An entrepreneurial model of corporate governance: devolving powers to subsidiary boards

Abstract

This article is concerned with “internal” corporate governance i.e. corporate governance within the firm – in particular the delegation of decision‐making powers from the parent company board to the boards of divisions and subsidiaries. In fast‐moving businesses, companies must respond quickly to changes in technologies and markets and with this in mind international businesses are tending to delegate substantial discretion to the boards and management teams of subsidiaries. In researching divisionalized companies in financial services, electronics and process manufacturing the author discovered that much of the business was carried on among subsidiaries through a network of contracts and the resources which were held at the center were often made available to subsidiaries through license agreements. Such complex arrangements present parent boards with difficult issues which must be resolved if their companies are to act entrepreneurially. For example: what powers should be reserved for the parent board and what decisions should be delegated to subsidiary boards? Also should subsidiary companies have autonomous boards with independent non‐executive directors?