A robust corporate secretarial program is essential regardless of a company’s size, location or ownership. The decision then becomes one of attempting to manage it all in-house, or partnering with an external provider.
Multi-national companies (MNCs) work across and within many different corporate governance regimes, regulatory frameworks, and compliance environments. Regardless of the MNCs size, location or if it’s public or private, there is a need for a robust global corporate secretarial program (CoSec) that combines effective entity management, governance, compliance, and risk mitigation systems.
The decision then becomes one of attempting to manage it all in-house or partnering with a provider that can provide global service and in-country support.
The importance of this decision is brought into clear relief upon even basic implementation of conducting annual and special meetings, making dividend distributions, and adopting resolutions for each and every one of a MNC’s subsidiaries, affiliates and joint venture partners. The challenge seems to increase annually as the multitudinous list of compliance requirements imposed by regulatory bodies worldwide continues to expand. While not an exhaustive list, some common examples of this ever-expanding list of acronyms and rules that MNCs must adhere to and satisfy range from Market Abuse Regulations (MAR), People with Significant Control Register (PSC), Senior Managers Regime and Certification Regime (SM&CR), Base Erosion and Profit Shifting (BEPS), Anti-Money Laundering (AML), and the Foreign Account Tax Compliance Act (FATCA).
These regulatory and statutory requirements mean more forms and disclosures. “We are seeing this trend globally to really control what kind of information is being shared by companies, not just from a financial point of view, but also an ultimate beneficial owner (UBO) perspective” says Priscila Westerhof-Fittipaldi, Portfolio Director of Corporate Secretarial Services at global business administrative services provider TMF Group. “There are many new regulations and new reports that MNCs must present to a local or a central authority, for example, the notary, corporate registrar or the European Central Bank. And if you don’t have your information consolidated or presented in the right format, MNCs risk not being able to move on with their business activities in certain countries. For the MNC, as well as its in-house counsel, your reputation for taking care of the business can be put at risk.”
For in-house counsel and their teams, one of the top priorities is helping the business activities run seamlessly and legally across the world. This means oversight, control and anticipating the needs of the business. Maintaining everything in-house may seem like the optimal solution; however, managing corporate governance and compliance for numerous subsidiaries around the world is a formidable and time-consuming task. Skilled professionals have to spend hundreds of hours to monitor deadlines, interpret local legislation and then prepare and file (after localising, notarising, and apostilling) these documents in each local language. Furthermore, they need to perform periodical “health checks” to assess the global status of their compliance program. Even with great project management and a detailed and customised international corporate events calendar, the challenge begins anew each time a subsidiary is added in a new jurisdiction.
“You have to coordinate all these different countries centrally, and find knowledgeable and experienced staff who speak not only the local reporting language, but also the language of your headquarters” says Priscila. “In-house is also a very costly way to do things owing to the fact that the legal profession is very well rewarded.”
Victaulic, a global leader in pipe joining solutions, does business in over 100+ countries; this breadth meant that an exclusive in-house compliance approach would not suit its rapidly expanding global operations. “We quickly assessed that our situation required a top-tier partner to provide global CoSec services. The level of staff and local expertise required to stay current, maintain compliance and achieve timely filings of all required documentation might have otherwise required a very different staffing model,” says Mark Van De Voorde, Victaulic’s Chief Legal and Administrative Officer.
Another slightly hybrid approach is to utilise multiple partners; in-house counsel already has working relationships with local law firms in each and every jurisdiction where it does business. This approach does afford a greater degree of centralised in-house control over the requisite filings as well as access to local knowledge and updates on the changing law and regulations. But control comes at the very real cost of a personal in-house investment in oversight, coordination and communication with each local law firm. Equally important is establishing the shared sense of urgency on delivering results from each law firm; something any in-house counsel at a MNC understands differs across jurisdictions.
Outside the cost of the hourly rates and getting all the requisite deliverables, MNC in-house counsel must then decipher and direct local counsel on how to act on their localised reports. As Priscila notes, “It makes it difficult to understand what is really going on and you may be left asking if you really are compliant in x country, as you’re not seeing the same information presented in the report from say, Hong Kong compared to one from France compared to Germany. . . there is a lack of standardisation.” Of course, to a certain extent, this lack of standardisation simply comes with the territory of operating across multiple jurisdictions and the need to adhere to local requirements.
The third option is for MNC in-house counsel to engage a partner as its global CoSec. For this to work, two things are needed: (1) for the CoSec partner – “global” must truly mean global in terms of resources and capabilities; and (2) for in-house counsel – partnering must mean active engagement and communication throughout the year with the CoSec partner. Achieving this partnership is not costless – both in terms of the service contract and the time commitment – but like most partnerships, MNCs get benefits commensurate with their investment.
