If, as a corporate secretary or other governance professional, your life isn’t consumed by corporate governance, then it’s likely safe to suggest that it’s at least front of mind during many of your waking hours. Proactive compliance, regulators’ and shareholders’ expectations and the organization’s ability to meet high standards of scrutiny doubtless hold firm positions alongside other priorities in your office.
Particularly if your organization has been in expansion mode in recent quarters, then you, your board and colleagues likely also attach significance to entity management. Collectively, you want to ensure that the board and organization are aware of and incorporate effective and current governance practices.
Corporate governance best practices include accountability, defined roles and responsibilities, a commitment to integrous, ethical behavior, the alignment of strategies and goals and, last but not least, the development and maintenance of a board that is both diverse and competent.
Modern governance practices reflect a preparedness to reassess the board’s structure and operations, and challenge whether the status quo reflects the best possible approach to governance. It requires a focus on board composition, and effective succession planning based in no small part on good data. Board operations should reflect the use of secure communications that can prevent cyber mistakes. Boards routinely turn their attention to opportunities and risks, and modern governance also implies that boards use data to monitor key risks.
How Boards Should Consider their Entity Management Approach
When considering entity management, it’s a given that directors and senior management will routinely seek information and advice – as will auditors and counsel, accounting and other colleagues. As such, effective entity management requires that an organization adhere to best practices in corporate governance, which are also reflected in modern governance.
Globalization of business is a reality. If you’re a governance professional associated with a company that operates in more than one regulatory jurisdiction, you’re accustomed to complying with regulations that will vary from one country to another. Multinational enterprises (MNEs) must monitor and comply with a range of regulations issued by distinct jurisdictions.
Not only will regulations vary from one jurisdiction to another; the processes required to ensure compliance can also vary from one country to the next. Globally, as regulators scrutinize companies’ operations, their enforcement practices serve to reinforce expectations that businesses shall function with increased degrees of transparency, and in an ethical manner.
The IRS’ Country-by-Country reporting reflects expectations of transparency. This requires that parent entities of US MNE groups with $850 million or more revenue in a previous annual reporting period file a Form 8975, and report a US MNE group’s “… income, taxes paid, and other indicators of economic activity on a country-by-country basis.”
On the matter of tax avoidance, more than 130 countries have committed to collaborate through the Organization for Economic Co-operation and Development (OECD) on its Base Erosion and Profit Shifting (BEPS) initiative.
Whether your company is impacted by Country-by-Country reporting requirements, the BPES undertaking, or both, the implications are straightforward. Multinational enterprises need ready access to all their data and other information relating to the company’s operations, and they need to be able to produce reports that reflect corporate realities – a single version of the truth.
Why Boards Should Consider Entity Management Software
When you consider the multiple nuances associated with governance itself, it’s unsurprising that that there’s more to entity management than data collection and document management. As outlined by Deloitte in its 2019 publication, Legal Entity Management – Beyond compliance, legal entity data and deadline tracking, organization charting and corporate planning can require your General Counsel (GC) and legal team’s time. The organization also needs to address annual compliance and corporate changes.
Independent of companies ensuring compliance, boards are directing increased attention to entity management because of directors’ responsibility for risk oversight. Deloitte has observed that some organizations are now taking “a more serious and mature approach” to risk. Using entity management software can mitigate both regulatory and reputational risks associated with non-compliance. An organization’s failure to comply with a regulatory body’s requirements may represent risk in the form of asset seizures, significant fines, strike-offs, and/or personal liability for individual directors.
There are other benefits, though, to implementing entity management software. Beyond securing confidence in a cost-effective approach to risk mitigation and compliance reporting, boards can appreciate that acquisition of entity management software will position their GCs and their teams to allocate more of their time to higher value work.
Your Organization, Entity Management & Diligent Entities
When an organization incorporates Diligent Entities in its operations, the organization gains a single, secure platform. It gains centralized data that supports the capacity to report a single version of the truth. The organization can determine access privileges for all who need to enter or access data, which creates further efficiencies for you or other colleagues who would otherwise have retrieved and relayed data. Just as the board has the ability to identify and limit who is able to change access parameters for your board and committee books, your organization can identify and restrict which people are able to make any changes to access parameters.
Whomever among your team has privileges to enter and access data, all data will reside in a single central repository. You and your board can derive confidence in the knowledge that the organization can readily integrate data from various business units – compliance, finance, legal and tax – within a single system of record. If you’re already relying on Diligent Boards and Messenger, you’ll find seamless integration with these resources. You’re able to customize the Entities dashboard to reflect your legal team’s needs, and it provides solutions for entity relationship diagramming and for organizational charting.
Your legal team will be able to stay current, as the entity management tracks data related to each of the company’s entities. It records data changes, in support of audit and reporting needs, and provides automated notifications. Track the time required to manually create, check and file statutory forms for each of your entities, and then consider that Diligent’s entity management software automates these processes. The entity management software enables the organization to electronically provide information to auditors and file forms with the requisite domestic and international regulatory bodies, all in a secure manner.
Boards and management teams will benefit from the software’s capacity to efficiently extract, sort and analyze both quantitative and qualitative data. You can compress information and distill it into readily digestible graphs, charts and images to provide meaningful insights for your board and senior management. Critically, entity management software positions directors to enhance their understanding and oversight of the corporate structure. If you and your directors are engaged in modern governance, is it time to challenge the board’s status quo when it comes to entity management?