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Company secretarial activities – when does it make sense to use an external services provider?

There is nothing new about using an external services provider – the concept of bringing in expert support to help manage key activities or peak periods is as old as the hills.

An often mistaken view is that corporate secretarial activities are difficult to transfer to an expert as they resist commoditisation and must remain an in-house function of head office.

The reality is that many companies enjoy significant efficiencies and more streamlined compliance procedures when using an expert. The need to use a service provider depends on a number of factors with no single uniform solution. Although three key indicators highlight the need to utilise outside support.

1.       Annual compliance costs are trending higher

It may sound counter-intuitive to suggest that using an expert rather than in-house personnel can provide cost savings. However, well-known corporate failures of the past such as Enron (2001) and Lehman Brothers (2008) heralded an unsustainable increase in compliance activities and particularly secretarial obligations in recent years. Correspondingly, compliance budgets have ballooned to a point where they too are unsustainable. As a result, multinational companies (MNCs) are now exploring how to shrink bloated annual compliance costs whilst still demanding greater added-value from secretarial teams.

When counsel is under pressure to do more with less, using an external services provider for company secretarial activities can provide an effective solution. It means avoiding the costs of increased permanent headcount while offering efficiencies through better use of internal resources and streamlined workflow within a head office team. It is certainly an option worth investigating.

2.       The secretarial team is under extreme pressure

As workloads sky rocket and the desire for urgency trumps the need for cost-controI, it is not uncommon for in-house counsel to lean upon outside expertise and support. Yet, the necessity to change may only be bought into stark reality by a close shave with a compliance breach. In the worst case scenario, a full blown breach that is either expensive or embarrassing (or both).

By way of example, several years ago TMF Group met with the General Counsel (GC) of a large multinational merchant bank to discuss effective management of global subsidiaries and special purpose vehicles (SPVs). The GC had amassed a pile of statutory records belonging to 300 SPVs, which he confessed “we didn’t even know we owned until last week”.

While this may be an extreme example, in a regulated environment of zero tolerance for subsidiary non-compliance, MNCs cannot afford to let any compliance matter slip under the radar. Incorporating a professional service provider as a part of a long term management plan can be a clear example where an ounce of prevention is worth a ton of cure, especially if it means avoiding a compliance crisis.

3.       Subsidiaries in ‘high risk’ jurisdictions

It’s not always the extent of global reach that determines the complexity of compliance activities. Sometimes it can be a question of where subsidiaries are located.

As a guide, the Global Benchmark Complexity Index ranks jurisdictions according to their complexity from a corporate secretarial perspective. It confirms what many company secretaries probably suspect, that some of the world’s most desirable jurisdictions in terms of commercial opportunities also present some of the greatest compliance challenges.

Argentina is currently ranked as the world’s most complex jurisdiction, Indonesia second, with Colombia and UAE following closely behind in third and fourth positions respectively. China, a jurisdiction generally regarded as a powerhouse of corporate opportunities, is ranked fifth.

For MNCs considering expansion into new jurisdictions – or having difficulty coming to terms with the compliance needs of existing subsidiaries, having addition support for company secretarial activities can be extremely valuable.

Where a company has a significant international footprint, using a single global provider with boots on the ground in multiple jurisdictions can be especially advantageous. It offers the benefit of local knowledge and experience coupled with a consistent, uniform approach to company secretarial activities and a single point of coordination for head office counsel.

A matter of good strategy

For many MNCs, all three of the factors combine – the pressure to perform more efficiently; the heightened risk of error when juggling heavy workloads and the tangled web of global compliance  requirements – signposting that it’s time to engage external support for company secretarial matters.

Even among those companies that face only one or two of the challenges noted, seeking the support of a global provider can be a cost effective strategy. It allows counsel to focus on real value-add activities, providing strategic direction to the board and ensuring the company’s good compliance record remains untarnished.

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