Corporate governance in group companies, or “subsidiary governance”, is emerging as one of the key topics in the theory and practice of corporate governance. Much has been written about the application of good corporate governance at the helm of an organization. The reality is that corporate governance challenges are far wider and more complex in most corporations with subsidiary networks. It is no longer sufficient to view corporate governance as simply the way in which the board at headquarters operates. Subsidiaries are a common feature of modern-day business structures, as corporations operate across multiple jurisdictions and business areas. Recent scandals, such as the BP oil spill in the Gulf of Mexico, clearly demonstrate that if subsidiary governance is not adequately addressed, it can have a disproportionate impact on the group as a whole.
In simple terms, subsidiary governance relates to how corporate governance principles can be cascaded, consistently and effectively, down to the level of subsidiaries. It is also about balancing group business objectives while recognizing the independence of subsidiaries.