Holding, a concept similar to federalism

Hello everyone,

The APROFED association is back with you this weekend to talk about a concept well-known in the business world, particularly among top bosses, namely that of the holding company, which at the institutional level could be compared to that of federalism.

First of all, what is a holding company?

A holding company, or umbrella company in Switzerland, is a financial company that brings together partners or shareholders under a legal entity. Creating a holding company therefore involves uniting at least two companies around a parent company called a “holding company,” which owns all or part of the capital of the subsidiary company called a “subsidiary.”

A holding company is a company whose main purpose is to hold interests in other companies, with the aim of controlling and managing these interests. Holding companies can be active (activating), when they actively participate in the management of their subsidiaries, exercise control, are involved in the management decisions of the companies held or passive , when they simply hold shares without intervening in the daily management. In this second case, the main objective is to centralize ownership and profits. They are de facto less involved in operational strategies.

This is where the concept of holding comes close to that of federalism and the concept proposed by the association, in its solution no. 1 with France, which would require New Caledonia to remain linked to the State without the latter intervening in the daily management of the territory’s affairs by no longer exercising any (constitutional) control over the country’s laws, thus allowing New Caledonia to remain within the State’s control while exercising its legislative sovereignty with regard to its internal powers, this is what is called the principle of subsidiarity .

In a holding company, decisions are made either at the holding company level (strategic) or at the subsidiary level (operational). In federalism, the principle of subsidiarity is based on the principle that each level of government manages what it can do most efficiently.

In addition to the principle of subsidiarity, federalism can be compared to a corporate holding company in that it has two other common points, namely: the autonomy of entities and the distribution of powers. In a federal state, federated entities (regions, provinces, states) have autonomy in certain powers. A holding company owns several subsidiaries that operate with a certain autonomy while respecting the group’s overall strategy. In a federal state, there is a distribution of powers between the central government and those of the federated states. In a holding company, the parent company defines a general strategy and leaves operational management to the subsidiaries.

Thus, instead of the “internal federalism,” or active federalism in this case, advocated by the loyalists, it would be more appropriate to advocate an external or passive federalism, the exact opposite.

According to INSEE, at the end of 2018, approximately 444,000 companies in France were organized as groups of companies or controlled by public authorities. Thus, 132,000 groups employed 10.7 million full-time equivalent employees, or nearly half of all employees in the private and public sectors.

We wish you a good read and remind you that federalism is the only solution to reconcile unity in diversity.

The APROFED association