Working with multiple entities brings a huge amount of information to the legal operations team and the general counsel for handling. Start introducing global subsidiary management to the process, and those in charge of governance and compliance can find themselves walking through a minefield of regulation and data requirements.
This burden increases as international jurisdictions are introduced to the process of entity governance, and as new entities are set up and require their own local board management processes.
However, the recent news surrounding the G20 finance ministers’ agreement, which puts in place a global minimum tax rate of 15% for multinational companies, presents an opportunity for organizations with a sprawling entity structure to dissolve unnecessary or duplicative entities that will no longer serve a viable tax purpose. Businesses should prepare now for the impending changes that are expected to come into effect in 2023; organizations that achieve mastery of their corporate record ahead of time will be in the best position to navigate the new requirements.
As entities and group structures become more complex, it’s easy to lose sight of global subsidiary management, of how to keep entity and subsidiary governance strong and robust. Therefore, many legal operations and general counsel teams start to introduce technology platforms to the governance process: These platforms can help to create a central record, to provide easier access to entity data from any location, and to ensure that board and governance operations run as efficiently and as smoothly as possible.
Before we look at how technology can build better global subsidiary management, let’s cover some of the challenges of international entity management.
The Challenges of Global Subsidiary Management
An organization might set up a new entity or subsidiary in a market for many reasons – they might want to test the waters before jumping head-first into a new market, they might want to create a legal barrier between the subsidiary and the parent company, or local regulation may require a separation between the local and parent board operations. Before the recent G20 summit, it may have also been advantageous for an organization to leverage different jurisdictions’ tax regulations. For these reasons, and many more, international subsidiaries can be very attractive.
Yet, they do bring their own challenges. Not only do the entity managers need to consider the local regulations and requirements, which could differ wildly from HQ or be nuanced enough to create a headache, but they must also consider the culture in which that entity is operating. Some jurisdictions could be legally against bribes while local officials encourage the practice anyway. Still others may require certain language or wording in submissions or may expect certain roles to be represented at the board level. (Operations in Western Europe, for example, should always check the cultural representation expected by Works Councils.)
There is widely accepted best practice when it comes to global entity management. When working with global subsidiary management, the general counsel and the legal operations teams should, among other things:
- Be mindful of regulations around control and management
- Have clear written policies and guidance for each subsidiary’s governance processes
- Be clear on the relationship between the parent and its subsidiaries, including decision-making responsibilities and signatory powers
- Maintain up-to-date registers of directors’ interests on a global level
- Carefully document and minute board decisions in each entity
How Technology Eases the Burden of Legal Entity Management
Managing entities in one jurisdiction can be tricky enough but take that legal operations process and multiply it across jurisdictions, across borders and across the world and the challenge goes up several levels. If your organization is managing its entities using an Excel spreadsheet, for example, it can be difficult to ensure that spreadsheet stays up to date and that there is no issue of version control – and that there aren’t multiple versions of the spreadsheet floating around with different bits of information and gaps in data. If there is a change in directors, for example, and there’s no central spreadsheet, legal operations teams risk reporting inaccurate entity data to the register of beneficial ownership.
Thankfully, technology can come to the rescue here: There is now a plethora of systems and software on the market to help ease the burden of legal entity management. By operating in the cloud, these entity and board management systems can create a central repository for all entity data, ensuring that whoever accesses the information is getting the most recent version of events, regardless of where they’re based.
But all this technology can cause as many issues as it eases burdens. While your board management software streamlines board and committee meeting preparation and follow-up, and helps you to run your board operations much more efficiently, and your equally excellent entity management software gives legal operations a much-needed boost, keeping the systems separate can bring additional risks.
Integrate Board and Entity Management Systems for a Single Source of Truth
Much of the information in the entity and subsidiary management solution will be needed by the board at some point, and the details of board meetings and decisions will impact the team’s global subsidiary management, even if it’s just logging those decisions and keeping information up to date for internal audit and for when the regulators come calling. This disconnect between systems becomes especially risky when working on a global scale; the more entities under management, and the more jurisdictions in which an organization is operating, the more data must be logged and shared, and the more likely errors will happen.
By integrating your board management software and entity and subsidiary management software, you can create a single source of truth for your global subsidiary management – one that empowers data-driven decision-making by giving boards, executives and teams across the organization visibility into your global footprint. The integration creates an essential bridge between the portals, ensuring that information can be shared automatically rather than manually duplicated, in turn helping to reduce the risk of human error in transferring data.
These software integrations can be forced, of course, if a clever developer builds an API between the two, but it’s simpler and, more importantly, it’s more secure to work with a system that is naturally integrated so you don’t introduce bugs, vulnerabilities or security risks into your infrastructure.
Diligent’s Entity & Subsidiary Management solution enables organizations to achieve strategic governance through operational efficiencies, secure centralization of data, legal entity compliance, and risk mitigation so you can provide the right info to the right stakeholders at the right time. Likewise, Diligent’s Board & Leadership Collaboration solution digitally transforms how boards, committees and leaders communicate, collaborate and make strategic decisions. When organizations use these solutions in tandem, they not only have a holistic view of corporate governance and entity governance across the entire enterprise, but they are better able to act quickly on new opportunities, to identify and mitigate potential risks, and to take advantage of the benefits brought by maintaining multiple entities in multiple jurisdictions. Additionally, this integrated approach to corporate governance and entity governance makes it significantly easier to simply the corporate the structure to be better positioned for developments such as the G20 minimum tax rate.
In today’s evolving business landscape, organizations must be all at once more informed, more secure, more collaborative and more purpose driven. Investment in better governance, risk, compliance, entity governance and reputational monitoring software accelerates operational maturity, enhancing an organization’s ability to achieve the three most important goals of any business: growth, profitability and brand equity.
Get in touch and schedule a demo to see how you can make better business decisions, backed by data you trust, with the combined benefits of Board & Leadership Collaboration and Entity & Subsidiary Management from Diligent.