As the number of complex business structures grows, management of those entities becomes more complicated as well. Business goals, regulatory compliance and risk management practices drive corporations to create entities to meet a variety of business objectives.
In the wake of the financial crisis, regulatory burdens have escalated. In addition, risks such as reputation management and the increase in cyber hacking attacks mean that communications and data must be secure. Differences in corporate tax rates across the globe create incentives for corporations to set up subsidiaries in jurisdictions with lower corporate tax rates. Finally, efficient and effective entity management saves time, avoids mistakes, and makes it easier for your entities to achieve their business goals.
Business doesn’t stand still. If you aren’t up on entity management best practices, your competition could pull ahead in this ever-evolving, complex global economy. With that in mind, we offer five essential entity management strategies for your consideration.
1) Centralize compliance, regulatory filings and record-keeping
Decentralized compliance, regulatory filings and record-keeping is a disaster waiting to happen. Decentralization can all too often mean disorganization. Missing regulatory filing deadlines, ignoring compliance and sloppy record-keeping at best will slow your business growth and at worst can actually threaten the health and future of your business.
By centralizing all compliance, regulatory filing and record-keeping in one central system, you can ensure that your employees, corporate secretaries, paralegals, directors and other shareholders know what needs to be done when and have the tools to execute their business functions at their fingertips.
2) Support directors in their responsibilities
To stay competitive, your directors must possess appropriate expertise and skills as well as avoid conflicts of interest. Entities that cross jurisdictional lines are subject to different standards, injecting even more complexity into the directorial function. In general, directors must exercise duties of care, independent judgment and avoidance of conflicts of interest.
Entities must ensure that they are in compliance with regulations governing director independence and restrictions on the number of directorships. Directors benefit from ongoing training about their responsibilities, potential conflicts of interest and governance tasks. Secure, ongoing and appropriate communication among directors, employees, stakeholders and shareholders is essential for directors to fulfill their ongoing responsibilities.
3) Create a subsidiary governance framework
Superior subsidiary management doesn’t happen by accident. Your organization must construct a workable framework for all of your users. Because many organizations possess hundreds, if not thousands, of subsidiaries in far-flung regions of the globe, there must be processes enabled so that all users, regardless of their location, can access the information they need. That also means that users are authorized to access information essential for their function, but not information that is out of their area.
At the beginning of the process, an effective subsidiary management framework must start at the top. Key stakeholders, including board members and corporate secretaries, must buy-in to the process and the system. Goals must be set, documentation obtained and objectives communicated to stakeholders and employees across all organization subsidiaries.
Moving this project forward requires establishing written documentation and regular training for directors and personnel. The framework must be embedded in the organizational culture to be effective; otherwise, directors and personnel may not adhere to either the spirit or the letter of that framework.
4) Leverage technology for compliance
Technology brings order to subsidiary management chaos. But not just any technology. Technology in and of itself can cause more problems than it solves if not leveraged appropriately. If you are considering moving to or upgrading your entity management platform, make sure you accurately assess your needs and wants before signing on the dotted line with a vendor.
You want a system that meets your entity’s evolving needs for governance, compliance and record-keeping. Integration is important, as you want technology that will easily work with systems that you already have for invoicing and personnel, as well as overall enterprise resource management.
Probe your vendors for information about installation support, ongoing support and support during upgrades, as well as business stability. You also want a technology partner that stays up-to-date with ongoing compliance and regulatory changes while possessing the interest and ability to evolve their platform for superior functionality and user experience.
Key stakeholders should be involved at the beginning of a vendor search. Writing a request for proposal (RFP) will help you better understand must-haves versus nice-to-haves. The best vendors will invest considerable resources in understanding your organization, the entities involved and your goals so that they can align their technology with your needs.
5) Empower the corporate secretary
The corporate secretary plays a central role in corporate management, governance and compliance. While statutory duties differ by jurisdiction, the corporate secretary role is evolving in a strategic manner, beyond the traditional recordkeeping role. As the custodians of corporate governance, corporate secretaries assist directors in their responsibilities and provide ongoing training and support.
Corporate secretaries are charged with many other responsibilities, including:
- Stakeholder communication
- Board development
- Managing agendas, meetings and data presentations
- Reporting and follow-up
- Supporting the chairman
- Documenting, communicating and maintaining governance
Organizations that empower their secretaries to act proactively can stay ahead of the curve. Corporate secretaries that are at the top of their game ensure that an organization is prepared and able to meet new regulations and compliance issues as they arise and that all stakeholders are informed. Back office procedures occur smoothly and support the overall goals of the organization appropriately.
A final word
While entity management is complex and ever-changing, it is the key to successfully managing complicated organizations. When your organization adopts these and other best practices, you will position your company for growth and success.