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Panasonic and its subsidiary Panasonic Avionics Corporation are taking a combined hit of approximately $280 million thanks to the subsidiary's bad bookkeeping leading to the publicly traded parent's bad bookkeeping.
The hybrid criminal-civil matter sought to penalize the companies for hiding payments made to alleged consultants, at least one of whom was a foreign official. The subsidiary's payments were recorded as payments to consultants, which, compounded by other shady subsidiary dealings, caused Panasonic to file inaccurate disclosures to the SEC and investors.
Sins of the Subsidiary
Simply as a result of Panasonic getting bad numbers from their subsidiary, the company was essentially forced into a deferred prosecution deal where it doesn't really seem like the company is getting any favorable treatment. It'd be hard to characterize a $140 million of disgorged profits and having your name in national news headlines alongside the word "corruption" as a win for nearly any corporation.
For corporations with subsidiaries, as the Panasonic matter clearly demonstrates, it is rather important to make sure that the accounting coming from the subsidiary is accurate. This is especially true if the parent corp. is publicly traded, or subject to other governmental oversights. Even if the SEC only fined the subsidiary, that essentially comes out of the parent's pocket.
Subsidiary Governance Is Important
A parent company doesn't set up a subsidiary because it has all the time in the world to operate it. In fact, the opposite is true. If the parent had the bandwidth to operate the subsidiary, why would it have started it? As such, ensuring proper corporate governance of the subsidiary is the best and first line of defense for the parent company to not get stabbed in the back.
Notably, as a result of the SEC action, Panasonic's subsidiary has announced major leadership changes.
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