Although traditional subsidiary governance processes are inefficient and resource-intensive, some myths about outsourcing remain. Rogier Bronk, head global entity solutions – Americas, and Jonathan Scrocchi, VP – head of mid-Atlantic and mid-Western region, tell us more
Subsidiary governance for international organisations with multiple global entities is complex and time-consuming.
Traditionally, in-house corporate legal teams are accountable for maintaining and ensuring their global portfolio of entities stays in constant good legal standing. Therefore, their bandwidth to fulfil all their projects and responsibilities becomes limited and, inevitably, stretched due to juggling several priorities at once.
To make matters worse, the fallout from the Covid pandemic, and especially the Great Resignation, has made it much harder to recruit legal staff with multi-jurisdictional experience.
Many organisations recognise these challenges and want to simplify administrative processes, reduce costs and free up their legal teams to focus on more important corporate legal work.
That said, many remain wary of looking beyond a traditional internal CoSec team to undertake required subsidiary governance tasks. Such a traditional set-up often involves internal resource allocation, central oversight capability and management of business engagements of a scattered network of local employees and third-party providers.
Such a complicated and decentralised framework for global entity management can be highly inefficient, inconsistent and error-prone. Organisations that embrace a more streamlined approach – using a centralised, outsourced team and expert support – can create value while reducing costs.
Common subsidiary governance processes consume time that paralegals and senior lawyers would rather spend addressing and resolving more important corporate legal work.
Overall, legal departments create costs without generating revenue, so efficiency and proper budget management is crucial.
Time zones, language and culture can add another layer of complexity, especially when the project involves multiple entities globally.
Therefore, maintaining and handling subsidiary governance tasks for multiple entities, scattered across multiple jurisdictions, entails a huge amount of work that limits the productivity of members within legal, tax and finance teams involved.
Legal counsels responsible for managing teams require the support of professionals with detailed local knowledge. That usually means having experienced employees on the ground, or paying for support from a local law firm in every jurisdiction – or both.
This defragmented setup is very costly, not only because legal salaries are high and local law firms will charge senior fees for overseeing and undertaking subsidiary governance tasks, but also due to the time in-house legal teams spend managing and coordinating these tasks.
Organisations pay up because the alternative is worse. Entities can easily become non-compliant if a stretched legal team misses a filing deadline or fails to notice local law changes.
International businesses need to be aware of compliance issues in every jurisdiction in which they operate. Otherwise, a minor regulatory change can cause significant financial and reputational penalties.
But using a scattered and disconnected network of employees and third parties is not efficient and can lead to a logistical nightmare.
It means:
While all of this is possible – and how many organisations operate – it is by no means an efficient or cost-effective way to meet subsidiary governance obligations.
The alternative is to outsource subsidiary governance administration to a single service provider with a centralised service delivery framework.
The biggest misinterpretation here is to think that outsourcing the CoSec administration to a single provider will add another layer to an existing workflow, as well as added a process rather than removing one.
However, a global service provider can offer more than much-needed local expertise; they can also provide a customisable framework and tech-enabled platform that streamlines processes and peels away unnecessary layers of administration.
Single service providers’ global networks provide all the necessary local knowledge, taking away the expense and hassle of managing law firms in every jurisdiction.
They can:
In other words, global providers create overall efficiency while properly managing and mitigating risk.
The costs of outsourcing to a global service provider have to be weighed against the costs of keeping subsidiary governance in-house, with or without assistance from a network of local providers.
Managing multiple third parties is in itself a heavy administrative burden. At the same time, traditional governance processes take legal teams away from more productive tasks.
That inflates the cost even of routine governance administration, and other tasks can be even more resource-intensive.
For example, a change of company director might involve updating records in 40 jurisdictions in 40 slightly different ways. It could tie up in-house resources for days, if not weeks, depending on the complexity of the jurisdiction and cooperation of colleagues scattered around the globe.
Creating efficiency adds value. Centralising and streamlining subsidiary governance through an outsourced team gives your in-house talent more time to think and work more strategically.
It means decision-makers always have accurate and up-to-date information on their organisation’s global portfolio, and having the data and facts at hand makes you a powerful team member.
And although it adds a predictable cost, it takes away a host of unpredictable ones – from expensive local lawyers to non-compliance penalties.
How Intertrust Group can help with subsidiary governance
Intertrust Group is a publicly listed company with 70 years’ experience providing world-class wealth management services to clients around the world.