A lot of column inches are dedicated to the challenge of regulatory compliance, especially when an organization crosses jurisdictional boundaries and must deal with multiple different regulatory systems, but many of those column inches assume the cross-border organization is a sizeable one. It assumes that there are in-house teams dealing with subsidiary management and governance, or that there is the budget and resources to outsource this work to a trusted third party.

But what if there’s neither? What about those smaller companies in the startup world, or the traditional smaller businesses that continue to export and import? While it’s true that many regulators cut these small- and mid-caps some slack when it comes to compliance, they still have to keep up with regulatory changes, to make sure they’re filing the right information with the right bodies at the right time, and to keep the corporate record up to date so that data is ready as soon as anyone needs it.

Size doesn’t matter in the world of compliance, and small- and mid-caps still have some work to do to ensure that they can remain listed, remain trading and remain compliant.

Compliance Is a Burden for Small- and Mid-Caps

In a recent survey of UK-based small- and mid-caps, the Quoted Companies Alliance (QCA) found that the majority of these companies:

  • Find it challenging to deal with the regulatory burden of being a listed company;
  • Think the regulatory burden is the number one reason for the decline in the number of companies on the UK public equity markets; and
  • Do not believe that UK policymakers and regulators understand how regulation impacts small- and mid-cap companies.

Only one-third of small- and mid-caps find the regulatory compliance burden manageable, with companies naming the largest burdens when it comes to compliance as complying with FCA rules, corporate governance and providing annual reports.

Whereas larger companies will have teams to deal with compliance and reporting – and people in the various roles that go around those, such as investor relations and legal affairs – small- and mid-caps are less likely to have those roles in-house. That means they don’t have the on-site expertise to deal with regulation and rules changes; any flexibility in regulation can distract those in-house at smaller companies and take away resources from working to improve and grow their businesses, says the QCA.

Going Global with Compliance Adds Pressure and Complexity

That burden becomes heavier once you add in international subsidiary management and subsidiary compliance. Every jurisdiction handles compliance slightly differently – there is no global code of conduct, unfortunately – and those small- and mid-caps will have to stretch their compliance teams even thinner to keep up with all the changes. Remember, this is a compliance world that’s in constant flux, and regulatory pressures are tightening across the globe.

For example, the London Stock Exchange changed its rules for companies on the Alternative Investment Market (AIM) in 2018. Under the new AIM Rule 26, companies must follow and apply a “recognized corporate governance code.” They must also include on their website a public statement about how they meet that code’s requirements, explaining any differences that exist. That’s fine if you have a corporate affairs team, but when there’s just a single compliance manager, it becomes more difficult to keep up.

Subsidiary governance and compliance strategies for international subsidiary management remain similar regardless of size, revolving around identifying risks, designing protection controls, monitoring and reporting on the effectiveness of those controls, resolving challenges, and advising the organization on compliant operations. The differences emerge when it gets down to the reporting level, with some small- and mid-caps not needing to file some reports, or with the same regularity, depending on the jurisdiction. It’s always best to consult with an expert in the local market before finalizing your compliance strategy as a small- or mid-cap organization to ensure that you don’t add unnecessarily to the compliance burden.

Many small- and mid-caps follow the QCA Corporate Governance Code, which is tailored to meet the needs of small and mid-size quoted firms. As Gervais Williams, senior executive director at Miton Group Plc and QCA chairman, said in an article for ICSA’s Governance magazine in April/May 2018: “An accurate assessment of each company’s corporate governance standards is becoming more important. The higher profile of corporate governance codes like the QCA’s should continue to help investors correctly pick out the quoted companies with the best internal cultures and hence ensure our limited amounts of risk capital generate attractive returns.”

However, these streamlined, and less-burdensome, governance codes are still tricky when you’re a lean-and-mean listed startup, or a listed company with a small but dedicated workforce. And even when your international subsidiaries are based in the world’s more sophisticated and flexible governance regimes, you still need to track your subsidiaries and ensure that your record-keeping is immaculate.

Using Technology to Cope with the Burden of Compliance

One way for small- and mid-caps to deal with this heavy burden of compliance when it comes to international subsidiary management and subsidiary governance is through harnessing technology, such as entity management software. These platforms can supplement the in-house team, helping entity managers to become more efficient, retain their nimbleness, and deliver more in subsidiary governance without needing to upsize or add to head count.

Entity management software, such as Diligent Entities, is designed to streamline the process of regulatory compliance and international subsidiary management. It delivers full visibility of all entities at all times, and provides real-time data for accurate reporting. Entity management software can help small- and mid-caps to:

  • Visualize the entire group structure through entity diagramming; with Diligent Entities, those diagrams link seamlessly to all relevant entity data behind the diagram, too, ensuring the stretched compliance team has access to everything they need in one place.
  • Streamline reporting by filing electronically directly from the system.
  • Set up compliance workflows and notifications to ensure that the right people get the right information at the right time to remain compliant – no more missed deadlines.
  • Deliver better and more robust subsidiary governance from a single source of truth.

All of this can help to reduce the burden of compliance, especially for small teams.

Diligent Entities also seamlessly integrates with its board portal to deliver a Governance Cloud solution, enabling board papers to be shared and stored alongside the corporate record, and enabling board members access to entity data quickly and efficiently. Documents can also be shared securely, without needing to attach files to emails and introduce worries about version control.

Get in touch and schedule a demo to see how Diligent Entities can help to streamline international subsidiary management and subsidiary governance for small- and mid-caps, reducing the burden of compliance and making lean teams more efficient and effective.