Maintaining an accurate corporate record is essential for good governance and ensuring compliance, as was pointed out in our previous blog. The benefits of investing in software that enables your corporate record to be centralised stretch far beyond compliance, however. A centralised corporate record has numerous advantages: it allows organisations to do more with less; provides consistency across filings; creates trust in data; removes any negative perceptions of ‘losing control’. Crucially, it will also accelerate sustainable business growth. There are two main ways in which it will do this. Let’s look at each in turn.
Given the financial struggles being experienced by many businesses on the back of the COVID-19 pandemic, we are likely to see an increase in M&A over the coming months. The Wall Street Journal, for instance, recently noted that large technology companies are set to embark on an acquisition spree of smaller technology firms throughout the rest of the year.
Those who have been involved in M&A will be able to testify to how difficult handling one of these kind of deals can be without such a record. Having a centralised, single source of truth makes such transactions a lot easier for parties on both sides of the deal. While deals can certainly go through without a centralised corporate record, they are a lot quicker and more secure with one.
The important thing to realise is that the earlier you start maintaining a centralised record, the easier it will be. All start-ups, take note! Trying to reverse-engineer such a record two or three years down the line, by which point you may have entities and subsidiaries scattered globally, is very difficult. From this kind of position, it’s hard to get to a place where you aren’t playing catch up. There’s really no time like the present to start doing this if you haven’t already. And when you do, having an effective system for managing all this information is essential.
As your organisation grows, for each jurisdiction you enter or consider entering, there will be new obligations and compliance requirements that you need to be meeting. Having a ‘single source of truth’ allows you to do this easily and will ensure that this kind of organic expansion happens without any speed-bumps. You might think that as legal requirements and rules vary so widely globally, having a centralised record isn’t actually that useful, as the kind of information in your records might not be relevant to the new area you are expanding into. Given this, is it not more economical to deal with these requirements on a case-by-case basis? This approach, however, is mistaken. Experts in this area recommend thinking about global requirements as consisting of an 80–20% ratio: 80% being consistent around the world and 20% being particular to each jurisdiction. With this in mind, having a centralised, standardised process for all your data means that whatever region your organisation grows into, 80% of the work will already be done, with just 20% left to do in that new jurisdiction. This is much more efficient than doing 100% of the work from scratch each time.
The key takeaways here, then, are that although your organisation can grow without a centralised corporate record, it’s certainly easier with one. Having a centralised corporate record allows both inorganic and organic growth to happen in a smoother, quicker and more efficient manner. Although setting up such a record might be time-consuming initially, it will undoubtedly save you time and money in the long-run.
Akbar Hussain, Governance & Compliance Specialist, Diligent
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