Actueel

Downstream Governance in NL

In the past years, we have delivered incompany Downstream Governance trainings in large organisations like TenneT, Ikea and Port of Rotterdam. We like to share this information, because it is applicable to many organisations that place second tier officers / managers in supervisory boards (SBs) of subsidiary companies.
Especially in large, complex organizations with vast subsidiary networks, corporate governance challenges have a much broader scope. Boards of parent companies should determine what board structures for its subsidiaries would best contribute to an effective chain of oversight.

Downstream governance or Cascading governance deals with effective governance in a complex company, with all sorts of subsidiary companies. Subsidiary companies are related to the company’s overall goals but have their own governance and sometimes strategy – which rises issues:

• The governance consists of a complex web of subsidiaries with differing needs and risks – one size fits all governance does not suffice
• Parent companies should determine what board structures for its subsidiaries would best contribute to an effective chain of oversight
• The parent should set policies and guidelines for its subsidiaries
• The parent should ensure alignment of interests throughout the company.

And, the parent should arrange good D&O insurances and other legal safety nets for governance officials throughout the cascading structure.

Important is that most downstream SB-members should be independent (in state, mind and appearance), because subsidiaries sometimes have their own strategic agenda and/or stakeholders. In the financial sector, the Dutch Central Bank (DNB) issued the following policy: “at least half of the number of members of the supervisory board must be formally independent. From a proportionality perspective, non-listed subsidiary entities are permitted to have only one formally independent supervisory board member” if certain conditions are met.

All in all, there’s no one-size-fits-all approach for Downstream governance, because goals and stakes can differ. But a clear vision on Downstream governance from the parent company and well-educated SB-members are pivotal.