Subsidiary oversight across borders
The differential between Swiss and local duties is the exposure. Read it specifically.
Most Swiss-incorporated holding companies of any size operate through foreign subsidiaries — an English operating company, a Delaware LLC, a German GmbH, a Netherlands BV. The instinct of parent-board directors is to treat these entities as accounting units, with governance that mirrors the parent’s. That instinct fails in three places: the sub-board has its own duties under its own law; the sub-board’s duties may engage earlier or later than the parent’s; and dual-hat directors who sit on both boards must navigate two duty regimes that do not always align. A world-class Swiss board’s oversight of its subsidiaries is neither abdication nor occupation; it is a structural allocation of what is decided where, documented well enough that a court in any of the relevant jurisdictions can see the reasoning.
1. The duties that bear on this
The Swiss parent’s Art. 716a oversight reaches the group. The parent board’s non-delegable duties — overall management, organisation, supervision of management — extend to the group under the parent’s control, even though the Swiss parent is not itself the legal obligor for subsidiary activity. The oversight is structural, not operational: ensuring the subsidiary’s board is properly constituted, adequately informed, and operating within a group-governance framework the parent has established and monitors.
The sub-board has its own duties under its own law. Directors of a Delaware sub are measured under Delaware fiduciary standards, including post-Marchand oversight expectations. Directors of an English sub operate under the Companies Act 2006 directors' duties, including the creditor duty recognised in BTI v Sequana. These duties run to the subsidiary, not to the parent; a dual-hat director who subordinates subsidiary interests to parent instructions breaches the local duty.
The duty differential is the exposure. On comparable facts, Swiss law sometimes engages earlier than foreign law — notably through the Art. 717 OR reserve duty illustrated in Papierschlamm — and sometimes later. The board that assumes symmetry is the board that is unprepared for the asymmetric enforcement that follows.
2. The process
- Establish and periodically review a written group-governance framework. Reserved matters; escalation thresholds; information flows; reporting cadence; financial and operational limits above which subsidiary autonomy gives way to parent approval.
- Staff each material sub-board adequately. At least one director resident in and knowledgeable about the sub’s jurisdiction. Dual-hat parent directors are useful for information flow but are not sufficient on their own to discharge local duty.
- Brief the sub-boards on the duty differentials. An English sub-board that does not understand the Sequana creditor-duty trigger is under-prepared. A Delaware sub-board that has not received a Marchand briefing on its mission-critical risks is under-prepared.
- Route intra-group transactions through documented arm’s-length analysis. Transfer pricing, inter-company lending, management-services agreements, guarantees — each is a source of sub-board liability if structured in a way that disadvantages the subsidiary.
- Coordinate distress-approaching decisions. A sub-level capital problem may trigger duties simultaneously at sub-board level (local insolvency law) and at parent level (Art. 725 analysis on the consolidated position).
- Maintain information flow in both directions. The parent should know what the sub-board knows about sub-level risks; the sub-board should know what parent-level decisions are being taken that affect sub-level strategy.
- Review annually. A governance framework designed in 2020 is not adequate to the sub-portfolio of 2026.
3. Questions to ask management
- Who sits on each material sub-board, and what is each member’s competence and independence relative to local duty?
- When did we last audit the sub-board composition and succession plan?
- What is our group-governance framework, and when was it last reviewed?
- What information flows from each sub to the parent, on what cadence, and is it adequate?
- Are there material intra-group transactions — transfer pricing, inter-company loans, management fees, guarantees — that would not be arm’s-length on external benchmarking?
- Does each sub-board understand the duty profile it operates under?
- Are there sub-level regulatory exposures — FCA, BaFin, SEC, DNB — that the parent board is not actively monitoring?
- Where is each material sub on its own capital and solvency tests under local law?
- What is the sub-level litigation and investigation register, and how often does it reach the parent board?
- If a material sub entered distress tomorrow, what would we do in the first seventy-two hours?
4. The record to leave
The group-governance framework and its review cycle; sub-board composition and briefing records; reserved-matters schedules; intra-group transaction approvals with their documented arm’s-length analyses; periodic sub-to-parent reporting in the parent board pack; minutes of parent-board consideration of sub-level matters. The file should, at any given moment, support a clear answer to: what has the parent-board’s oversight of each material subsidiary looked like over the last twelve months.
5. Failure modes
The Sequana differential, unanticipated. A Swiss parent directs a UK operating sub to distribute cash up on facts that would, in Switzerland, have engaged the reserve duty under Art. 717 OR and have been actionable. The UK sub’s directors, operating under the later UK creditor-duty trigger, are not caught on UK facts. Years later, Swiss liability litigation against the Swiss parent’s directors turns on what they knew about the sub’s contingent exposure at the moment of the distribution — a question the parent’s casual oversight had not preserved answers to. See the BTI v Sequana commentary.
The missed Marchand exposure. A Delaware operating subsidiary in a mission-critical business — food safety, patient safety, regulated financial services — has no board-level oversight of the relevant risk. The Marchand pleading threshold is met by the sub’s own facts. The sub’s directors face derivative exposure; the parent-board’s oversight failure produces parallel Swiss Art. 754 OR exposure for the parent-board members themselves.
The dual-hat conflict. A parent-board director also serves on the sub-board and votes at sub-board level on an intra-group transaction that favours the parent at the sub’s expense. The local court treats the vote as a breach of the sub-level duty of loyalty; the Swiss parent court treats the director’s parent-side conduct as adequate. The director is still personally liable on one side of the ledger.
Cognitive register. Distance degrades oversight in predictable ways. The out-of-sight heuristic means remote subsidiaries receive less cognitive attention than their actual risk weight warrants; the parent board reviews subs on an exception basis that under-samples for the exceptions it has not yet noticed. The fundamental attribution error shapes the parent’s reading of sub-level outcomes: where a sub produces a scandal, the parent attributes it to local culture or local management; where a sub produces success, the parent credits group strategy. And the in-group/out-group dynamic means sub-board directors — structurally “them” from the parent’s perspective — are listened to less attentively than their knowledge warrants. The periodic group-governance-framework review (process step 1) exists precisely to surface sub-level risks the parent’s attention would otherwise miss.