The Complexity of Corporate Group Governance

Large companies tend to create increasingly large numbers of subsidiaries and the good management of these groups of subsidiaries requires adequate governance practices, ensuring the implementation of the policies decided at the top while respecting the specificities of the subsidiaries. The first question relates to the autonomy of the companies’ “corporate interest”, implying that parent companies have to be respectful of the subsidiaries’ interest in order to avoid the risk of “misappropriation of corporate assets”, and have to set up procedures for related parties transactions. This does impose constraints to the implementation of group policies, but does not prevent it if these policies are not adverse to the subsidiaries’ interests, as in the case of cash pooling agreements. The principle of legal autonomy also implies that each subsidiary has its own governance bodies and the good operation of these bodies must be overseen by the parent company. The directors appointed by the parent company should be carefully trained for these duties, even though it may be a “side product” of their main professional activities, as indeed they may incur personal civil and criminal liabilities. This shows that group governance, although not much dealt with by corporate governance codes and academic research, should be recognized as a key element of good governance.