Multinationals struggling with continually evolving regulation need a compliance strategy with communication at its core.
Reputation damage is a major concern for general counsels (GCs) of multinational organizations, according to our new report, The General Counsel Global Barometer 2023. Our survey also revealed that a significant proportion of international businesses are planning to expand into new international markets this year and beyond, despite economic headwinds.
That’s a positive sign. However, the global regulatory landscape is becoming more complex, and internal legal teams are under strain following downsizing efforts over the pandemic years. Against this backdrop, it’s not difficult to understand the fears around reputation harm. Nearly two-thirds (58%) of our 121 respondents flagged this as the most concerning consequence of inadvertent non-compliance.
The question is, what can GCs do about it?
Entity management regulation continues to tighten
GCs are trying to get ahead of the curve. Our survey revealed a sector intent on upgrading technology and creating efficiency through digital transformation. However, in many cases, they’re running to stand still, thanks to the continuing expansion of the regulatory framework. While jurisdictions lean in different directions on issues such as data protection, multinational companies are having to navigate shifting regulatory sands.
With the General Data Protection Regulation (GDPR), Europe is ahead of the world in data privacy, and this landmark regulation has continually been expanded since its introduction by the EU in May 2018. In turn, China and Brazil are introducing their own data management rules, and in the U.S., individual states are beginning to enforce bespoke data protection measures. All of this creates a complex global web of ever-changing rules, and multinational companies have to keep track of all of them.
Forging a culture of compliance around entity management
Data protection is only one priority among many. Anti-money laundering and Know Your Customer rules are also evolving. GCs have to deal with what’s currently in front of them, while also anticipating what may be coming around the corner.
How do they do that? Partly by putting the structures in place that allow good companies to do the right thing. That may sound trite, but companies that develop a culture of compliance are simply less likely to make any missteps—and more likely to mitigate against serious damage if missteps do occur.
Of course, that culture doesn’t just happen overnight. Good companies take compliance seriously. A growing number are working with third-party entity managers to enhance expertise and global coverage. At the same time, they are implementing company-wide strategies with integrity at their center in which everyone has a part to play.
For that, communication is key. New regulatory information should flow through well-worn channels into every layer of the organization. Concerns from local teams should move up the chain of command in the same frictionless way. That smooth flow of information should be extended to communications with regulators.
Multinationals need to nurture collaborative relationships with authorities in relevant jurisdictions. The good news is that regulators want this too. Regular contact will keep legal teams on top of upcoming rule changes and shifts in priority and tone. That’s important, because while most businesses want to do the right thing, when it comes to regulatory minutiae, it’s sometimes difficult to know what the right thing is.
GCs need a compliance policy that promotes proactive transparency
With communication channels open, multinationals become conduits for a policy of “proactive transparency.” Every multinational needs this. It doesn’t mean the authorities expect to be notified of everything happening in the business daily, but it does mean companies understand that bad news won’t keep.
Put simply, if a company has a problem, they need to get ahead of it—and don’t let anyone hear about it from anyone but the company. Provide a solution. Businesses that admit to genuine mistakes quickly—and put processes in place to make sure they don’t happen again—are far less likely to suffer lasting reputation damage.
Following a strategy like this, tailored to individual circumstances, can remove much of the anxiety surrounding non-compliance. However, it requires seamless coordination between a central legal team and operators on the ground in each jurisdiction. That’s more difficult when internal teams are stretched thin. In that case, a global third-party provider will offer the extra expertise and resources—central and local—that help keep dispersed global entities in good legal standing.
Our survey confirms this. Nearly half (45%) of those who manage global subsidiaries entirely in-house admitted that jurisdiction administration, regulation and governance differences were an obstacle to growth. Only 18% of those using an external entity manager said the same.
Global compliance is increasingly complex, but multinationals using external providers are less likely to worry about reputation issues and missteps.
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