as risk profiles are significantly different in varying regions.

Company secretarial team resources

Company secretarial teams in larger companies can generally be more proactive and strategic in subsidiary governance than under-resourced teams in smaller organisations. Subsidiary governance is usually less predictable and more difficult to control compared to listed work which is perceived to be of higher value. Larger organisations and regulated businesses generally have more rigour around subsidiary governance frameworks. For smaller teams, the deputy company secretary is usually responsible for this area.

Recommendations:

• Raise the profile of subsidiary governance teams through senior sponsorship and buy-in.
• Appoint a senior resource responsible for subsidiary governance, particularly for mid to large corporates, enabling the company secretarial team to be a more effective partner in this area.

Use of technology

The use of technology among corporate secretarial teams is generally accepted as a way to work more efficiently and better manage information and reporting, but in many cases, there can be a lack of skills in the area.

Recommendations:

• Increase the technological expertise within corporate secretarial teams to improve efficiency in this area.
• Use an entity management technology system to create a “single source of truth” and streamline administration across functions and the global company.

Challenge getting all departments on the same page

Subsidiary governance interacts across many organisational functions including tax, finance, legal, compliance, risk, internal audit, treasury and HR, and the requirements of these departments are not always in alignment.

Recommendations:

• Company secretarial teams can take a leading role in subsidiary governance by providing the various organisational functions with clarity around their responsibilities and the support they can provide in this area.

Improving the image of subsidiary governance

It has been suggested that junior members of the corporate secretarial team see subsidiary governance work as a first step on their way to the higher profile listed work with exposure to the board.

Recommendations:

• Making subsidiary governance more of a priority can help junior resources appreciate the importance of this work.
• Considering automation or the outsourcing of cyclical subsidiary compliance work, can allow junior employees to be exposed to a wider range of value-add activities earlier in their careers.

All your entity compliance and governance needs, handled

Computershare’s integrated entity solutions allow you to efficiently manage your legal entity structure, gain control over your entity compliance, and enhance your governance frameworks.

With Computershare's integrated entity solutions, you will gain confidence in stronger governance and compliance frameworks, a better risk and control picture and improved stakeholder relationships. Through operating efficiencies, transparent costs and accurate data at your fingertips, you will have the insight, comfort and assurance that things are working well.

To learn more about how Computershare Entity Solutions can assist with all your entity compliance and governance needs, get in touch.