The keys to peace of mind in subsidiary governance
What is a Black Swan Event?
A Black Swan event is unexpected and unknowable and has three defining attributes:
- it is unpredictable.
- it results in severe and widespread consequences.
- afterwards people will rationalize the event as having been predictable (known as hindsight bias).
The COVID pandemic is a textbook Black Swan event and the driver for many of the changes we are seeing. It was unexpected, with severe consequences ranging from significant loss of life to changes in business operations, major economic impacts and a fundamental alteration to people’s lifestyle choices.
Usually, these events are considered to be negative. However, I would challenge this perspective. Unpredictable events can produce positive outcomes.
How can governance professionals plan for and benefit from these events?
Readiness to Change
The Covid-19 pandemic brought operational robustness to the fore. Business contingency processes and deployment of internal resources including legal and corporate secretarial functions were put to the test.
This has given clients a new perspective on how to ensure resilience. There has been significant work to consolidate and streamline governance activities whilst ensuring compliance with increasing governance requirements.
For many, the route to efficient but flexible service has been outsourcing. We have worked with clients to identify where outsourcing can provide the most value, be it niche regulatory projects, additional support around scheduled events or the move to fully outsourced global entity management.
Full outsourcing
With a fully outsourced model, companies contract with providers to take on the day-to-day corporate secretarial activities for all of their subsidiaries. This typically includes all aspects of the annual financial accounts approval process together with routine corporate changes, such as changes to the board, delegations of power and implementation of governance policies.
This results in internal corporate secretarial resources being re-deployed to focus their time and efforts on other strategic matters, such as supporting internal projects and transactions or annual reporting.
We heavily rely on (our outsourced team) in order to manage our corporate secretarial work. We also appreciate the group's efforts to help us identify efficiencies within the business and manage outside counsel costs. We have also benefitted from the team's proactive thinking with respect to major corporate transactions like global acquisition and divestitures and their impact from a corporate secretarial perspective. LawDeb client.
What are the implications for the future of governance?
- Subsidiary governance continuing to be outsourced. The model of outsourcing will vary depending on the readiness of the business, its lifecycle and where maximum flexibility of resourcing can be provided without compromising certainty of quality and budget
- Increased use of technology to complement the centralised, outsourced model, providing stakeholders with real-time, easy-to-access tracking of global compliance key dates and key data
- Continued scrutiny of regulatory compliance from key stakeholders, including shareholders as breaches become more public and financially severe
- Rationalisation of legal entity structures and alignment of businesses into the right legal structure
The varying global requirements present unique challenges for multi-national companies when it comes to entity management. There is no one-size-fits-all approach to their oversight and governance. A high level of knowledge, understanding the differences between law and regulation in the relevant jurisdictions are keys to effectively manage the business and minimise business risks. Contact Evon to find out more evon.chung@lawdeb.com
