One-stop shop to manage foreign entity risk

Oct 13, 2014
<p>Staying on top of subsidiary data on director qualifications, taxes and other matters subject to compliance risk is making more compelling case for management softrware&nbsp;</p>

As more US companies expand into new geographic territories, it’s more crucial than ever for corporate secretaries and other members of governance teams to stay on top of foreign entity management. To this end, Corporate Secretary is partnering with Computershare to offer a webinar titled ‘Today’s top entity management risks and how to mitigate them’. It will be held next Wednesday, October 15 at 10.00 am PDT / 1.00 pm EDT / 6.00 pm BST.

Featuring Cynthia Krus, corporate and securities transactions attorney at Sutherland Asbill & Brennan, this webinar will focus on adopting risk management technology, addressing localized needs of subsidiaries, and ensuring accuracy of data and records management.
Even with an in-house corporate secretary and crack legal and compliance teams, the relentless obligations associated with staying in compliance with ever-changing regulations in a sprawl of foreign jurisdictions is quite a challenge. When asked, general counsel at companies that manage 50 different entity types internationally and are considering outsourcing that management almost invariably are unable to tell governance service providers to which they outsource how much they spend annually on compliance services, according to the global head of corporate services at one such provider.
That information ‘is completely opaque to them so they have no full transparency of how much they’re spending, which from a governance point of view is never a good thing,’ he says. Often that’s because companies hire a law firm in each jurisdiction to handle their compliance needs. The GC or corporate secretary at a company with entities in 50 different jurisdictions, ‘needs to go to 50 different service providers to pull those costs together.’

Outsourcing to that many law firms, which tend to charge high fees when annual compliance filings are not their core business, ‘isn’t working for them normally because they’re increasingly looking for a single point of contact with an entity management system that [lets them] understand whether they are compliant, where any hot spots are and remedial action that’s needed on entities in different jurisdictions, and how much they’re spending on it,’ the global head of corporate services explains.

That’s where entity management software platforms such as Computershare’s come in. Having to comply with a melange of regulations globally entails significantly greater exposure and risk for companies. ‘Getting information right first of all and gathered together is critical to that outward reporting,’ says Andrew Moore, president of governance services at Computershare. ‘The biggest challenge once clients have this data together is [maintaining] data integrity - making sure it’s accurate on an ongoing basis. Lots of companies take their foot off the gas and pat themselves on the back, [but they can’t afford to]. What is your plan and your governance program to stay on top of this, to make sure new entities are managed properly and ensure that entries and exits from foreign entities are accurately reported?’
That’s a process challenge, but one that technology can significantly support, Moore adds. The first step is to control who accesses and maintains the data. A firm can set up its management system so that any change made by an employee out in the field, such as an increase in ownership in a local company from 45 to 55 percent, is subject to approval by the corporate secretary’s office, which will confirm that the nature of the change and the supporting documentation align. If it meets all the required criteria, it can then be accepted by the system and disseminated to a wider audience, he explains.
That in turn can be set up to trigger certain compliance processes, but having those pivot off that one central data record is what clients are seeking in these management systems, Moore adds.
‘This is the most intensive focus on entity management I’ve seen in the last 15 to 20 years,’ he says. No longer is it only industry regulators who are looking at this data. ‘Everybody is questioning these tax structures and [asking] should this money be allowed through?’
Moore calls adoption of a technology platform to manage foreign entity risk ‘preventative medicine’ that can protect a company from bigger problems in the future.

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