Back in early 2019, amidst the celebration that 90% of Americans finally had access to broadband internet, a few reporters asked a curious question: Who exactly are the other 10% living without any connection?
We could ask a similar question today of firms using entity management. Research by Compliance Week in partnership with Diligent found that 40% of organizations are managing their entities using purpose-built entity management software. But who are those 60% who aren’t? And how will they fare when the five horsemen of the digital decade—regulation, governance, cybersecurity, remote work, and economic unrest—make work more difficult to manage?
Today, we investigate.
A curious outcome of all the reporting on people without internet was that a third were disconnected by choice. They simply had no interest. Another third said it was too difficult to use and 8% said they were too old to learn. This was all well and good, but whether they know it or not, non-internet users have less access to jobs, government services, healthcare, and education.
Over time, deprivation compounds into a disadvantage that grows increasingly difficult to recover from. As they say, you can ignore reality, but you cannot ignore the effects of ignoring reality. So it is with entity management.
Companies with such software, who report being 17% more confident the right people can access the right entity information in real-time, 32% more confident about their information security, and 42% better able to automate routine tasks, see compounding gains. It creates separate worlds. In one the first world, businesses are thriving, adapting, and improving their ability to respond to yet more change. And in the second? Organizations grow more and more difficult to manage. As we explore next, an inability to manage entity information carries very real costs.
In A World Without Entity Management Software …
Another pandemic would again cut off access to corporate records
One of the most frightening realizations of the early 2020 pandemic was that file cabinets locked in an office that no one could visit weren’t of much good. Organizations that hadn’t yet digitized had to cease work or start over. Similarly, spreadsheets stuck on someone’s desktop computer were no better. When an hour of downtime costs the average company over $100,000, a future without software appears intolerably expensive.
And this is not even considering all the other threats to paper and desk-bound files, from temperature-induced calamities to geopolitical and economic emergencies.
Regulations levy what is essentially a “paper” tax
There has been a 450% increase in regulation since 2011, and there is much more to come. With new laws comes new scrutiny and the logistical burden of compliance is growing. Corporations are increasingly responsible for knowing where all of their data is, all the time—which of it is sensitive and which is not. Which should be expunged and which must be retained for compliance.
It’s also a matter of what clients a company keeps, and whether those companies have been involved in illicit activities. Tracking all of this across regions without software requires a small army, and the payroll to support it.
Tax authorities will prey upon the firm
Tax authorities are increasingly targeting multinational firms as they’ve learned that they’re easier to pursue than their subsidiaries alone. “Some foreign tax authorities have created dedicated teams that specialize in pursuing action against legal entities of the foreign direct investment variety,” writes Ethical Boardroom. These teams tend to target those where they have the highest probability of winning their case—invariably, it’s those that are slow to mount a defense and largely paper-managed.
They’ll miss out on valuable M&A opportunities
Now that more information can be accessed digitally, the expectation is that it will be. But without a way to conduct due diligence into wide-ranging historical records, it’s difficult to verify things, and the costs can be great. For example, one firm acquired another for intellectual property that it later learned it didn’t actually own because the person who had signed for it at the acquired firm didn’t actually have the requisite authority. And this is not to mention all the deals these firms missed because of a lack of central understanding of all their entities.
The firm will grow more expensive to manage
As firms mature, expand, and incorporate more entities, they face a diminishing return. At a certain point, with enough entities in enough regions, it’s impractical for all teams to know what the others are doing. For instance, once the subsidiary’s general manager closed an underperforming subdivision in his region not knowing it had been placed there to earn tax breaks, which the firm abruptly lost.
And the Worst of It?
The worst thing about a future without entity management software is that it needn’t exist. Like those 90% of people who enjoy the internet, you can digitize, centralize, and share in such a fashion that your firm adapts and grows, and doesn’t miss out on opportunities in the digital decade.
Working with Diligent’s entity management tool can help you to surface the right information to the right people at the right time in order to both complete routine business processes and inform business strategy decisions using real-time entity data. Get in touch and request a demo to see why Diligent Entities is the market leader in entity management solutions.