The information contained in this document is marketing material and for informational purposes only. The information contained in this document is presented without any warranty or representation as to its accuracy or completeness and all implied representations or warranties of any kind are hereby disclaimed. Recipients of this document, whether clients or otherwise, should not act or refrain from acting on the basis of any information included in this document without seeking appropriate professional advice. The provision of the information contained in this document does not establish any express or implied duty or obligation between Citco and any recipient and neither Citco nor any of its shareholders, members, directors, principals or personnel shall be responsible or liable for results arising from the use or reliance of the information contained in this document including, without limitation, any loss (whether direct, indirect, in contract, tort or otherwise) arising from any decision made or action taken by any party in reliance upon the information contained in this document. © The Citco Group Limited, December 2023.
Corporate Counsel Magazine – Addressing the Evolving Needs and Challenges Facing In-House Counsel
In an article for ALM’s Corporate Counsel, Kariem Abdellatif, Head of Mercator® by Citco explores some of the key challenges for in-house legal teams when it comes to maintaining control of their entity portfolios, and outline the tech-driven solutions that can help to overcome these pain points.
The ever-changing and increasingly complex global regulatory environment means it is becoming difficult for multinationals to stay ahead of the governance curve without adopting technology. As expanding regulations and growing scrutiny around compliance continue to define today’s business landscape, the onus is on general counsels to ensure healthy governance, transparency and accountability across their global portfolio of entities.
The complexity of maintaining large, multi-jurisdictional subsidiary portfolios
Keeping up with large-scale regulatory change is one of the current hurdles facing in-house legal teams. Over the last decade, the volume of regulations and reporting requirements across the world has grown exponentially. Thompson Reuters’ 2023 Cost of Compliance report shows that compliance officers are anticipating the continuation of this trend, with 73% expecting regulatory activity to increase this year.
Effective Entity Portfolio Management (EPM) is more than just company administration and filings. For in-house legal teams at multinationals – dealing with numerous entities spread across the world – a major challenge is ensuring they keep on top of constant local and global regulatory changes. A rule tweak in one area – for instance impacting on Management, Officers or Attorney-in-Fact appointments – can also trigger requirements in multiple entities, making the governance of globally dispersed subsidiaries even more difficult to control.
Increasing governance and compliance risks
Navigating the nuances and complexities that come with operating in multiple jurisdictions means businesses already have to contend with different legal systems, languages and stakeholders, and this is compounded by growing regulatory expectations. As multinationals expand into new markets and the number of subsidiaries involved rises, so too does the risk of non-compliance. With regulatory changes posing severe risks for multinationals, compliance has become a top strategic priority for in-house teams who must contend with increased regulatory scrutiny and demand for enhanced transparency.
The regulatory penalties for multinationals that fail to meet compliance obligations and deadlines have never looked tougher. They include hefty fines, and even criminal prosecutions, quite apart from any reputational damage. For example, failure to comply with the new beneficial ownership requirements introduced in South Africa in May 2023 will amount to non-compliance with the Companies Act, which could result in a court ordered administrative fine equal to either 10% of a company’s turnover, or one million South African Rand (whichever is higher).
Alongside the risk of fines and penalties, non-compliance can cause significant challenges by blocking registration of corporate changes or company operations. For example, in Latin America, even a seemingly honest small oversight such as failing to renew management information in official company registries may put the company into a situation where it has no local representative who is able to prove their authority to represent the company before third parties.
All of these regulations mean higher costs. Taking the Latin American example, the findings from our latest LATAM EPM: Special Report indicate that the region is on average 31% more expensive to operate within than Europe, and 65% slower than North America. Challenges facing multinationals are driven by the complexity of formal requirements within LATAM jurisdictions, local authority segmentation, substantial translation obligations and the requirement of a local presence – all of which incur significant costs. Digitalization is another major barrier: LATAM lags far behind Europe and Asia when it comes to unifying and simplifying corporate governance processes. LATAM offers a rich market full of opportunities for multinationals who are looking to establish or expand their operations; however, there is still a considerable amount of red tape and regulatory quirks that multinationals need to be aware of in order to stay compliant.
As in-house legal teams continue to hold greater responsibility in protecting their organisations’ reputations and financial stability, their role in successfully maintaining effective oversight and providing assurances that each entity – no matter the location – is properly managed, have never been more critical.
Why the traditional way of managing a multinational’s entities is not up to the mark
The current process some multinationals use to manage and track corporate housekeeping tasks can be inconvenient, inefficient and admin heavy,with even the smallest of errors posing wide-reaching implications.
At the same time, the inflationary macroeconomic climate can lead to greater pressure on these teams to control costs and find ways to innovate and streamline their governance processes. With enormous potential for driving increased efficiencies and improved risk management, technology can help meet these ever-growing demands on their time and resources.
Tech-based solutions for in-house legal teams at multinationals
Technology is playing an increasing role in corporate governance and can become a fundamental tool to help in-house legal teams manage their workloads.
As a starting point, being able to track the various deadlines deriving from local laws and regulations in each jurisdiction is of paramount importance.
Technology can provide a huge benefit here, helping to foster transparency across an organisation when it comes to overall compliance obligations and who is responsible for achieving these. A centralized platform – which offers up-to-date information on changes to processes and new regulations across an entire entity portfolio – enables in-house legal teams to have real-time visibility of detailed workflows, projects and cost levels incurred. By having all the information they need in one place, in-house legal teams can easily check the status of any given task at any time, and are kept informed on any vital changes.
Beyond enhanced visibility and predictability, advanced tech-enabled solutions can deliver cost-efficiency benefits for in-house legal teams. Cost savings will differ depending on the organization, but we have seen first-hand instances where clients have achieved between 30 and 35% in savings by using our EPM platform.
The importance of an efficient framework around data input and availability
The role that technology can play in helping in-house legal teams address their evolving needs and challenges cannot be overstated. Higher tech adoption leads to more readily available data that, in turn, can provide an accurate, comprehensive and objective picture of the global governance landscape and a company’s position within that.
However, it is important not to confuse technology with automation. Effective systems need to be operated and supported by effective teams, particularly when it comes to data entity management. While this may seem a straightforward process, it requires regular maintenance and attention. Having a separate team dedicated to maintaining entity data and ensuring it is constantly kept in line with recently completed corporate changes brings fundamental benefits in the form of greater efficiencies and a higher level of client service.
Looking ahead
In an environment characterised by ongoing changes, in-house legal teams can benefit immensely from the broader set of skills and specialized solutions that external providers can offer. Technology is already in the process of revolutionizing EPM, and the next wave of digitalization could offer even greater opportunities as teams look to reposition themselves as more than legal experts, effectively becoming strategic business advisors.
Reprinted with permission from the 11 October 2023 issue of Corporate Counsel. © 2023 ALM Media Properties, LLC. Further duplication without permission is prohibited. All rights reserved.