Internal Governance

It is impossible to have a perfect or even excellent governance system from day one. Many factors can complicate the introduction of governance in the company. However, the key points are that there should be no “one-size-fits-all” approach, that governance does not become “perfect” overnight, and that it is vital to study and understand the best way to move ahead and get started. Intra-group governance is a complex but important board matter. Difficulties arise from vague definitions, cultural differences, barriers to communication, the need to involve stakeholders and address their questions, the fact that the benefits – as well as the risks and pitfalls – of governance are often unclear, and the fact that legal provisions differ from country to country. Accordingly, the challenges are clearly enormous and the risks of getting it wrong even bigger. However, if internal governance is not a simple matter for an international group of companies, it is even more challenging for subsidiary companies. In contrast to the group, the subsidiary is squeezed between the legitimate demands and expectations of the group on the one side, and the day-to-day reality of operating on the other. The board of a subsidiary is thus repeatedly obliged to make choices between conflicting interests.

With the support of Ageas, Deloitte and Laga, in 2008 GUBERNA, the Belgian Governance and Directors’ Institute, created the Centre Internal Governance with the aim of raising governance awareness at the level of corporate groups, their subsidiaries and directors. This publication is the fruit of these years of research and exchange of experiences. Since there are currently no “codes of best practice” for internal governance, the authors had to rely on governance literature, governance experts and their own research to develop a number of basic principles of internal governance within corporations. These concepts have been further complemented by concrete governance practices, based on testimonials of CEOs and directors of subsidiaries and parent companies. This combination has made it possible to develop a number of best practices and opportunities, and to point out the main challenges and red flags for internal governance.