How Subsidiary Management Systems Drive Corporate Transparency and Risk Mitigation

Today, global organizations are confronted with an increasingly challenging international business landscape. Aside from the everchanging jurisdictional laws, rules and regulations, multinational organizations manage a myriad of legal, financial, reputational and strategic risks that stem from poor oversight and control over the actions (and inactions) of their global subsidiaries.

The magnitude of this ongoing corporate exercise is appreciated when one considers the hundreds (if not thousands) of geographically dispersed legal entities a single global corporation must account for to ensure their sound management and compliance with jurisdictional laws and regulations. An organization’s internal policies and procedures impose additional such burdens. Establishing a healthy level of control and transparency over an enterprise’s subsidiaries’ legal, governance and compliance activities remains a challenging endeavor for corporate stakeholders (i.e. Company Secretaries, General Counsels, Directors) – and one that is often underappreciated until (in)tangible losses are incurred.

Recent corporate governance failures by global organizations are a reminder of the potential legal, financial and reputational damages that can be incurred as a result of inadequate oversight and control. Moreover, they reiterate the need for organizations to fortify their governance and compliance practices across all group subsidiaries, not those solely within the confines of the parent entity or a select set of subsidiaries.

As global organizations work towards adopting appropriate policies and processes to reinforce their internal controls, transparency, and risk mitigation measures, it is imperative that key decision-makers remain cognizant of the transformative impact highly adaptive enterprise software systems can have.

A subsidiary management system (or legal entity management system) is a prime example of an enterprise application software class intended to facilitate the global management and governance of corporate legal entities through the intelligent automation of its various business as well as administrative processes.

This article aims to provide an insightful overview of the governance and risk mitigating benefits a subsidiary management system may offer multinational organizations.

One Complete and Centralized Entity Management Platform

Irrespective of geographic location, industry or company size, data underpins sound corporate decision-making. Today, management must base corporate decisions on reliable and relevant information that is complete, accurate and current. Not doing so risks relying on flawed information that may result in misguided decisions and an increased corporate risk profile.

The use of a singular subsidiary management database that can grant concurrent access to different corporate departments and become the single source of truth for the tracking and management of all legal entity related information is foundational to ensuring data completeness. Furthermore, enterprise-wide agreement over the use of one unified entity management system helps drive corporate transparency and visibility. Subsidiary data will no longer be siloed within departments that traditionally maintain their portion of the information in isolated spreadsheets, often ones only they can access.

Increasing Legal Entity Data Integrity and Reliability

After merging all relevant entity information into one single subsidiary management system, an organization is then able to leverage the platform’s user permission controls, audit trail history and workflow automation capabilities to ensure its data is maintained in an accurate and consistent fashion throughout its various lifecycle stages. This allows an organization to maintain confidence in the integrity of legal entity or subsidiary information shared with internal or external parties (i.e. regulators).

Effortlessly control user permissions

Given the range of information processed using a subsidiary management system, it is critical that system administrators are able to assign specific users (or user groups – i.e. legal, tax department), clearly defined user rights and permissions that authorize parameterized access to information depending on their roles and responsibilities; thus, determining their ability to view, input, update and/or delete information.

For example, a user may have the necessary permissions to view, create, update and delete specific information, while only the right to view (and not edit/delete) other fields of information. This level of granular control over user permissions is a prerequisite to ensuring compliant access to corporate data and the mitigation of data-related risks.

Analyze all historical system changes using in-depth audit reports

Among the limitations of using spreadsheets for subsidiary governance and compliance matters is an organizations inability to produce audit reports detailing the historical changes applied to a specific business entity or person file. Robust subsidiary governance systems come fully-integrated with powerful auditing tools for historical corporate data tracking, which enable greater transparency and subsidiary oversight.

For instance, a designated user can instantly generate audit reports to help identify or trace root causes of incorrect data inputs across one or more of its subsidiaries. With such reporting capabilities at their disposal, organizations can easily and rapidly optimize their management of legal entity information.

Streamline enterprise-wide collaboration using flexible workflows

Familiarity with the standard operations and activities associated with the administration of a global organization’s legal entities, their respective directors and officers, regulatory filings and so on, means familiarity with a few, if not all, of the following routine business processes:

Business Entity Creation
Appointment or resignation of a director/office
Stock Issuance/Transfer
Bank Account Formation
Dissolution of a Business Entity

While the specifics of such corporate entity management operations may vary from one organization to another, most have clearly defined internal policies and processes governing such recurring administrative, legal, compliance and finance/tax related operations. Nevertheless, significant room for improvement exists when it comes to the automation of these routine processes, which are often handled in a cumbersome manual manner.

Using a well-designed subsidiary management system’s built-in workflow capability, organizations can realize considerable efficiencies that are difficult to attain without the aid of technological platforms – such advantages include:

Enhanced workflow visibility and transparency for workflow administrators to instantly and easily view the status of a workflow, participants scheduled to complete upcoming tasks, time spent executing a workflow step, overdue tasks, etc. This information is presented directly to the administrator, eliminating their need to request for individual updates from various workflow participants. Workflow participants are also able to effortlessly track their assigned tasks, receive instant notifications and reminders for upcoming or overdue obligations and more.
Reducing non-compliance risk stemming from manually executed cross-departmental tasks (i.e. creation of a new business entity) requiring streamlined collaboration and a unified platform. Leveraging workflows to automate and standardize such processes helps alleviate the inherent risk of human error, which may prove costly when critical regulatory filing deadlines are missed , or incorrect data is inputted for reporting purposes.

Conclusion

Among the main beneficiaries of a subsidiary management system are global organizations operating a network of regionally dispersed legal entities meeting complex and evolving jurisdictional requirements. While internal controls and processes are pivotal to achieving sound subsidiary management, their effectiveness is seriously undermined when severed from an enterprise-wide subsidiary management system that helps ensure their successful enterprise-wide communication and implementation.