Evon Chung, Global Entity Manager, Corporate Secretarial Services, from Diligent partner Law Debenture, shares her predictions around the trend towards centralizing corporate governance.

As businesses work to consolidate and streamline their governance activities, flexibility in terms of resources and methodology is key.

The Covid-19 pandemic has complicated matters. Lockdowns and remote working have led to many companies facing a backlog of compliance work. This, combined with pressure from additional regulatory requirements across various jurisdictions, has generated an urgent need to improve efficiency. As a result, businesses are increasingly reviewing how their corporate secretarial functions are resourced, with many considering either a fully outsourced or a hybrid model.

But what are the implications of each of those options?

Full outsourcing

With a fully outsourced model, companies contract with providers to take on the day-to-day corporate secretarial activities for all of their subsidiaries. This typically includes all aspects of the annual financial accounts approval process together with routine corporate changes, such as changes to the board, delegations of power and implementation of governance policies.

Outsourcing these activities means the internal corporate secretarial team can focus their time and efforts on more strategically important matters.

A key benefit of this model is that companies can easily ramp up their outsourced support to cope with periods of peak activity due to approval deadlines or one-off projects.  Additionally, if a fixed fee model is agreed with the provider, companies can achieve flexible resources with certainty of budget control without having to incur overheads such as hiring costs for additional resources.

A hybrid approach

Some companies will opt for a hybrid model, which means external resources are contracted to handle only specific aspects of their corporate secretarial function.

For example, companies may decide to outsource activities for specific countries where either their existing in-house compliance team is lacking in expertise or the burden to keep entities in good standing is more onerous in those countries.

This model offers more flexibility on how much of the corporate secretarial function is centralized with outsourced support, and how much is handled in-country / in-house.

Real life examples of flexible centralization

Among our own clients, we have seen a variety of approaches to consolidating corporate governance. Most incorporate an element of flexibility to accommodate specific circumstances.

Here are a few examples:

  1. A retail group with around 500 entities around the world outsources its corporate secretarial activities for all of its entities with the exception of Italy on the basis the corporate legal team handles Italian requirements in-house.
  2. A multinational software company outsources its corporate secretarial activities in all countries except the USA, where governance and compliance is handled internally.
  3. One of the largest multinational investment management corporations outsources its corporate secretarial activities of its operations across the EMEA region specifically.  This is because after an acquisition, the company decided to outsource the corporate secretarial activities for only the acquired entities.

What are the implications for the future of governance?

With the above in mind, here are my predictions for the world of global subsidiary governance:

  • A continued shift towards outsourcing and co-sourcing depending on where an organization is based, where it has subsidiaries and internal resource criteria such as people, expertise and technology.
  • Increased use of technology to track global compliance which includes workflow processes for collaboration on data assurance and filings, and dashboards for visibility across the organization.
  • Greater automation of common tasks, such as preparing powers of attorney.
  • Continued scrutiny of regulatory compliance from key stakeholders, including shareholders as breaches become more public and financially severe.
  • Increased recognition of the need to adequately staff group secretariat functions internally.
  • Rationalization of legal entity structures and alignment of businesses into the right legal vehicles.

Diligent Entities helps organizations looking to centralize their corporate information and compliance. Dashboards and reports give visibility of subsidiaries and compliance across the organization as a single source of truth, and secure file-sharing and workflow features enable teams both internally and externally to collaborate seamlessly.