Entity Management: What Issues Should Boards Be Concerned With

Nicholas J Price
Regulatory changes are having major effects on the global environment. Across the globe, regulatory bodies are paying more attention to transparency in companies with multiple jurisdictions. Many multinational companies are struggling to stay on top of changes in regulation and compliance in the various countries where they do business. Global companies are aware of the risk of liability for board directors due to issues of non-compliance.

Boards of global entities are working proactively to manage legal compliance across the board. New skills, new technologies and new operation models are just some of the topics appearing on board agendas. The changes may yield positive effects. There is the possibility that improvements in governance could simplify legal responsibilities, which will lead to cost-savings and set the stage for transactions or demergers. New technologies, such as corporate entity management software, will give board directors time to focus on strategic business matters, save time, lessen risks and address costs. Better compliance across the entire entity is a win/win advantage for the company and its people.

Regulatory Enforcement Is Increasing & Improving in Entity Management

The United States took the lead in working toward better entity management compliance and the rest of the world is finally catching on. Compliance regulations, obligations and processes vary substantially from one country to another. To date, there is no noticeable action toward simplifying things. On the whole, there's no flexibility with respect to compliance timelines.

Regulators and the public are exerting pressure for companies to operate in a more transparent, ethical way. In the struggle to stay current with regulatory measures, board directors, legal teams and company secretaries feel the pressure to seek a solution to the problem.

Board discussions around entity compliance are becoming more frequent as entity compliance becomes more of a focal point. Between new rules and a higher focus on enforcement, boards are rightly concerned about issues such as high fines, personal liability, asset seizures and strike-offs or non-compliance.

Initiatives such as the Base Erosion and Profit Shifting (BEPS) initiative and Country by Country Reporting (CBCR) require companies with a global workforce to know where their information is, know what it says and report one version of the truth. These are the types of issues that prompt boards to reduce entity management risk. Lawyers are looking for ways to comply without putting lawyers to work on low-value activities.

Shifting Attitudes Around Entity Management

Boards are facing the challenge on how to benefit from greater compliance by shifting their attitudes to improving entity management. There is a cost-savings component to managing global entities efficiently and there is value-added in the process.

Poor Entity Management Is a Reputational Risk

Poor entity management places corporate reputations at risk, especially in the financial services and consumer companies. This is the time for companies to take a serious, modern approach to risk. Companies and authorities are generally on the same side when it comes to wanting to be fully compliant. Cost-savings and risk mitigation are just a few the benefits of effective entity management, but challenges continue to be in their way in improving current processes.

Companies have to overcome several challenges on the path to better entity management. They face many nuances in legal entity management, including ensuring the quality of legal entity data and proper deadline tracking. Boards and legal teams also need to address annual compliance issues and corporate changes. Efficient data collection, document storage and management, organizational charting and corporate planning are additional issues to solve.

The Need for Entity-wide Systems and Processes

According to Deloitte Legal "Future Trends for Legal Services," 26% of in-house lawyers said that global compliance was a major issue for them. This statistic was right behind the 44% who stated that they needed to start doing more with less. Legal teams are more willing to use technology to improve entity management.

In past years, executives viewed industry-specific regulations as more important than entity management, but the philosophy is starting to turn the other way around. As board directors become more concerned about areas where compliance failure could affect their personal liability, they're talking more about it in the boardroom. The final responsibility rests with the board and they need to know who the other stakeholders are that are responsible for compliance. Responsibility can be fragmented and split between legal, tax, accounting and compliance departments, and their compliance processes may not be aligned at all.

Part of the solution may lie in giving just one group the entire responsibility for entity management to eliminate discrepancies, although that group needs to understand the needs of the other stakeholders. Other solutions are to hire more people, outsource functions or continue expecting in-house legal teams to do more with the same or fewer resources.

Companies need strong systems and processes to stay on top of compliance as regulations evolve so boards can ensure that compliance requirements are input into their internal processes.

Meeting the Challenges of Entity Management with Entity Management Digital Solutions

The best solution is to implement Diligent Entity Management board management software where boards can centralize data and compliance resource onto one highly secure platform where they have control over access rights for all who need to use data. The platform allows boards to place restrictions on who can change the access parameters.

Legal teams benefit most by utilizing technology from a central portal with a customizable dashboard. All relevant data feeds into the same central location regardless of who needs it or how they use it. Entity management software fills the need for a single source of truth that contains information about each group member, along with filing deadlines, and keeps legal teams current using automatic notifications.

Diligent's Entity Management program is the most advanced digital tool for delivering actionable insights from collective data, which will promote better decision-making to support the entire entity in all facets. Entity management supports compliance in its capacity to provide a solution for organizational charting and entity relationship diagramming. As an added benefit, the program integrates seamlessly with Diligent Boards, Diligent Messenger and an entire suite of digital tools that comprise the Governance Cloud. With Diligent, board directors minimize risk by staying compliant with state and global regulations.
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Nicholas J. Price
Nicholas J. Price is a former Manager at Diligent. He has worked extensively in the governance space, particularly on the key governance technologies that can support leadership with the visibility, data and operating capabilities for more effective decision-making.