Entity management remains the often overlooked yet crucial foundation supporting effective governance. Operating behind the scenes, entity management functions as the quiet engine that ensures transparency, mitigates risk and enables strategic agility across multinational enterprises.
Despite its critical importance, it frequently remains delegated solely to legal or compliance teams, disconnected from the boardroom’s strategic oversight. This disconnect can expose companies to significant risks, from compliance failures and regulatory penalties to delays in M&A and erosion of corporate reputation.
The starting point for recognizing entity management’s critical role is shifting the mindset of boards and executive teams. ‘Entity management should be seen as a strategic enabler, not just a compliance requirement,’ asserts Henrique Canarim, VP, senior assistant general counsel and assistant corporate secretary at Leidos. He explains that a ‘well-structured entity framework positions companies to pursue opportunities more efficiently – whether that’s entering new markets, structuring joint ventures or raising capital.’ Beyond facilitating growth, these structures help ‘manage jurisdictional risks and support cost optimization,’ allowing businesses to scale effectively and compete globally.
Henrique Canarim, VP, senior assistant general counsel and assistant corporate secretary, Leidos
This sentiment is echoed by Kariem Abdellatif, head of Mercator by Citco, who points out that entity management, or ‘entity portfolio management’ as he calls it, has traditionally been regarded as ‘ancillary.’ It is often ‘something that has to be done’ but not always afforded the respect it deserves in corporate environments. ‘Where that journey should start from,’ he continues, ‘is that realization, that awareness, or culture within a corporation, from its board, that this is really a relevant and important aspect of the corporate function.’ Only with this foundational awareness can boards demand frameworks that ensure ‘data is available, that it’s accurate data, accessible to the right people, but that’s also protected.’
The quality and accessibility of entity data emerge as critical themes. Matthew Timmons, partner at PwC, highlights how organizations often develop compliance or regulatory frameworks ‘in the void of having access to the right level of data and entity level insights,’ which ‘all sits within the governance function and is part of an organization’s legal entity management program. Executive teams often don’t realize it’. He summarizes: ‘In short, the way to elevate entity management is through the data lens.’
Entity management is not just a legal or compliance concern but is a core governance function that aligns operational realities with strategic goals. Boards that overlook this risk operating with blind spots that complicate decision-making and hinder responsiveness.
UBO transparency
Ultimate beneficial ownership (UBO) transparency has emerged as a critical regulatory focus worldwide, with regulators in more than 100 jurisdictions imposing requirements on firms to track and disclose UBOs. Now seen as a core component of a legal entity management framework, neglecting it can have costly consequences.
Canarim emphasizes that global firms face ‘a patchwork of complex and often disconnected UBO requirements across jurisdictions.’ To navigate this, companies need ‘a disciplined and centralized approach, supported by reliable information repositories.’ He recommends regular ‘periodic health checks to confirm accuracy and auditable, verifiable data’ that can withstand scrutiny from regulators or counterparties. ‘With these practices in place, companies can stay agile in complying with diverse frameworks while reducing risk and avoiding costly compliance gaps,’ he adds.
Abdellatif expands on the complexity of UBO regulations. ‘Each country will have slightly different definitions of what a UBO is, what you need to file, in what format things must be filed and at which desk or instance you need to file your data.’ This complexity demands certainty around definitions and comprehensive documentation. He advises firms to maintain ‘internal registers’ of UBO information, even where not required locally, because ‘it often makes sense to simply maintain that in order to always have up-to-date information at your fingertips.’
Kariem Abdellatif, head of Mercator by Citco
Timmons points out the evolving nature of UBO reporting globally. ‘When you’re looking at UBO reporting, it’s not consistent on a jurisdiction-by-jurisdiction basis, it’s fragmented. There are different interpretations of who a UBO is, different disclosure requirements, penalties and reporting requirements, and whether they are annual or triggered by a corporate change.’ This fragmentation means that companies must have ‘a comprehensive understanding of these issues against your legal entity footprint,’ defining ‘who owns compliance, risks to the business and local boards of directors, along with the technology needed to house the many data points associated with these disclosures.’
Having a clear framework that manages corporate changes will support any approach to UBO compliance. As regulations mature, particularly in regions like Europe, companies must stay vigilant to keep pace with evolving requirements.
The failure to maintain accurate UBO data not only risks regulatory penalties but also undermines broader governance efforts, including anti-money laundering and know-your-customer initiatives.
Technological innovations
Technology offers transformative potential to centralize and automate entity management, enhancing transparency and operational efficiency. ‘The most effective tools are integrated platforms that can connect data generated across compliance, tax, governance and other functions,’ says Canarim. These systems create a ‘single source of truth’ that reduces errors and accelerates decision-making, positioning companies to act with agility.
Abdellatif stresses the importance of proper data management and system control. ‘You need to make sure that you have the proper data, that it is maintained on a system, that it is accessible but also controlled.’ He highlights key functionalities such as ‘charting’ to map corporate structures and ‘data portability’ to share information across platforms when needed. However, he also cautions about the hype around AI. ‘AI offers many possibilities but in some cases, it’s simply another way of saying I have a chatbot,’ he notes. While AI can assist in data scraping and workflow automation, ‘we’re only at the start of the AI journey,’ and it requires ‘a cautious approach,’ Abdellatif advises.
Timmons points to a broader challenge, horizon scanning for regulatory changes. ‘There isn’t a single technology out there that can comprehensively deliver, on an organization-by-organization basis, complete horizon scanning,’ he explains. AI can ‘elevate and augment’ those efforts’ but when it comes to horizon scanning ‘you can’t wholly depend on AI or technology. You’ve got to have that human in the loop’ along with ‘clear governance and the infrastructure that allows for it’. This human-technology partnership is vital for interpreting new regulations and assessing their impact on an organization’s entity portfolio.
Technology strengthens entity management only when combined with sound governance, data stewardship and a culture that prioritizes transparency.
The cost of neglect
When entity management is neglected, the repercussions become starkly visible, especially during high-stakes corporate activities.
Canarim notes that ‘failures in entity management can cause costs and delays,’ which become particularly acute during M&A transactions. ‘Deal teams are forced to divert focus to resolve these issues – an outcome that is far from ideal in a time-constrained transaction environment.’ Common red flags include ‘missing or inconsistent records, dormant entities with hidden liabilities and outdated filings.’ Such issues not only slow progress but can reduce valuations and complicate integration efforts.
ESG reporting similarly depends on disciplined entity management. Canarim explains that strong entity management ‘provides a business advantage when it comes to ESG, because it gives companies clear visibility into which entities, subsidiaries and third parties are in scope for reporting.’ Without this foundation, companies risk missing ‘critical supply chain risks’ and producing ‘gaps or inconsistencies’ in ESG data.
Abdellatif echoes this, noting that ‘both ESG and entity management rely on the same accuracy of data,’ but ‘for ESG purposes, that data also needs to be auditable…across not just the corporation, but also the supply chain.’ ‘It starts with your culture,’ he adds.
Timmons connects entity management directly to ESG compliance, citing examples such as pay transparency and labor regulations that are ‘driven at a local level, on a country-by-country basis, entity by entity.’ Without comprehensive entity-level data and up-to-date corporate structures, companies ‘undermine their ability to ensure compliance and that the right level of responsibility is disaggregated at an entity level to demonstrate compliance.’
Poor entity management, he warns, will ‘undermine your ability to deliver your strategy when it comes to broader ESG strategy and delivery.’
Governance failures caused by complex, opaque structures have historic precedents. