Legal departments are spending more on managing corporate entities, and want better tech solutions

Dive Brief:

Nearly 40% of companies increased their spend on managing corporate legal entities last year and 22% anticipate adding staff to assist with those duties, according to a survey by the Association of Corporate Counsel and Deloitte Tax.
The responses from 520 legal professionals in the report released in late March reflect the enhanced focus law departments are placing on legal entity management (LEM), though they have room for improvement in adopting best practices for such work.
While more than half of survey participants said their companies are using an electronic database to track corporate records, an even higher percentage said they were unsatisfied or neutral about their LEM technology.

Dive Insight:

Most legal entity management teams are small, so additional staff could help them address a concern voiced by roughly half of the respondents that their departments lack the bandwidth to carry out their duties effectively.

Nearly 70% of legal entity management teams consist of only one to three people, and 23% report having teams of four to 10.

While the size of the team largely depends on the organization’s size, nearly all participants (99%) reported that legal professionals play a role in entity-specific activity.

Almost half of the represented organizations said compliance professionals (47%) are also involved with LEM work, and roughly 40% said finance and governance professionals take part too. About a quarter noted the involvement of tax professionals.

Technology challenges

The report, which includes responses from legal professionals across 20 industries and all global regions, also highlights there is significant room for improvement in how companies use technology to assist with managing corporate entities.

The survey found that 60% of participants report using an electronic database to track corporate records, with 41% using a specific entity management database.

However, nearly three-quarters are dissatisfied or neutral about the technology solutions they have in place. Nonetheless, just 20% said they expect to make changes to their LEM platform in the next year.

Legal Dive / Data from ACC and Deloitte Tax

Additionally, 10% are still using physical documents exclusively to maintain corporate records.

Four in ten listed the lack of technology as one of the primary challenges in successfully carrying out LEM duties.

Best practices

The report identifies eight recommended leading practices for legal entity management.

They include having one compliance calendar across the organization, maintaining written policies and procedures, tracking corporate records electronically and updating an organizational chart quarterly. Regular testing and auditing of LEM activities, as well as providing related training and educational opportunities are among the other recommendations.

Currently, 55% of companies report not having written LEM policies and procedure manuals to track annual compliance obligations and make updates to corporate records, with another 8% saying they have policies that are not followed. Additionally, 38% report not having an annual compliance calendar.

"While many organizations have subsidiaries, this report shines new light on the fact that most do not have solid and consistent policies and practices in place to manage their governance," said Blake Garcia, ACC’s senior director of business intelligence, in a statement. "With significant risk and tax implications, often in multiple jurisdictions, ensuring a solid LEM function is a critical component for organizations to manage their risk."

On average, the participating companies have implemented four of the eight best practices.

Companies in the finance, banking and insurance industries lead the way. They've implemented on average five of the eight best practices, while large companies have implemented on average 4.7 of the best practices, with smaller companies averaging 3.9.

Professionals at the companies that have implemented a high number of the best practices are more confident about their ability to remain in compliance and more likely to feel satisfied that business stakeholders are attuned to important LEM processes and action steps.

For example, 90% of LEM leaders are at least somewhat confident about staying in compliance with regulators, compared to just 64% of organizations with the fewest LEM practices in place.

"Leaders are also less likely to have experienced delays in entities’ corporate records and to have entities out of good standing with regulators, and they also report a lower impact of the listed pain points on LEM activities," the report said.