According to Sharon Sharkuski, Corporate Paralegal at Victaulic, “TMF Group provides an invaluable single point of contact and centralised control by which we gain a broader and more in-depth understanding of the diverse reporting requirements that exist for us as a MNC with a presence in a variety of different jurisdictions. Additionally, the expertise and available knowledge base TMF Group has about current and upcoming local regulatory changes eases the doubt by knowing that required filings will be addressed and completed more timely than if handled in-house.” As noted above, this type of partnering demands reciprocity in information sharing between the MNC and the CoSec provider. In-house counsel needs to understand, anticipate, and communicate the needs of the business; the CoSec provider needs to listen and then recommend the actions and filings required in each jurisdiction, and then assist in rolling all this information up for quarterly and/or year-end reporting.
Assuming the choice of CoSec model is partnering, the second most important decision is selecting the service provider. Every MNC has its own internal processes for product, supplier, and vendor selection, so this step will not be discussed in this article. In making the final selection, it’s important to note that not all providers operate using the same model. Priscila explains, “You could hire a company that says it is present in all jurisdictions, but actually have third party providers behind the scenes doing the work for them on the ground. This is not necessarily a problem, until there is a problem. A country might fail to file on time or there’s a legislation change that requires a quick reaction. How are you going to reach this secondary provider that you don’t even know?” Any in-house MNC has likely experienced this with their favourite law firms, who also work through their own third party networks to provide service. The single point of contact suddenly becomes “many”, and the control and central communication becomes elusive. In some cases, for both law firms and a CoSec service provider that outsources its own services, this can lead to significant delays in communication and worse, the timely and accurate execution of your directives.
Victaulic selected TMF Group and its global CoSec provider model as the best solution on the market. It offered a central, standardised and coordinated option to all of its global clients. TMF Group also allows clients to elect to liaise directly with its local offices and experts. The ability to ensure timely compliance in all locations from a centralised point (for Victaulic and TMF Group, this is Luxembourg) but with visibility and access to local contacts provided dual benefits of assurance and expertise. Is it really such an advantage to use a business service provider whose experts are all in-house? Priscila says absolutely. “If there is any legislation change or if an issue arises from a previous filing, our clients can have a conference call immediately with the relevant TMF Group office and can be given a plan for how to solve the issue or adapt to the law change. In other cases, our clients may have heard about an upcoming change, but it’s actually not as dire as it sounds on the surface. They can have everything explained to them and be reassured, essentially there’s no guesswork.”
The other benefit, Priscila explains, is that there is no grey area with regard to underperformance and lack of responsiveness. “The responsibility stops with us. Our clients – even those dealing with many of our offices – have a main contact and a clear escalation plan, so if a certain employee is not doing their work in a country, we have the authority to deal with that directly unlike providers that rely on other companies and don’t have the same accountability and control.”
For Victaulic, working with the same CoSec provider across almost all of its operating jurisdictions has provided vital peace of mind. Given the fast-paced changes occurring in the global regulatory landscape, it makes complete sense for Victaulic to embrace the model that leverages the enhanced regulatory compliance services offered by TMF Group. Without a local presence in certain jurisdictions, the challenge of completing even routine corporate secretarial tasks would be excessively daunting.
For MNCs that might be wondering if their existing CoSec program is indeed optimal or in need of re-evaluation, some key questions to consider:
- Are your company accounts being filed correctly and/or by required deadlines?
- Does your accounting, tax, treasury and other departments have the expertise and resources to deal with all the jurisdictions where your MNC does business?
- Are you receiving correspondence from authorities requesting further information about the activities of your company?Is it received timely?
- Are you receiving fines for non-compliance with certain regulations?
Depending on the answers, these may be the warning signs that things are not working well with your current CoSec program. Priscila says another key indicator that impacts compliance is when there is a lack of control relating to company directors.
“A common scenario is that a company will do a reorganisation and change directors. The old director was in charge of 20 entities. You might need to contact 20 individual CoSec service providers, but you inadvertently miss five, and so they don’t receive the updated director information. Then, if your providers aren’t doing their due diligence, you may end up needing to rush around at a later point, and collect the signature of a person your company has already fired.”
The good news is, it’s not that difficult to move a failing CoSec program to a more optimal approach.
“One of the services that TMF Group offers is a health check which reviews the company situation, verifies the statutory and public records as well as their database records to make sure everything is matching. If we see there are compliance failings, we work to remediate them with a dedicated team of project managers who plan out the transfer of all records and rectify things over a certain time period.”
For an international company like Victaulic that is navigating compliance in some notoriously tricky jurisdictions including Brazil and South Africa, working with a global provider has been an extremely instrumental and right choice.