Being on a board of a foreign subsidiary.

• Author: Blassberg, Franci J.

Director beware: foreign subsidiary board service presents additional, but manageable, complications.

A corporate director or officer of a U.S. corporation is often asked to serve on the board of one or more of that corporation s foreign subsidiaries. Although posed as a question, a negative response to the invitation would often come as a surprise to the chief executive officer making the request. A corporate officer or director put in this position should, nonetheless, accept the directorship only if he or she is prepared to become familiar with the subsidiary's business, the corporate requirements applicable to the foreign subsidiary, and the types of liabilities to which one might be exposed and how to minimize those liabilities. Here are some matters to think about.

Importance of corporate formalities

In many foreign jurisdictions, corporate requirements for the operation of a company - even a wholly owned subsidiary - are more formalistic than in the U.S. For example, in certain countries like France and Spain, the board of directors may not take action by written consent and directors must be physically present to attend meetings. In other jurisdictions, there may be a requirement to hold board meetings in the home country in part because employees' representatives are required to be invited to attend board meetings. Therefore, a potential director of a foreign subsidiary must be prepared to travel to board meetings. In any event, in order to stay familiar with the activities of the subsidiary in which he acts as a director, periodic meetings with management in the subsidiary's home country may be advisable.

Few directors in the U.S. need be concerned about a company's obligations to act within its corporate powers because of the broad scope of those powers under U.S. law. However, in many other jurisdictions substantial restrictions exist on the scope of corporate powers, and directors may need to inquire as to whether a proposed action is within the corporation's powers. For example, each European jurisdiction has different rules on what type of upstream guarantee is within a subsidiary's corporate powers. Potential directors should also be aware that failure to comply with certain formalistic requirements can sometimes result in civil or even criminal liability for directors.

Differing and evolving standards of fiduciary duties

In most foreign jurisdictions, as in the U.S., a director has fiduciary duties. Although the scope of...