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Parent-subsidiary dealings

  • nature of control 
    • existence?
    • how used?
  • Financing decisions
    • parental preference?
    • business judgmet rule, if not
  • Business allocation
    • parental preference?
    • identify subusidiary's interests, expectancies
  • Inter-subsidiary dealings
    • parental preference?
    • intrinsic fairness
      measure of fairness in non-market contexts

Daily Thoughts

Quote from a recent meeting: "We are going to continue having these meetings, everyday, until I find out why no work is getting done."

Quote from the Boss...  "I didn't say it was your fault.  I said I was going to blame it on you."

A motivational sign at work: "The beatings will continue until morale improves."

A direct quote from the Boss: "We passed over a lot of good people to get the ones we hired."

The Boss has given automobile accident victims new hope for recovery.  He walks, talks and performs rudimentary tasks, all without the benefit of a SPINE.

Problems

Sinclair-Venezuela is a 97% owned subsidiary of Sinclair Oil.  The two companies file a consolidated tax return.  This means the parent can use losses of the subsidiary to offset the parent's income, thus reducing the parent's tax.  This is valuable to the parent.  

Argue for the minority shareholders of Sin-Ven that the parent should pay full value to the subsidiary for using its favorable tax position.  THese payments should be judged under an intrinsic fairness test.

Argue for Sinclair that its shareholders would want Sinclair to pay nothing.  A consolidated return is available only because of Sinclair's ownership and the losses would have no value to SinVen, if it were an independent company. The standard of review is business judgment rule. 

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