The essential role of subsidiary boards: Driving good governance

Within the intricate framework of large multinational companies, subsidiary boards play a pivotal role in steering strategic direction, ensuring compliance, and upholding governance standards across diverse geographical and operational landscapes. While governance discussions often focus on the parent company board, the significance of subsidiary boards should not be overlooked. In this blog, we explore the importance of subsidiary boards and their contribution to governance excellence within multinational companies. 
 
Local knowledge 

Subsidiary boards are a source of local expertise and contextual knowledge which are essential for navigating the intricacies of regional markets, regulatory environments, and cultural dynamics. By comprising directors with diverse backgrounds, experiences, and networks, subsidiary boards can provide strategic insights, identify emerging opportunities, and mitigate risks specific to their respective jurisdictions. Your subsidiary board can help to cement your organisation within the global context of the business and can benefit the wider parent company through international exposure which it might not otherwise achieve. This localised perspective enables subsidiaries to adapt corporate strategies effectively, tailor business operations, and capitalise on market nuances, fostering sustainable growth and market relevance.  
 
Stakeholder Engagement 

Building relationships with diverse stakeholders, including local communities, government agencies, suppliers and customers, is one of the fundamental responsibilities of subsidiary boards. By fostering open communication, stakeholder dialogue, and community engagement initiatives, subsidiary boards enhance the organisations reputation, social license to operate, and brand awareness in the local market. Cultivating trust-based relationships fosters goodwill, facilitates business development opportunities, and mitigates reputational risks associated with misalignment of interests or stakeholder grievances.  
 
Succession Planning 

Subsidiary boards play a pivotal role in talent development and succession planning, ensuring continuity of leadership and organisational resilience. By identifying and nurturing high-potential executives, providing mentorship opportunities, and implementing robust performance evaluation processes, subsidiary boards cultivate a pipeline of future leaders capable of driving strategic initiatives and leading the organisation through periods of transition or disruption. Effective succession planning safeguards against leadership gaps, promotes diversity, and fosters a culture of meritocracy and career development within the subsidiary. Your subsidiary boards can help to create a solid pipeline of talented leaders, who can step into roles in the parent company.  

However, to fully benefit from the advantages of an effective subsidiary board, clear communication between parent and subsidiary is essential. Furthermore, the overarching governance frameworks must be coherent across the entire organisation, while also recognising local differences in regulation and compliance.  
 
In conclusion, the importance of subsidiary boards cannot be overstated in the governance framework of multinational corporations. By leveraging local expertise, engaging stakeholders, and nurturing talent, subsidiary boards contribute significantly to the long-term success and sustainability of the organisation. As businesses navigate the complexities of global markets, recognising and empowering subsidiary boards as strategic partners is essential for achieving agility, resilience, and competitive advantage in an increasingly interconnected and dynamic business environment. See also our breakdown of what subsidiary governance is and our examples of successes and failures of managing risk in subsidiary governance. 

If you are interested in finding out more, join us for our upcoming Subsidiary Governance conference, on Tuesday 20 February 2024 at The View, Royal College of Surgeons, London. 

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