Lion taming might not be what people associate with the role of the corporate secretary but, in the circus of corporate governance, it is their ability to juggle the big beasts of regulation, laws and tax across multiple jurisdictions that earns them respect. They must speak CEO and better have all the answers when asked. For multinational companies, the corporate secretary has to communicate upwards as well as downwards across the whole organisation.
It was communication that the ICSA Corporate Subsidiary conference last week identified as one priority for avoiding the pitfalls of modern business. Speakers from HSBC, Anglo America and Intertek Group all agreed that for communication to be effective it needed to go both ways to ensure compliance. Parent companies set the tone for the whole group, cascading information down to the smallest subsidiary. However, the communication needs to work the other way too.
The parent needs to have the relevant paperwork and information from their subsidiaries, and also has to have an understanding of their subsidiaries’ local requirements to ensure global compliance. Ben Mathews from HSBC pointed out, that the more visible the Corporate Secretary is the more effective they can be, allowing them to align the management with its subsidiaries. The speaker from Intertek highlighted that meetings, if well run and organised, play a vital role in facilitating better communication.
Legal separation of subsidiary and parent can be an excellent vehicle for insulating one from legal issues in the other. However, tight and regular communication between the parent and subsidiary will ensure good accountability and transparency. Nicole Kar, from Linklaters made the point that in Competition Law the “buck stops” at the highest level. It is the parent company that is liable when its subsidiaries are caught breaking competition law. The penalties can be severe; fines of up to 10% of global turnover, or even imprisonment for their directors.
The board does not have to have knowledge of the act of collusion in order to be liable. In contrast, Health and Safety Law is usually levelled at the lowest denominator; the claimant is usually targeting the company they worked for and the range of fines is likely to be lower – between £2.6 and £10 million. However, even if the parent isn’t considered liable, the damage to the group’s reputation is complete. It is up to the parent company’s directors to determine their organisation’s culture and risk appetite and ensure that is communicated throughout the group and the structures are put in place to ensure compliance throughout.
The conference identified culture as the second vital key to parent/subsidiary success. Culture is set at the highest level and directors have to set a tone of transparency and honesty if they are to prevent the possibility of scandal or corruption. Returning to the Competition Law example, a culture of nods and winks from the ‘smoke filled chat room’ among sales staff only come about in a culture where opacity and growth at any cost prevail. Company officers setting a culture of strong and open communication within their organisation will keep it honest and more successful.
It is information that is needed to keep the snarling jaws of the regulator, auditor and government lions tame. Corporate secretaries have no choice but to break down the silos within their company and draw out the information needed if they are to be effective.
File sharing and video conferencing are obvious ways to break down the barriers of geography. However, technology is moving fast and managing entities in one single place is becoming not just a practical necessity but also essential in reducing corporate risk. Proactive management and sharing of multi-entity operations empowers decision making and reporting at all levels across the organisation. However, instead of just a database of subsidiaries, the parent company is now looking to be able to seamlessly merge data between systems, file documents with a click of their mouse, access the meeting agenda and minutes for all their subsidiaries and spot areas of non-compliance from an easy to understand dashboard.