How general counsels avoid financial and reputation risks by working with corporate service providers
The complexity of legal and regulatory frameworks means the process of establishing and then managing a portfolio of entities can be fraught with risk and multi-jurisdiction challenges. Not the least of these is failing to comply with local regulatory requirements, whether inadvertently or not. It can lead to reputation damage, fines, and an inability to trade in a new market within a planned timeframe.
At the start of this year, CSC commissioned research with 300 general counsels (GCs) and senior legal professionals in multinationals within the Americas, Asia Pacific, and Europe to understand how they address such risks.
We found that while almost half (49%) had engaged third parties to manage legal operations for entities, a third (33%) found it difficult to understand the local legal system, and 31% experienced issues with privacy laws and data protection. Despite this, GCs say they’re generally confident in their ability to successfully navigate the fast-changing regulatory environment, with only 6% saying they’re not confident.
The undisclosed issues of setting up global subsidiaries
One significant challenge for multinationals is that while they may take on local support to manage the legal needs of regional entities, they may be depending on inconsistent levels of understanding across different countries.
The confidence that GCs have in their in-house abilities and local third parties does not guarantee compliance in each jurisdiction. Sometimes it can take years to uncover discrepancies. And it’s only when questions start to be asked about a multinational’s ability to do filings in Japan, for example, or whether annual Ultimate Beneficial Ownership (UBO) filings need to be done in Trinidad and Tobago, that problems are revealed at the headquarters level.
A patchwork quilt of global regulation
Progressing with a mixed set of local legal partners will become ever riskier as multinationals expand their entity portfolios. That’s because more complex sets of in-country legislation and regulation will grow as governments and regulators adopt rules that are specific to their regions. Some of this relates to corporate governance, some to technology—such as where servers are kept or how companies use cloud storage.
It’s a patchwork quilt of global regulatory structures—one that will be exacerbated by issues such as artificial intelligence adoption, Anti-Money Laundering (AML), and data privacy.
Can outsourcing help general counsels?
One way to take more control of acquired or existing entities and their legal responsibilities is to migrate from a decentralized operating model to a centralized model. A corporate services provider like CSC can help multinationals adopt a more standardized approach more quickly by centralizing all legal and compliance needs with one team.
Another benefit of working with a corporate services provider is that costs are more transparent and predictable. GCs surveyed for our report say that cost is one of the factors that can dissuade them from using a corporate services provider. Yet they may not be fully aware of how much they’re actually paying to local providers, who charge by time spent, especially when efforts to manage local providers are perhaps decentralized.
There can be inconsistencies between the services provided by local partners in India, Brazil, or the Netherlands, for example, and this can make it difficult to manage overall costs. Dealing with 15 service providers across the world, jurisdiction to jurisdiction, getting a global viewpoint, and supervising those operations in an effective way can be really challenging.
Download our latest General Counsel Global Barometer 2024 report to dive deeper into the challenges general counsel are facing and how they’re leveraging external service providers.
