Considering the fiduciary duty to a subsidiary corporation while managing the needs of a parent company can be challenging. It is critical for subsidiaries to define the responsibilities of their board to mitigate any risk.
The November/December edition of the Director Journal’s column Directors’ Dilemma raises the question: “I’m a senior executive with a parent corporation and have been asked to serve on the board of one of our subsidiaries. What should I know about the role?”
Partner Adrienne DiPaolo told Directors’ Dilemma that board mandates and policies set the standard against which the conduct of directors will be judged. She recommended that these documents be reviewed regularly and revised if they no longer useful or do not reflect shifts in best practices.
Subsidiaries should also consider using outside directors by either choosing executives from other business lines or geographic regions within the corporate group or selecting true independent directors.
“Independence mitigates conflicts concerns, but may not be practical in the circumstances and should be balanced with the necessary coordination of the subsidiary with the parent,” she said.