It’s hard to believe, but it’s been more than a decade since the global financial crisis loomed large and governments were busy bailing out banks in an effort to save the economy.
Until that point, corporate governance had largely been moving in a hands-off, business-will-sort-itself-out direction, with globalization fueling unprecedented business growth around the world, opening new markets to smaller and medium-size businesses as well as multinational corporates.
But when the collapse of the Lehman Brothers bank in 2008 developed into a major international banking crisis, the U.S. Congress passed the Dodd-Frank Wall Street Reform and Consumer Act in 2010 to promote financial stability, and regulators around the world started looking deeper into the way businesses were owned, structured and operating in different jurisdictions.
Into this climate stepped the OECD’s Base Erosion and Profit Shifting (BEPS) project, which sought to stamp out the tax evasion seen in some companies using complex organizational structures to move profits around internally to “abuse” tax treaties. BEPS introduced stricter requirements for an entity to have “substance” – that is, to display a certain number of business functions taking place, including making decisions – or face penalties. Alongside this work, the U.S. Foreign Account Tax Compliance Act (FATCA) and Country-by-Country reporting (CbCR) signaled an automatic exchange of information on taxpayers by regulators in many jurisdictions, adding to the need for strong corporate governance to avoid the ire of regulators.
The last decade, then, has been characterized by increasing regulatory pressures and a greater compliance burden, as well as a need for organizations to become more transparent about operations. That transparency, in turn, requires much more rigorous corporate governance processes, as information must be kept up-to-date at all times, and stored in a way that’s easy to access by those who need to report to regulators.
Why the Board Needs Visibility
But modern governance is about much more than transparency and an added compliance burden: It’s also about the roles and responsibilities that come with those changes. In particular, directors and senior business leaders are taking on additional responsibilities that could see them personally sanctioned in the event of a failure of corporate governance.
The advent of beneficial ownership registers means these directors’ personal details are on the government record, and they can face personal sanctions – including fines and jail terms, in some jurisdictions – if the business’s corporate governance and compliance processes miss a filing or overlook a statutory requirement.
So there is a personal imperative to have visibility of corporate governance processes, it’s true. But those governance deficits can, of course, have a great impact on the business, too. Without a robust corporate governance process, the company’s risk management processes will be skewed, leading to the Board making decisions based on erroneous data. The company’s strategy, too, will be based on bad data, which can lead to wrong moves or missed opportunities. And that corporate governance deficit means the company could face sanctions, fines or reputational damage for non-compliance.
Visibility into corporate governance processes can help the board to:
- Assess M&A opportunities
- Get ready for IPO
- Decide how to enter new markets and territories
- Make a change to how services are offered or products are made
- Optimize workforce capabilities
- Ensure the right talent is in the Board pipeline
- Maximize profit and minimize losses through correcting group structures
Let’s take a definition from Pierre-Yves Gomez, Director of the French Institute for Corporate Governance (IFGE), who says corporate governance is “a set of legal, regulatory or practical measures that define the extent of both the power and the duties of those who are responsible for the sustainable leadership of a company.” In this sense, the board is in charge of the sustainable leadership, and without visibility into the status of compliance or the data insights that feed modern governance, that board is flying blind. How can they navigate the complex regulatory environment inherent to most jurisdictions – even the business-friendly ones – without that visibility?
Get the Right Tools for the Governance Job
Modern corporate governance can be a total minefield for legal operations and compliance professionals – there are so many moving parts, with so many deadlines and so much inherent risk, that it can be difficult to keep a manual handle on what’s going on. That’s why so many company secretaries and legal operations teams have turned to technology to help streamline operations.
And yet, too much technology can be a bad thing. You need the right tools, analytics and insights to run a modern governance program, but you also need those tools to be able to talk to each other. Introducing any conflicts or manual transferring of data into the process introduces one of the biggest risks of all: human error. With the increased compliance burden, that’s not a risk a modern governance program can accept.
So, let’s add an extra requirement for modern governance: you need those essential technology platforms to be integrated, to be able to automatically share data and insights, and to be able to pull reports from any part of the system at any time. Equally important is creating a single source of truth, a central repository where both compliance and legal operations professionals and the board and business leaders can go to access the right information in the right way at the right time.
It’s this requirement that Diligent seeks to meet with the Governance Cloud. Designed with the processes of board directors, executives, general counsels and corporate secretaries in mind, Diligent’s Governance Cloud is a cohesive and connected suite of tools made to meet the needs of modern corporate governance. It brings together those fragmented and disconnected solutions into one cloud-based resource, helping boards to streamline duties for compliance, regulation and governance while keeping all processes in a highly secure, confidential platform.
The Governance Cloud enables organizations to achieve best-in-class modern governance through an ecosystem of software tools that digitize the various activities and tasks of the board, including a cloud-based board portal for document storage and board processes; electronic D&O questionnaires and voting systems that save time and effort; secure electronic messaging to connect individual directors, wherever they are; an entity management platform to provide a single source of truth for all entity-related information, with built-in processes and workflows to help review and measure the compliance of entity data; and a tool to help with board evaluations, enabling a timely review of corporate governance procedures and compliance status.
Get in touch and schedule a demo to see how Diligent’s board and entity management software can help to bring enhanced corporate governance visibility and ensure the integrity of entity data remains secure.