As the pace of business, the markets and the global economy rises, it's all too easy for compliance to get lost in the shuffle. More immediate priorities clamor for attention in the effort to generate higher profits and to grow multinational entities. Relegating compliance to a subsidiary role in global entity management, however, is a mistake. Failure to implement and adhere to regulations and compliance best practices has the potential to exert a heavy toll on an organization, as issues at one small subsidiary around the world can shake the foundations of a parent company to the core. The current environment of sexual harassment scandals illustrates how entities that don't take compliance seriously run the risk of heavy reputational and financial damage that can be difficult to overcome. It's obvious that regulators, shareholders, stakeholders and the public are all demanding a higher level of compliance from organizations. Compliance is the grease that keeps global entities on an even keel, enabling them to operate smoothly and attend to their primary business goals. To raise the bar on your compliance practices, consider these five best practices on how to manage your global entities in a legally compliant manner.
#1: Take an Entity InventoryThe first step is to know exactly where you operate and the current structure for compliance management. All too often, organizations grow haphazardly through acquisition and organic growth without considering the overall compliance implications of a push into new markets and new lines of business. By taking an inventory of the entities that currently exist and understanding how compliance is handled, your overall organization will know where it stands today. With that entity management snapshot in hand, you can proactively move forward to address any entity compliance management challenges that are creating problems or that have the potential to create problems in the future.
#2: Understand the Compliance LandscapeTo say that the global compliance landscape is in constant flux is an understatement. There are many issues affecting global compliance, including:
- Jurisdictional issues: Multinational corporations with hundreds, if not thousands, of entities must cope with wildly differing jurisdictional rules. Not only do these rules differ, but they also are subject to nearly constant change. Governance structures differ from country to country, so that what is regulated by the national government in one country might be regulated locally or regionally in another.
- Trade issues: As protectionism grows, more countries are imposing trade barriers and tariffs. These rules may be subject to international organizations, such as the World Trade Organization, further complicating matters.
- Tax/accounting issues: Tax issues are set and regulated nationally while accounting rules are created by accounting organizations. For entities with subsidiaries that operate globally, financial statements and books must be reconciled for different accounting and tax rules.
- Legal issues: Laws, enforcement and shifting cultural norms mean that behavior that was previously tolerated can become criminal in what seems like a matter of weeks or days. Election of a new government can mean a step-up in enforcement or a relaxation in enforcement and a change in laws.
#3: Create ProcessesBecause global compliance is so complex, processes must be implemented for ongoing successful planning and execution of compliance activities. Processes can move from a big picture look to the individual steps that it will take to ensure that compliance tasks are completed correctly and on time. These steps include:
- Compliance calendars: Create a compliance calendar for each jurisdiction in which entities operate by consulting with local experts, including local accounting and law firms. These local experts can help you develop accurate and timely information in order to ensure that nothing falls through the cracks.
- Compliance assessment: Analyze past operations in all of your entities in order to determine whether filings and payments are being made on time and what the state of compliance is at each individual subsidiary and every office.
- Compliance plan: Once you have a calendar and an assessment, you can create a plan to ensure that all future filings and payments are made on time.
- Compliance personnel: Local personnel in these subsidiaries should be trained in the new processes to ensure that they understand what needs to be done and are prepared to ensure that deadlines are met in a timely fashion in the future.