- 89% of respondents are facing challenges managing their legal entities
- Lack of information, limited resources and technology gaps are major issues
- M&A plans and post-COVID-19 supply chain restructuring could be affected
The report – How can you evolve entity management into effective governance? – is the last in a series of three exploring the legal opportunities and challenges that global organizations face today. It encapsulates the views of 2,000 leaders across 17 industries and 22 countries around the world. According to the survey, nearly nine out of ten businesses globally (89%) face serious challenges managing their legal entities and this comes at a time when a large number of organizations are gearing up for major transactions where success can depend on them having a clear grasp of their operations around the world.
Kate Barton, EY Global Vice Chair – Tax says:
“Today’s businesses have countless competing priorities, and legal entity management isn’t one that sits at the top of many ‘to do’ lists. However, organizations that overlook this aspect of legal and compliance work are doing so at their own peril. As we emerge from the global pandemic, business-critical activities including supply chain restructuring and M&A activity are gathering pace once again, but businesses that don’t have a firm grasp of their legal entities won’t have the clear pathway that they may need to make these transactions a success.”
One of the most pervasive challenges that organizations are facing in their struggle to manage their legal entities is a lack of information. According to the survey, more than two-thirds of respondents (68%) say their business does not have up-to-date information on their entities and a similar proportion (66%) report that they have trouble keeping up with the many compliance requirements in the jurisdictions where they have entities around the world.
Limited resources are also a critical issue, both in terms of people and budgets. Almost all law department respondents (91%) among those surveyed, are responsible for managing their organization’s legal entities, but slightly more than three-quarters of these departments (76%) have a maximum of five dedicated legal entity managers and, as a result, many turn to other parts of their organization for support. Almost three-quarters (73%) of respondents say they use Finance departments to help manage their legal entities, while more than half (53%) turn to their Tax departments.
In addition, almost all respondents (96%) say they experience problems with the technology that they use to help manage their legal entitles. The most common problem, cited by almost three-quarters (72%) of those surveyed, is difficulty keeping systems up to date – often the result of ineffective implementation or a reliance on old technology. In addition, more than six in ten (62%) report that they find it hard to keep track of critical governance activity through their available technology.
A further exacerbating factor is budget constraints. Almost nine in ten respondents (88%) indicate their companies are under huge pressure to cut costs, so much so that many are not investing in improving these processes.
More than two-thirds (68%) of organization respondents surveyed say that they use multiple providers to manage their legal entities around the world. However, there is a clear move toward streamlining, with 57% reporting that they are looking to shift work away from traditional law firm models, which can involve one organization using a large number of law firms around the world. The survey shows that those companies that use a single provider are five times more likely to say they have a defined process for legal entity management; and they’re less likely to say they face budget challenges.
John Knox, EY Global Legal Managed Services Leader, says:
“Scattered information, limited resources, poor technology and a lack of defined processes are just a few of the challenges organizations are facing in their attempts to manage their legal entities. It is clear that a failure to properly manage legal entities can lead to unnecessary delays, timeline pressures and additional costs – not to mention lost revenue and potential reputational damage.
“Large organizations can have many hundreds of legal entities around the world and they often manage them through a disparate patchwork of individual law firms, which can be unwieldy, and costly to say the least. The survey shows that many businesses also try to overcome the problem of limited resources by handing responsibility for legal entity management to their tax and finance functions, which face pressures of their own and do not always have the expertise or understanding of local markets that’s so vital to managing legal entity compliance around the world.”
David B. Wilkins, Lester Kissel Professor of Law, Vice Dean for Global Initiatives on the Legal Profession, and Faculty Director of the Center on the Legal Profession, Harvard Law School, said:
“As the global economy rebounds, companies are intently focused on driving growth and managing risk in an increasingly complex environment – all while cutting costs. Legal departments are challenged to support these priorities by developing a more data-driven approach to risk and improving contracting processes to facilitate growth.
“In this kind of environment, it is easy for legal entity management not to be seen as a priority. Yet, lack of accurate information about the full range of legal and compliance obligations for a company’s legal entities can be a significant drag on productivity and create unexpected risks. This is often an overlooked problem, but, as the report shows, there are ways that legal departments and other related corporate functions can use internal resources and external providers to create more efficient and effective entity management practices that improve productivity and reduce risk.”
To learn more about the 2021 EY Law Survey, visit ey.com/law.
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About the survey
The survey canvassed the views of legal department leaders, as well as those from procurement, commercial contracting, business development and legal entity management teams. The result is a series of reports from EY Law and the Harvard Law School Center on the Legal Profession exploring the challenges facing legal departments around the world. This survey is part of the 2021 EY CEO Imperative Series, which provides critical answers and actions to help general counsel reframe their organization’s future. For more insights in this series, visit