Multinational Corporate Group Governance After Vedanta: The Obligations of Parent Company Directors

Abstract

In Vedanta v. Lungowe, the UK Supreme Court established that a UK-based parent company can owe a duty of care in negligence to third parties harmed by the conduct of an overseas subsidiary. The key issue is whether there is sufficient intervention on the part of the parent company, a position subsequently reaffirmed by the Supreme Court in Okpabi v. Shell. This article argues that a full understanding of Vedanta and related jurisprudence requires the consideration of the duties owed to parent companies by their directors. It first highlights that such a consideration is timely (section 2). Parent company directors face significant uncertainty over the appropriate management of multinational corporate groups (MCGs). While it is recognized that parent companies owe certain responsibilities for the adverse impacts of their overseas subsidiaries, Vedanta pushes in the opposite direction. In light of such uncertainty, this article then explores how parent company directors’ decision-making post- Vedanta might be affected by their duties to promote the success of the company, and to act with reasonable care, skill and diligence, under sections 172 and 174 of the UK Companies Act 2006 (section 3). While these duties do not restrict parent company directors from adopting a hands-off approach to overseas subsidiary regulation, they should not be ignored. multinational corporate groups, parent company directors, overseas subsidiaries, tort, directors duties