How to build a robust global entity governance framework

As businesses expand across borders, whether by creating new entities or acquiring existing ones, the focus is often on growing brand presence and capturing market share, meaning that governance and compliance fall out of focus. 

For businesses creating a new entity from scratch, there’s an opportunity to do so in a way that meets the regulatory and statutory requirements in the new location and aligns with operations in other countries. This doesn’t mean such expansion isn’t without issues – the requirements in the new market around compliance and annual reporting may be very different to existing locations – but establishing a new entity does give the parent organisation greater compliance control.

Where we often see a bigger challenge is when a company expands through acquisition. Oftentimes, the business is being acquired for strategic and commercial reasons, with due diligence centred on that commerciality. Such acquisitions, however, can result in a lack of alignment with the parent organisation from a governance perspective, with incompatible technology platforms and multiple local third-party providers creating a lack of consistency and poor cost-efficiency. 

Unless a clear and unified governance framework is established early, these differences can result in local silos, fragmented accountability, missed deadlines and increased risks to the business. Without a centralised view, that gives the board a clear line of sight across all markets, businesses will struggle to respond to regulatory changes in real time and compliance issues in one market can quickly ripple across the organisation.

What are the common problems?

As a result of a focus on strategy and commerciality, global entity governance issues are often dealt with reactively rather than proactively – essentially when things go wrong. 

In our experience of supporting businesses with global governance, there are a number of issues that crop up far more than others. Key among these is the fact that statutory filings aren’t up to date. We have worked with several companies that are on the verge of strike off because they haven't completed their statutory filings. 

It’s important to note that this isn’t purely in relation to M&A activity – this is can just as easily occur among those multinationals with many entities across dozens of countries. In short, it is easier than you might expect to find yourself with a lack of global transparency in relation to mandatory filings.

This lack of visibility can be seriously damaging. Take, for example, a UK-listed entity, with excellent governance and a strong company secretarial team. Further down the chain there is a subsidiary somewhere which has come in through acquisition, that hits the headlines because it hasn't complied with its modern slavery statement. This could have a huge impact on the UK parent company.

Such reputational risk is made more likely in an era where a company’s compliance failings can be splashed across social media – however this is just one risk that can result from non-compliance. 

There is potential criminal risk at a director level as well as considerable financial risk, in that a business could be struck off or hit with a substantial fine. In the UK alone, multinational businesses have had to pay fines running into millions of pounds for compliance failures around AML, data privacy and control of business practices.  

Businesses also risk losing the benefit of the acquisition because they’re spending too much time and effort on remediation.

The reality is that when a business starts to become non-compliant across borders, problems can escalate rapidly, leaving it constantly playing catch-up, turning compliance into a game of ‘whack-a-mole’.

Steps towards resilience

The global regulatory landscape is only likely to keep evolving, as exemplified by the surge in corporate transparency legislation, such as the Economic Crime and Corporate Transparency Act (ECCTA) 2023 in the UK, and the Corporate Transparency Act in the US. As a result, the need for a cohesive and robust global entity compliance framework has never been more important. Here are five ways in which businesses can build in visibility and resilience.

1. Make the best use of technology
Businesses need a single source of truth when it comes to global compliance. Realistically this can only be achieved through a technology platform that can give them oversight of their global entities. Not only does this provide visibility of what is working but it can flag reporting deadlines, raise issues and identify pinch points before they become problematic.

2. Apply the highest standard across the business
From an entity management perspective, we would always encourage businesses to work out where, in the global group, is the highest governance standard and then bring all countries and entities up to that standard. Don't just try and comply in each country – set a gold standard and employ that across the global enterprise.

3. Live and breathe governance
Global governance can't be viewed as a tick-box exercise and something that must be completed every year. It may be something of a cliché, but successful governance frameworks come from the top and are fully embedded in the business DNA. It’s not just for the board of directors; it needs to be understood at every level of the business. It’s about understanding what good governance is and why it's important.

4. Build in powerful processes
As much as a business must have a strong global governance framework, it’s also essential to have clear and efficient processes around the administration of that framework. Historic practices and processes can be outdated and inefficient – so it’s vital to regularly audit processes and revise them if required.

5. Stay up to date
Similarly, it’s critical to continually monitor regulatory changes on a local, regional and global basis and be clear about how that might impact the entire enterprise. This can be challenging for a global business and it’s easy to fall behind very quickly so it needs continuous, ongoing attention.

In summary

The reality is that global governance and compliance aren’t optional and businesses that ensure they have the proper framework and processes in place can have peace of mind that they are compliant, as well as being able to look forward and focus on growing the business rather than firefighting compliance failings. 

How Vistra can help

With the global regulatory landscape set to become even more complex, governance professionals have the opportunity to create a competitive advantage by embedding good governance at every level of their organisation.

Vistra’s entity management solutions combine expert support with centralised coordination and technology to help organisations manage complex global structures efficiently. 

Increased oversight of all your global entities can significantly reduce your risk. Vistra’s Global Expansion Platform acts as a single source of truth for all your entity management activities, scanning the horizon for pinch points and providing a bird’s eye view of all your data; ensuring you never miss a deadline, lose a file or miss a request.

Our local experts manage all local requirements, including annual filings, board meetings and register maintenance, ensuring each entity remains compliant with jurisdiction-specific laws. Meanwhile, our central coordination and global oversight team provide a single point of contact and consolidated governance visibility.

We provide end-to-end support for structural changes, including legal entity rationalisation, global health checks, cross-border mergers and post-acquisition integration – mitigating compliance risk during transformation.

About the author

Dana Wagstaff is Vistra’s Global Product Lead for Entity Management, specialising in helping organisations navigate complex governance and compliance requirements. She is a qualified solicitor with a background in corporate and employment law and more than a decade of experience at Vistra.