Once the domain and responsibility of just one or two people within a corporation, subsidiary governance has emerged as its own discipline in recent years. Increasing regulation across the world and rising expectations and scrutiny of the compliance function have meant the knowledge in those one or two brains has to be distilled into a series of policies and procedures, and into a subsidiary governance framework created based on best practices.
In these circumstances and with these developments, the need for a subsidiary governance manual become paramount. One step beyond your subsidiary management strategy and your subsidiary governance framework template, a subsidiary governance manual acts as the go-to playbook for those looking after compliance and governance within a corporation – that’s the legal operations professionals, the company secretaries, etc. – but also for anyone with input to or responsibility for any of the constituent parts of governance.
It’s within this subsidiary governance manual that the board can read about their roles and responsibilities. It’s where the company secretary in a new offshore entity can check how the flow of information between head office and the local entity is best handled. And it’s where the timeline for training and audits can be tracked to ensure everyone is aware of their own goals and milestones as well as those of the entity’s compliance. The subsidiary governance manual is all of this, and more.
What information should be covered in a subsidiary governance manual?
If your subsidiary governance manual will be the handbook that’s referred to in times of uncertainty of process or audit, then it should document all the steps and processes set for governance within your group. This includes:
- The role and responsibilities of the board
- Who’s involved in governance and who has a compliance responsibility
- Frequency of audits and risk assessments
- Compliance and governance priorities, goals and time frames
- How subsidiaries communicate with the parent company, and vice versa
- What subsidiaries are responsible for in terms of compliance versus what the parent company will take care of
- The company’s stance on issues such as bribery, human rights and slavery, health and safety, and diversity
- The whistleblowing process
- How the company handles remuneration and reward
- Delegating authorities and decision-making procedures
- Business continuity procedures
- How the board is structured
- How frequently the board – both parent and subsidiaries – will meet, how those meetings will be conducted and minuted, and how things like agendas and board papers will be handled and stored
- What training is required and how frequently it should be revisited
- Any compliance requirements unique to any subsidiary, given jurisdiction or industry requirements
Of course, this is just the tip of the subsidiary governance manual iceberg. If you consider the manual to be that essential go-to guide, then it follows that anyone new to the business should be able to pick it up and get on with the job of governance and compliance. Only the business involved can tell what those details should be, but if you’re unsure, it’s best to follow subsidiary governance best practices as a first step.
Writing the manual is only the first step
It’s one thing to write a subsidiary governance manual; it’s entirely another to operationalize that manual and get the wider business working in line with the processes set out within it. This becomes especially important as the expectations of regulators, investors and other stakeholders continue to shift.
No more can a business be opaque about its policies and procedures; that subsidiary governance manual must be written in a way that is totally transparent about how the business operates and what’s expected of stakeholders, and it must be stored somewhere that is central and easily accessible. It must be kept up-to-date and it must be built on a foundation of robust data.
Communication is key, and it’s worth considering a dedicated communications strategy for informing the wider business about compliance and governance developments. Equally, how the parent company and subsidiaries communicate upstream and downstream, and how stakeholders remain informed, are key considerations.
Those responsible for the subsidiary governance manual should also recognize that it will always be a work in progress, something to be reviewed and updated on a regular basis. It’s an organic document, and governance professionals should invite feedback from those in the business – they are the ones living the processes day to day and will be able to advise on any potential efficiencies or cost savings.
The board should also have an opportunity to give feedback on the subsidiary governance manual. A survey by the Governance Professionals of Canada (GPC) group found that the most common practice for boards is to discuss subsidiary business and risk oversight on an ad-hoc basis (61%), while 32% of them dedicate time to these discussions at every meeting. The frequency of feedback is a matter for the business to decide, but it’s important to incorporate some discussion time each year.
A subsidiary governance manual requires real-time data to be effective
So, the subsidiary governance manual lays out all of the policies and procedures, the roles and responsibilities, that drive your internal governance function, right? That means you’ll need somewhere safe to store it – somewhere central, that’s easy to get to wherever you happen to be in the world, and that’s always available no matter the time or day.
Once there was a time these manuals would be printed out and handed to directors and legal operations professionals on their first day. The original would be stored in the company secretary’s office for posterity, and that same company secretary would be constantly fielding questions from across the business whenever there was uncertainty about the governance process or compliance requirements.
Today, though, entity management software can help make governance much easier and more streamlined – and can ease the burden on the company secretary fielding constant questions. By creating a central repository for all subsidiary governance information, entity management software becomes a single source of truth for the business. It’s a place to both store and drive your subsidiary governance manual, somewhere housed securely in the cloud, meaning it’s accessible from where your colleagues need it, when they need it.
With real-time data and the ability to deliver the right information at the right time, leaders are empowered with technology, insights and processes to fuel good governance and help businesses to thrive and endure in an increasingly complex regulatory environment.