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Company B is a fully-owned subsidiary of Company A, a huge international conglomerate.

All the employees of Company B are in the orgchart of Company A, all under Company B's CEO. That CEO's boss is a regional manager at Company A, who is a few steps away on the orgchart from Company A's CEO. The two companies mostly function as one unit, using the same facilities, including the same email domain and other organizational tools.

The situation I described above applies to many tech companies, many of which are a federation of small fully-owned subsidiaries.

My question is: By what mechanism does Company A tell Company B what to do? Obviously Company A owns all the shares to Company B, but the decisions it makes are more involved than ones made by typical stockholders, like electing a CEO or approving the yearly report. The CEO of Company B follows the plans created by his "superiors" in Company A, who determine his day-to-day priorities. But... They're not really his superiors. They work for his shareholders.

What mechanism do the executives from Company A use to control Company B? What recourse does the CEO of Company B have to refuse the orders of the executives from Company A?

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What mechanism do the executives from Company A use to control Company B?

There is nothing illegal for the shareholders of B, who elect its CEO, to impose it as terms of his employment agreement that he acts as if he was reporting to certain people in A. The separation of companies A and B exists for legal/tax purposes. It does not affect the de-facto cross-company subordination.

What recourse does the CEO of Company B have to refuse the orders of the executives from Company A?

Hand over his resignation letter.

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  • What if Company B is sued for an action that they did on orders from Company A? That's the real-life case I'm dealing with. Can Company B tell the court "Company A made us do it" or will it be the one to take responsibility?
    – Ram Rachum
    Commented Jul 5, 2020 at 11:14
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    @RamRachum Sounds like typical vicarious liability case.
    – Greendrake
    Commented Jul 5, 2020 at 12:15
  • @RamRachum Sounds like you really have a different question. en.wikipedia.org/wiki/XY_problem
    – Paul Johnson
    Commented Jul 5, 2020 at 14:25

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