New survey shows companies falling behind on timely legal entity management
While the pace of globalization grows, U.S.-based multinationals have not risen to the compliance challenge of more complex corporate governance structures, according to a new global survey by TMF Group, a leading provider of business administration support services.
Less than half of the survey respondents (49.4%) were either “very confident” or “reasonably confident” that their companies were fully compliant with local laws and regulations across their global entities.
The survey also provided potential insight into their lack of confidence. Only one in five respondents said their companies evaluated all their entities in the last year and have taken steps to simplify their corporate structure, including shutting down one or more legal entities.
Nearly 40 percent of the respondents said their companies had more than 20 legal entities across different countries.
“The survey should serve as a call to action for multinationals,” said Head of North America at TMF Group, Larry Harding. “Legal entity management is more than a housekeeping matter. The risks of failing to comply with international regulations are growing as new rules are introduced and governments step up enforcement in the face of public scrutiny.”
Fines for non-compliance can be high in some countries. Liability, and even criminal action, can be personal to directors, and there is even the possibility of asset seizures.
U.S. multinationals are not the only ones that need to be more proactive in their global entity management, said Harding. The survey also interviewed decision makers in Brazil, China, India, France, Singapore, and the United Kingdom. The results showed that one-third or fewer of the multinationals based in those countries had evaluated their legal entities in the last year and made structural changes.
Despite a seeming lack of urgency around entity management, global compliance was ranked among the top 10 concerns in 2020 for business executives around the world, according to the survey.
“A big challenge for the HQ-based legal and compliance organization is staying on top of an increasingly complex set of global regulations,” said Harding. “Businesses need effective people, processes and technology to improve the efficiency of entity management and gain needed insight into their corporate structures.”
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The research was conducted by Censuswide, with a minimum of 250 respondents in the following markets: UK, U.S., Brazil, China, Singapore, India and France. The sample was drawn from business decision makers involved in regulation and compliance within multinational companies. Censuswide abides by and employs members of the Market Research Society, which follows ESOMAR principles.