Often we see that the people responsible for governing entities in a multinational corporation are torn between two responsibilities. On the one hand, they need to make sure their entities are in good legal standing in each country. On the other hand, they attempt to do more with less. Finding the right balance is not always easy.
Both General Counsel and Finance Directors responsible for entity governance would do well to review entity governance costs that can be cut while governing a complex, multinational portfolio of entities.
The Opportunity Cost
Outsourcing all entity governance activities to a single entity governance partner allows the staff previously engaged in the entity governance team — paralegals, finance directors, general counsels – to devote their energies to higher value activities. Instead of ensuring an annual return is filed on time in Hong Kong, they can focus on corporate finance or litigation, i.e., doing what they do best.
Subject Matter Expertise
For many multinational corporations, entity governance is task shared by several people working for the parent company. Those team members have many other responsibilities. They might deal with local parties or manage everything centrally. The result is often errors or late filing penalties. It is frequently cheaper to outsource all activities to subject matter experts who deal with these activities daily.
Efficiency
Entity governance teams working for the parent company do not always know the exact requirement for each country in which the multinational corporation has a presence. Many multinational corporations end up paying for activities that are not mandatory.
For example, it frequently happens that a multinational corporation pays for the renewal of a business license every year for some of its subsidiaries, when, in fact, the country in question only requires renewal on a three-year cycle. When employees are stretched thin and scrambling to find the time to focus on their primary responsibilities, unnecessary costs accrue.
Working with Several Service Providers
In our experience, many multinational corporations choose to work with several service providers, often local law firms, and overpay. When a multinational corporation has but a few entities in one or two different countries, the added costs may seem minimal — but when there are 20 entities in fifteen different countries, the costs can be substantial.
The combination of heavy the man-hours and processing fees associated with invoices in different currencies and a constant state of contract re-negotiation and renewal makes juggling different services providers both costly and tedious. Quite often, it is only after comparing the current outgoings with the quote of one entity governance partner that it becomes clear how unnecessarily expensive managing an international portfolio of entities has been for years.
Conclusion
It is possible to cut costs without cutting corners when governing your portfolio of entities.
By outsourcing all entity management activities to one entity governance partner that has a firm understanding of business needs and in-depth knowledge of local regulations and legislation, you and your staff can focus on higher value activities.
The actual transition may take considerable time and effort, but will worth the investment in terms of both cost and efficiency.