As enterprises have grown in size and complexity, it is more common to to find them owning and/or controlling multiple subsidiary corporations. When it comes to establishing a nonprofit subsidiary, the usual reasons for its inception are: (1) certain activities differ from the parent organization's purposes and are better pursued in an independent, but controlled subsidiary; (2) the prospect of obtaining government grants is enhanced; (3) substantial revenues will be generated by business activities related to the subsidiary's purposes.
After establishing a nonprofit subsidiary, the term 'parent/subsidiary' is often adapted to describe the relationship between a business enterprise and its subsidiary. However, the term "parent/subsidiary" is not equivalent to the term "parent/child". While the parent nonprofit organization may incorporate its subsidiary, it is important that the subsidiary be established and recognized by the parent, as well as third parties, as an independent corporation managed by a board of directors. The matter of subsidiary independence can be an obstacle to the parent enterprise, which may view the independence as uncontrollable. But recognizing a subsidiary as an "independent" corporation is not the equivalent of regarding the subsidiary as "uncontrolled." A parent organization can maintain control and allow the subsidiary to function as an independent entity by retaining specific liberties and/or abilities with the subsidiary. A subsidiary can gain its independence through the management of its board of directors and officers to carryout the day-to-day functions of the subsidiary. The officers of the subsidiary do not "report" to the officers or board of the parent nor are they responsible to the officers or board of the parent corporation. This does not mean, however, that there is no communication between the subsidiary's CEO and the parent.
The distinguishing and climactic point in the relationship of a nonprofit subsidiary and its parent is the when the parent is able to objectively guide and educate the subsidiaries' directors. A wrong-headed decision here risks mismanagement of the subsidiary. The subsidiary's directors should be selected with great care and more importantly "schooled" in a formal board training program which teaches individuals what they should know about being a director of a nonprofit corporation preparing them to meet the challenges of the corporation they serve. There are many resources available to assist nonprofit subsidiaries as they reach the climax and evolve into a sustainable, independent entity.
My participation with nonprofit organizations leads me to believe that the relationship between parent and subsidiary lack in this final and important aspect of teaching and educating the leaders of its subsidiary by fostering independent ideas and objectives. Progress for our communities and effective leadership is contingent upon the continued growth of these nonprofit subsidiaries. I look forward to my continuing volunteerism and participation with nonprofit organizations and aspire to be apart of the bold progress and development that can be attained when experienced leaders assist young nonprofits to reach their goals and objectives.
"Whatever there be of progress in life comes not through adaptation but through daring."
~ Henry Miller