Corporate governance issues for UK subsidiaries of international corporates

International groups can easily implement some straightforward steps to reduce or avoid these risks.

• Wherever possible, local management should be adequately represented on the subsidiary board. This will help to ensure some degree of connection between the board and the business. Directors should be expressly authorised to obtain expert professional advice at the company's expense on any matter or transaction in order to ensure observance of legal duties and responsibilities in the relevant jurisdiction.
• Regular subsidiary board meetings should be held (not less than half-yearly). Each meeting should receive briefings and updates from each of the relevant divisions and from each of the subsidiary's business functions that are subject to material compliance responsibilities (such as health and safety, environmental, human resources, finance and so on). These should be considered not only in the context of the activities of the group or region as a whole (which is perhaps inevitable) but also from the viewpoint of the individual subsidiary.
• However, none of these steps will eliminate the risks discussed earlier in this briefing unless the subsidiary directors have the relevant skills and knowledge to understand what the board papers mean for the individual subsidiary. They must also be able to influence the conduct of the subsidiary's business activities to ensure that they comply with their legal duties. Proper training of directors, coupled with professional advice on all relevant matters, should be arranged or obtained as necessary. Subsidiary boards may also wish, with appropriate advice, to submit briefings to the parent regarding any particular legal issues affecting directors in each jurisdiction.
• It is also worth considering other related issues such as tax. Even where companies are registered in the UK, if they are managed and controlled by their foreign parent they may find that they are not resident for tax purposes in the UK.  This may be the case where the foreign parent is resident in a country with which the UK has a tax treaty which contains a "tie breaker" clause, as most do.  Such clauses operate to determine which country has the taxing rights over that company's profits and gains. Although the wording varies, the principle is that taxing rights go to the country from which the company is managed and controlled.