Worldwide: 10 Myths About Global Subsidiary Compliance

Believing the myth, rather than the reality of compliance can prove costly and heighten the risk of errors.

We sort fact from the fiction – debunking the myths about global subsidiary compliance.

Myth 1: Cost control on a global subsidiary basis is impossible

Let's set the record straight. Yes, global compliance costs are rising but cost control is far from impossible. With increasingly limited in-house resources to draw on, many multinational corporations (MNCs) are using an external services provider for global subsidiary compliance activities.

However, dealing with a patchwork of different providers does not lead itself to cost control. When multiple providers are involved, it can be challenging to know if the company is receiving overall value. Implementing an internationally coordinated approach and using a single global company allows for cost transparency, and standardises the delivery of compliance activities around the world.

Myth 2: Real time visibility of global subsidiary deadlines is impossible

Real time compliance visibility is a must-have in today's corporate environment. Legislation and local regulations can change rapidly, and counsel needs access to compliance data across each jurisdiction with a moment's notice.

Partnering with a single global provider makes this real time visibility possible. It offers the benefit of a centrally managed system that allows head office to easily track and maintain corporate documents; enabling accurate and timely filings.

Myth 3: Purchasing a centralised database will resolve your compliance headache

Maintaining a central database for corporate record maintenance is critical. It provides one system and one place to store, maintain and retrieve information. But a database is only as good as the information it holds. In-house teams are still responsible for data integrity and updating subsidiary details as events occur or legislation changes.

A key take-away is that a centralised database is a useful tool but it doesn't eliminate the need for local knowledge to navigate respective government departments; local expertise to effectively draft and submit documents; and local representation to facilitate submissions to authorities.

Myth 4: US subsidiary filings are easier than the rest of the world

There is more to fulfilling US compliance than meets the eye. The Global Benchmark Complexity Index sees the United States rank 56th in terms of compliance complexity out of 95 jurisdictions. Nevertheless, this mid-ranking belies the complexity of corporate secretarial activities in the US.

It is easy to overlook the burden of state-level compliance, where doing business across 50 different states effectively means working with 50 different regulatory systems. The increasing prevalence of E-commerce activity has further exacerbated the burden of compliance, as commercial activity may be inadvertently undertaken in states where a corporation has no physical presence – and no idea they have triggered compliance requirements.

The bottom line is don't underestimate the complexity of compliance activities in seemingly familiar territory like the US.

Myth 5: Engaging a single global professional firm to undertake corporate secretarial increases annual cost

In the vast majority of situations, MNC's rely upon local law firms for assistance with local corporate secretarial filings (either directly or via their local subsidiary); incurring the hourly charge-out rate of highly qualified lawyers. In this scenario it difficult to identify the true cost of undertaking compliance activities in any particular jurisdiction.

The issue is exacerbated when a MNC operates in multiple jurisdictions, engaging numerous providers, each with a different scope of service and invoicing timetable. In contrast, economies of scale and a global approach to pricing, centralises services to a single provider and usually reduces the annual spend by 25-30%.

Myth 6: The corporate secretarial function is fundamentally a back office activity

Today's corporate secretary plays a pivotal role, requiring an understanding of the corporate, its business, the jurisdictions in which it operates as well as the needs of key stakeholders. We only need to look at some of history's most prominent corporate collapses to understand how good governance is critical to building and maintaining confidence in a company. Without that confidence, MNCs would not function – let alone expand internationally.

The role of the corporate secretary is changing, and gone are the days of shuffling papers and filing forms. Nowadays, the corporate secretary is often the owner of accurate and reliable global corporate information. In this 'gate-keeper' role the corporate secretary is propelled out of the shadows and into the limelight.

Myth 7: A zero tolerance approach to corporate secretarial activities is normal

Drafting a zero tolerance policy for corporate secretarial activities can be simple; effectively implementing and adhering to it is another thing. Compliance teams typically face intense workloads in an increasingly complex operating environment. As such, oversights can happen and mistakes can occur.

While a zero tolerance approach is an aspirational target, the practicalities of running compliance in a MNC demands a more realistic method. Effectively using external resources for corporate secretarial activities releases the pressure valve, freeing up internal personnel to change cultural norms and drive the importance of compliance.

Myth 8: No one knows the true cost of maintaining an organisation's company secretarial compliance globally

An audience poll conducted during a recent Bloomberg BNA webinar, underwritten by TMF Group, found nine out of ten (88%) respondents don't really know their corporate's compliance costs on a global scale.

But that's not to say it can't be done.

One in ten (11.8%) respondents are actually aware of the cost of global secretarial activities. Clearly, with the right steps in place, managing global compliance costs is achievable.

Myth 9: No organisation has firm control of corporate secretarial compliance around the world

Referring again to the audience poll conducted during the Bloomberg BNA webinar, 24% of respondents admit they don't have control over compliance activities. Worryingly, 40% of respondents simply don't know whether the company is on top of its compliance obligations.

However, over a third (36%) of company secretarial teams indicated they have a firm grip on global compliance and costs. This indicates that it is possible to control global compliance activities rather than relegating it to the "too hard" basket.

Myth 10: The secretariat doesn't have enough of a "voice" in an organisation

A common concern voiced by the secretariat is that they are often one of the last teams to hear about changes that need to be actioned in organisations.

The key to making group secretariat heard boils down to being able to deliver value-add services. However, more often than not, the secretariat's bandwidth is consumed by administrative activities that provide limited value-add.

The likelihood of delivering more value-add services increases significantly when an external services provider takes responsibility for daily global compliance activities. It frees up secretarial teams to deliver critical insights that can underpin board decisions and corporate strategy, which is ultimately where value lies.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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