Structural charting exercises are one of the most useful elements of governance and compliance technology, enabling anyone from the entity manager right up to the CEO and the Board to gauge the current state of the organization and to run scenarios to fuel future planning.
With increasing reputational and regulatory risks threatening the modern corporate entity, managing legal entity governance and compliance is fast becoming an essential area of focus. Structural charting, also known as the creation of organizational charts or entity relationship diagrams, can help organizations, especially multinational ones, to understand the wider group structure and how entities interact, and so forms a key part of that legal entity governance and compliance process.
It’s a seemingly simple task, but one that’s easy to overlook in the wider scheme of governance and compliance workflows. It’s also a task that can easily bring challenges or introduce mistakes into business strategy. When creating organizational charts, one must make sure to avoid the following pitfalls.
1 Trying to complete structural charting manually
Even with plenty of governance technology options available to the market, some organizations are still relying on manual processes and Excel spreadsheets to chart their entity management. And while, yes, it’s possible to create organizational charts using more static software, there is no guarantee that these diagrams will be based on the best available information. What’s more, they will become out of date as soon as they’re created. Using dynamic, cloud-based software to create structural charts affords the organization the benefit of real-time data as well as reducing the risk of human error creeping into the process.
2 Not using real-time entity data
Speaking of real-time entity data, it’s an essential step in ensuring structural charting is robust and of the best possible use to the organization. Creating these entity relationship diagrams using data that is inaccurate or out of date can lead to the wrong strategic decisions being made, or even derailing plans for growth. It’s essential to ensure the data pulled into your organizational charts is as accurate as possible, so that the decisions made based on that chart lead the organization in the right direction.
3 Forgetting to put the organizational chart in context
Context is everything with an organizational chart. It might be one thing to create a chart of the structure’s geographic spread, but without knowing the entity types, the activity or the history of the entities in question, that chart becomes nothing but a pretty map. The context around the organizational chart helps to ensure better-informed decisions are made regarding the future of the business and gives those all-important clues to both the current state and potential future scenarios that are possible for the organization as it stands.
4 Ignoring complexity and opting for simple solutions
When an organization is complex, it needs complex solutions. The simplicity of a flat structural chart can be tempting, but it won’t provide that serious context that is needed for decision-making. The ownership structure of a wider group can bring implications for compliance that can’t be seen without the wider context of things like director roles, shareholder capital and third-party relationships. A simple organizational chart created in a spreadsheet might show the relationship between entities, but it won’t have that essential context to highlight both the intricate details and the bigger picture. Using dynamic solutions that can use real-time entity data to create a structural chart brings more benefits to the complex group structure’s entity management and strategic decisions.
5 Not having consistency in approach
And, of course, with these structural charts being so useful to informing strategic business decisions around growth or even M&A activity, an organization must ensure that it takes a consistent approach to how it creates these charts. If one office uses Microsoft Excel for its entity management and structural charting, but another entity uses an entity management system, while yet another draws the charts in a mind-mapping app, there is no guarantee that the same information or the same approach will be used. Enforcing consistency in how an organization approaches the process can help to alleviate one of the biggest structural charting mistakes made in entity management, and the best way to enforce consistency is to make available a cloud-based system that can ensure everyone in the business, wherever they are, has access to the same entity data.
How entity management software helps mitigate the risk of structural charting mistakes
It’s important, then, to ensure consistency in how your organization approaches structural charting, as well as to use up-to-date entity data and to make sure the context surrounding the entities is readily available. To do all of this manually would be a massive undertaking, and one fraught with huge risk, so the modern governance organization is turning increasingly to entity management software to help mitigate the risks of the biggest structural charting mistakes.
Entity management software helps to create a single source of truth for all entity data, which, in turn, allows organizational charts to be created based on more accurate information. Drawing from a central repository means that the most up-to-date entity data is used in the structural charting exercise, and it also means the context of the chart can be brought in – the software links from the chart to the relevant information, including director names and locations, as well as the latest compliance status and entity details available in the system.
Using entity management software, such as Diligent Entities, organizations can see the current state or run scenarios to help with strategic planning. They can also go beyond structural charting to surface the right information to the right people at the right time in order to complete routine business processes. Taking things one step further, Diligent Entities also integrates seamlessly with the board portal Diligent Boards and a secure file-sharing platform to create the Governance Cloud, an all-in-one modern governance ecosystem that is both cloud-based and highly secure.