4 common mistakes legal teams make when managing compliance for a global portfolio of companies
ComplianceCorporateMay 21, 2021

4 common mistakes to avoid when managing compliance for a global portfolio of companies 

Private Equity (PE) firms often manage a portfolio of companies, with many located in different countries. In recent years, PEs have faced increasing regulatory pressures due to added scrutiny from local governments. Corporate legal teams in these firms must find ways to operate efficiently while ensuring their international portfolio complies with local regulations and governance requirements.

Global compliance is not an easy task. Here are four common practices that increase risk and reduce efficiency when managing compliance operations for a global portfolio of companies.

1. Using multiple vendors for compliance work in each country

When a PEs portfolio is spread throughout multiple countries, managing and maintaining legal compliance for each company can be complex for corporate legal teams. It is not uncommon for an initial strategy to focus on addressing individual entity compliance needs with local providers. And while this may fix short-term needs, it can add complexity in the long run. Consider that no two service providers work in the same way, and neither can they always fulfill each requirement locally. One must also consider unique internal processes and how these can align with each provider.

With differing service levels across countries, corporate legal teams often run into reliability issues and inconsistent work output. If a PE has a portfolio within multiple countries, reviewing all the information and data collected for each company and ensuring that it is stored and reported back to relevant stakeholders in a consistent way can be incredibly time-consuming.

Budgeting is another pain point when dealing with multiple providers. It's difficult to control cost or estimate budgeting requirements without understanding the true costs of services being rendered or having a standard pricing matrix that is adhered to throughout.

Managing global entity compliance in this way is a huge and risky undertaking that can compromise the PE's ability to have a complete view of the compliance standing of each company in the portfolio.

2. Not having a robust entity management system in place

A recent survey conducted by IDC found that while contract management and eSignature software is widely used in international compliance work, only 41% of respondents claim to use an entity management system. This means that more than half of corporate legal teams rely on a largely manual process to manage entities and fail to leverage available technology to fulfill ongoing entity and annual compliance requirements.

Without a centralized system in place, data management and reporting take on greater complexity since entity information, corporate documents, and records are most likely maintained in different locations. As updates occur, inconsistencies can add up, and organizations may find themselves without a single source of truth accessible by all parties.

When choosing an entity management system, firms should consider how it integrates within the organization and if it provides the real-time information needed to make quick and confident decisions. For example, can the system be tailored to the organization’s specific needs? A robust entity management solution will seamlessly integrate any changes into the system as companies are acquired or “exited.”

3. Not conducting regular entity health checks

Investors must have complete visibility into the health of the global portfolio. If a decision is made without considering all information, a compliance task may be missed that could derail a transaction or risk non-compliance. To mitigate this risk, it’s important to conduct entity health checks regularly. This will ensure that PEs have a thorough understanding of the compliance standing of each company and quickly identify areas that have been overlooked and need immediate attention.

Private Equity firms often rely on local resources to manage compliance work and stay abreast of changing local regulations. But with increased regulatory scrutiny on PEs, the smallest oversight can cause problems – to both the local entity and the parent company. In many countries, the parent company can be penalized for a single missed filing associated with an entity. This can jeopardize legal standing and impact operations.

For this reason, entity health checks should not be a one-and-done activity. To ensure the health of portfolio companies – against a backdrop of changing regulations and local requirements – it’s a best practice to run these regularly.

4. Not implementing a governance and compliance program across the board

Good governance practices ensure investor confidence. A failure to implement a robust program can lead to process and reporting inefficiencies and compliance uncertainty.

At the heart of any governance and compliance program is good data. But managing data becomes increasingly complex when you must account for a myriad of companies around the world. Organizations need clear oversight and control, or they risk greater complexity in managing regulatory and legal compliance for their portfolio.

Non-compliance is a risk PEs cannot afford. It can have an impact both operationally and reputationally. Acquisitions become complicated if the firm lacks a good handle on entity information and due diligence. For instance, multiple stakeholders in the company need access to entity-related data, so a streamlined workflow must be in place. Fines are also a real threat, and directors are increasingly held personally accountable for non-compliance.

Next steps

Avoiding these practices and implementing a comprehensive compliance program can help support sustainable growth, ensure profitability through enhanced processes, and protect the portfolio’s legal standing around the world. Even the smallest details when overlooked can lead to substantial fines, penalties, and other liabilities that pose significant risks to the business.

Ultimately, ensuring that each company in the portfolio is compliant with local regulations builds trust and better positions PEs to withstand regulatory scrutiny, enabling legal teams to safeguard their value.

For more insights, check out: Navigating the challenges of managing global compliance: best practices for corporate legal teams.

How CT can support your portfolio’s legal compliance globally

CT’s team of dedicated global experts provides end-to-end support to ensure your entity management, ongoing annual compliance requirements, and due diligence work are completed and kept up to date in any jurisdiction. With our award-winning, cloud-based and secure entity management SaaS software, teams can share data on demand, prepare for audits, stay ahead of compliance deadlines, create organization charts in real-time, improve efficiency, and more.

Acting as an extension of your team, CT helps manage the operational complexity of global compliance and enhances internal capabilities – so your key players can get back to adding value.

To learn more about how CT’s Global Corporate Services can help better manage your global compliance needs, contact a CT representative at (855) 444-5358 (toll-free U.S.).

Associate Director, Funds and Alternative Investments