3 Things Board Members Should Know About Personal Liability

Zoe Bucknell
6 min read

Subsidiary governance can be a time-consuming and full-time job in any company, but when you take that role across hundreds of entities and multiple jurisdictions, things get increasingly tricky.

Governance is putting the right decision-makers in the right place, giving them the right information in the right format at the right time, and ensuring they have everything they need to drive the business forward in a compliant and ethical way. To get there, directors and boards need a team supporting them and ensuring all the right boxes are ticked at the right times.

We spoke with Zoe Bucknell, Deputy Company Secretary at Lloyds Banking Group, to hear more about how her team works across borders and across different legal entity types to ensure the Group’s subsidiary governance is robust and water-tight.

Legal Entity Management in a Global Group

Supporting a financial services group operating across 15 countries, Lloyds’ legal entity management team have a huge workload on their hands. Subsidiary governance at Lloyds Banking Group encompasses:

  • 500 legal entities
  • 40 regulated entities
  • over 300 individual directors
  • 30 joint ventures

The  five-strong legal entity management team spend 84 days each year supporting meetings, and additional duties include dealing with director changes across all jurisdictions and entities – there were 260 director changes in 2017 alone.

To help manage legal entity risk and reduce the burden on  the  legal entity management team, Lloyds Banking Group has been working on an entity rationalisation program; it’s reduced the number of entities needing compliance and governance support from nearly 1500 in 2011 to around 500 now. While this has helped to alleviate the burden, it’s still a big task to undertake subsidiary management across the group, which is why it is important to have an effective subsidiary governance framework in place.

Not All Subsidiaries Are Born Equal: Why You Should Worry About Subsidiary Governance

It’s important to remember that not all subsidiaries are born equal – that size, location, regulation and complexity each brings different governance focuses and workloads.

Lloyds Banking Group works on a multi-tier structure to manage their subsidiaries that sit below the  listed top company and principal Banks. Subsidiaries are ranked or tiered according to risk factors,  including regulatory status, number of customers, employees, pension liabilities, litigation, jurisdiction, turnover, capital requirements etc.

Understanding the risk profile enables proportionate governance requirements to be applied to each tier, – for example, the number of directors and board meetings, whether specific board roles or committees are needed, if there is a matters reserved schedule or a need for board evaluations. Every subsidiary is allocated a company secretary and an accountable executive.

This structure helps the legal entity management team to support directors of subsidiaries to ensure that they can deliver effective oversight of the companies, and that issues can be efficiently escalated when necessary.

The Group Board has reduced visibility and control over subsidiary board operations lower down the group structure, making governance oversight more tricky. Issues that can impact shareholder value – regulatory fines and sanctions, financial and reputational shocks – can bubble up from below before you know it, which is why having a proportionate, risk based approach to subsidiary governance is so important.

Supporting Boards in Fulfilling Governance Duties

When you’re working in a group structure with hundreds of different entities, it’s important to have a strong talent pipeline to ensure roles can be filled. This goes not just for the legal entity management team and company secretaries themselves, but also – and perhaps more importantly – the director pipeline. Remember, Lloyds Banking Group has more than 300 individual directors across the group, and local regulatory requirements can often demand those directors retain independence, or that a director can only sit across a maximum number of boards. Being a director can be an incredibly time-consuming role, after all, and they need to be able to give their full attention to matters arising.

Lloyds Banking Group is establishing a talent development program , with divisions nominating potential directors who are then trained up to be ready when the call for a new director goes out. Some of these directors will need regulatory approval, but all of them must be approved by executives before being considered.

To support the boards, the legal entity management team also runs training and induction programs to ensure all directors are aware of what they are personally liable for and how to conduct themselves in the spirit of compliance.

Some entities also run aligned boards, which can be used to reduce the governance impact on both the boards and the business when a number of entities have very closely aligned business needs. However, it’s important to pay close attention to how discussions are structured and minuted to ensure the correct legal entity makes formal decisions.

Putting It Into Practice: The Process of Subsidiary Governance

To ensure robust subsidiary governance, Zoe says there are a number of issues to consider such as communication, entity purpose, points of escalation, assurance, group engagement and risk appetite. Questions Legal Entity teams should ask themselves and the business include:

  • What is the role of the entity, and how does that fit into the Group strategy?
  • Do Group functions understand the purpose of the entity and provide support?
  • What degree of entity independence is required by local regulation?
  • How do Group directors act independently and how are conflicts managed?
  • How does the Group communicate strategy?
  • Do subsidiary boards receive appropriate management information (MI)?
  • Are there clear escalation procedures?
  • Are matters reserved clearly articulated and understood?
  • How relevant is the Group’s risk appetite at subsidiary level?
  • Is there a procedure for entity-level variations on Group risk appetite, or for a waiver?
  • How does Group get assurance over subsidiaries?
  • Will entity-level cultural differences affect attitudes to risk, communication and control?
  • What are the demands of local regulatory regimes, and how can they be taken into account in the subsidiary governance process?
  • Is there the appropriate calibre, experience and motivation visible in subsidiary directors?

With such a complex, multi-tiered group structure, Lloyds Banking Group’s legal entity team needs a robust subsidiary governance framework to keep on top of things, which should consist of:

  • Policies and procedures covering the group corporate governance framework, legal entity management standards and a subsidiary directors manual
  • Efficient processes which are streamlined and digitised where ever possible, including ensuring clear RACI matrices are in place
  • Business engagement identification and engagement with key stakeholders and agreed accountabilities and interlocks
  • Monitoring and oversight through annual attestations, regular compliance reporting and clear escalation, all driven by a proportionate and risk-based approach.

Zoe believes that, while technology cannot replace a robust governance framework, once such a framework is in place, digitizing key elements can support and streamline the workings of the framework, freeing up the company secretaries from more administrative activities to focus on the added value a professional company secretary can offer business.

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Zoe Bucknell
Deputy Group Company Secretary, Lloyds Banking Group Zo' joined the Group in February 2017 as Deputy Group Company Secretary, reporting to the Group Company Secretary. She is also Secretary to the Remuneration Committee, reporting to Chair of the Remuneration Committee. She is a qualified Solicitor and Company Secretary with 20 years broad financial services industry experience. This experience has been gained in a range of businesses from magic circle law firm (Linklaters), to innovative start up (Salaam Halal Insurance) to multinational group (Hiscox) and most recently the FTSE 250 challenger bank, OneSavings Bank. During her career, Zoe has led multidisciplinary teams across legal, company secretariat and compliance functions, both in the UK and abroad. Zo' was appointed as Chair of the Aleithia Anglican Academies Trust from 1 Jan 2019. She has been an Associate of The Institute of Chartered Secretaries and Administrators since 2005. She was educated at The University of Birmingham and L'Institut d''tudes Politiques, Aix-en-Provence.