Being the director of the subsidiary of a large corporation is a role that requires a great deal of equilibrium. In such a position, you represent a parent company – or a group – and at the same time you have to apply the perspective of the subsidiary’s own interests.

A subsidiary is a separate legal entity, which defines its own ambitions, carries out its own activities and assumes its own responsibilities. A subsidiary, which enjoys a certain degree of autonomy, is, however, not foreign to the parent company that created it or to the group to which it belongs.

The director who represents a parent company on the board of a subsidiary therefore combines the roles of manager (of the parent company) and director (of the subsidiary). These two roles have very different capacities: the director is in a relationship of subordination to the management of the parent company and in a relationship of collegiality among their colleagues on the subsidiary’s board of directors. In a way, one could say that they have two bosses: on the one hand, the CEO of the parent company and, on the other hand, the shareholders assembly of the subsidiary. They live in what could be described as a permanent conflict of interest.

This director has to constantly maintain a balance between the overall interest of the group they represent and the specific interest of the subsidiary they manage: Should I promote this strategic orientation? Is this investment reasonable? Should the borrowing be done on the banking market or from the parent company? What is the desirable level of dividend?

The ratio of the parent company’s stake in the subsidiary’s or the affiliate’s capital or voting rights (100%, 50% or 20%) obviously determines the level of alignment on the strategic and operational levels. However, a significant or even full ownership of the capital should never allow the power of minority shareholders or other stakeholders to be neglected.

This dual loyalty of the subsidiary’s or affiliate’s director is particularly sensitive in certain circumstances:

–     The director of a subsidiary may hold confidential information relating to either the parent company or the subsidiary. This information may, in certain cases, be considered as “privileged information”. How can this information be used in the interests of both parties? How can we avoid the risk of market abuse?

–     In certain emergency situations (crisis, natural disaster, etc.), the director may have to act quickly and interfere in the day-to-day management of the subsidiary. This blurring of the boundary (corporate veil) between legal entities can lead to allegations of abuse of majority or “de facto” management, triggering specific responsibilities.

–     Financial difficulties for the subsidiary or affiliate may put the director in the untenable position of having to choose between potential disciplinary sanctions under their employment contract within the group and being held liable for not furthering the subsidiary’s or affiliate’s corporate interest.

–     Financial, tax, social and environmental regulations may vary widely from one country to another. When the parent company and the subsidiary come under different legal jurisdictions and the application of these rules creates a normative conflict. Which of the parent company or the subsidiary can invoke superiority over the other?

The director of a subsidiary must act with clarity, consistency and respect towards the two entities in which they have responsibilities.

It is by having a very good knowledge of their duties and responsibilities that the director can maintain a good balance between the interests of mother and daughter.

How? What?

What's your opinion?

Let's discuss!