26 Jun Working as a subsidiary board: Checklist
The Board of a regulated subsidiary has always been a tricky place to be. Directors need to balance group demands with local legal and regulatory requirements and requests, and often through the lens of a complex matrix where accountabilities are less than clear.
The COVID-19 crisis is likely to be putting your subsidiary governance to the test. The critical implications of the crisis will differ amongst companies in the same group and each should have a tailored plan to deal with the crisis.
Here is a checklist of the things your subsidiary board should be addressing in view of the crisis to make sure you remain effective:
Information and policies
- Can we still access relevant and reliable Group information?
- Are we getting the information we need on the impact of the crisis on our legal entity?
- Are we providing Group with the local information they need?
- Are Group policies giving us the flexibility to deal with the crisis in the way we think is right for each entity (e.g. remuneration, capital retention, risk management)?
- Do we know what the Group expects of our local board in handling the crisis?
- Dividend and capital maintenance
- Does our dividend upstreaming take account of local operational needs based on our assumptions and stress scenarios?
- Have we properly considered all relevant stakeholders in our dividend decision?
- Have we taken adequate account of our directors’ duties, in particular the need to pay debts when they fall due at local level?
- Have regulatory capital requirements or expectations for our local entity changed?
The local risk and control environment
- How have the disruption and changes to working practices impacted our control environment?
- How far do we need to adjust forms of risk management control to mitigate these impacts?
- What is the impact on our local internal audit plan and our ability to carry out audits?
- How is our reliance on material outsourcing arrangements within the Group affected?
- Are we kept informed about new or increased risks at Group level that could affect us?
- Have local crisis-related risk assumptions and scenarios been shared with Group?
- Should we revise our local contingency planning in view of a second wave and the continuing effects?
- Should we perform or update our reverse stress test at local level?
- Does the Group risk appetite and stress testing take account of our local circumstances?
People and Culture
- How are we keeping an eye on the wellbeing of our local team?
- Are we clear on Group’s “people response” (including return to work strategy) and how that affects our people locally?
- How are the behaviours towards key stakeholders – customers, suppliers, supervisors – affected?
- Is our customer response in line with our conduct standards and the regulatory expectations?
- …..and it is always worth checking the basics again…..
Role and composition of the subsidiary board
- Do we have a statement on the role of the subsidiary board, communicated clearly and understood consistently in the Group?
- Is there specific guidance from Group on the level of autonomy and flexibility granted to the subsidiary board? Is that still relevant in the crisis?
- Are we clear on when we need to escalate from the local board to Group, and on their obligation to respond?
- Do we have the right mix of Group and non-Group directors?
- Do we have the expertise we need around the board table for the current circumstances?