Modern multinational corporations are made up of dozens, sometimes hundreds, of different legal entities across the world. While setting up legally separate entities within a larger organizational framework has the function of preserving the “corporate veil” intact by limiting liability for the operations of each entity to that entity alone, it can get really hard these days for leaders of such a company to keep track of which companies own which others, the exact ownership relationship, the directors of each entity and similar details.
Enter the Entity Ownership Chart (EOC). A type of Entity Relationship Diagram (ERD) or Business Entity Chart (BEC) — which we’ve devoted attention to in other posts — the EOC is a method that leverages the information stored by legal and other departments through software that tries to present the full complexity of a modern enterprise in all its many entities in an accessible and actionable manner. Here, we discuss some of the ways using the EOC can work for you and your business.
1) Presents information in a visual way
Every leader of a multinational enterprise knows that spreadsheets are pretty much useless when it comes to understanding the overall picture of their entity’s operations and how they are structured together. This is because human beings do not generally learn and process by mere letters and numbers — nearly two-thirds of all human beings learn and memorize primarily through visual modes — in other words, by seeing the information presented in an accessible form.
Like an ERD or BEC, an EOC takes advantage of the basic learning strategy that’s programmed into our minds by extending the programming into compatible and digestible visualizations of the relationships making up your entity.
2) Provides an overall snapshot of your organization
Basically, we can understand the EOC as a way of taking a snapshot of the ownership relations within your firm in a way that allows you to grasp the multilayered story of each entity. It harvests all of the information about ownership in the numerous spreadsheets, documents and other files that make up your organization’s legal framework in order to present the most relevant and important of that data in a visually stimulating manner.
There are, of course, multiple ways of doing this. A diagram that aims to capture ownership relations between the different entities might use lines in specific ways that tell you at a glance whether a subsidiary is wholly or partially owned, and what its non-majority shareholder population looks like.
Historical diagramming is another perspective to consider. Through using the same color, line and shape elements an ownership diagram has in a different way, a historical diagram will tell the overall story of the creations and spinoffs, mergers and acquisitions, takeovers and so on that have played a role in shaping your present-day operations.
3) Customizes entities and business segments
There are many different ways of charting entities based on the different needs of your leadership at any one time or for any given project. EOC diagramming can break down operations country by country, group together different subsidiaries by their function, detail the ownership structure of each entity by charting shares held and visualized by corporate structure, tax status, voting, shares, participation and interests, depending on the objective of a given diagram.
EOC software is an enormously powerful tool that lets you potentially achieve all of these objectives simultaneously. But you need to be clear about how and why you’re using it to put it to the greatest use. With a tool of such great power, it’s important to think about exactly what you want it to do for you at a given moment.
4) Turns the abstract into the concrete
A chart is just a chart, and the coolest-looking one is still a simplification and an abstraction that will conceal as many things as it reveals, if you aren’t familiar with the most powerful tools of EOC software. Hyperlinks are a good way to keep diagrams accurate by allowing users to click through to more detailed information, whether online or stored in the data libraries of your firm.
The cool thing about EOCs is that they allow you to chart ownership in many different ways. Always keep in mind that any one diagram presents only part of the picture, and that for accurate understanding, you’ll need thorough knowledge through many of them.
5) Offers actionable intelligence
The boxes, circles and other shapes, lines, text and colors that make up an Entity Ownership Chart aren’t there first and foremost because they’re pretty or aesthetic. They’re meant to help your leadership come to actionable insights about your business. With entity charting, you can see in real terms the effect different decisions will have on your overall operations.
Charts and diagrams are created in ERD to help your organization proactively assess and proactively respond in a market and business climate that are in constant flux. If they’re not helping you plan and execute decisions, then you’re discarding the basic advantage that diagramming gives you.
6) Visualization of impact of reorganization
It’s not news to anyone following Brexit and the nationalist turn in US foreign policy taken by President Trump that we are living in a deeply hectic and unstable business climate made that way by decisions from the political realm — outside the direct control of even the largest and most influential firms.
To take those two examples, organizations that were content to let British operations proceed under unitary EU jurisdiction must now look at creating new entities specific to the regulatory regime in the UK following Brexit. The overhaul of the US tax code that was rushed through Congress to President Trump’s desk at the end of last year cracked down on profit-shifting activities while offering US firms a unique window to repatriate assets at a substantial reduction. This means that both foreign and U.S.-based firms are looking at sweeping reorganizations of their U.S. entities that take advantage of the tax cut while simultaneously keeping an eye out for the nationalist-minded hawks of economic policy.
By using an EOC, your leadership can see in real terms the kinds of impact these different restructuring decisions might make on your operations. It helps you plan for the future in a world that’s increasingly subject to turbulent economic and political winds.
7) Enables smarter decision-making
Ownership charts are just one small part of an entity management strategy to enable smarter decision making for your company and its millions or billions of dollars in assets. Users of Blueprint OneWorld’s entity management platform have access to the power of EOCs through our ChartIt tool.
Not only does ChartIt perform all the functionality discussed in this post, but it can automatically generate reports in PDF form that chart the global structure of your entity and tie this information into specialized spreadsheets to see specific transactional data, as well as overall indexing, sorting and management functions. Please call or email us today to discuss this and others of our solutions.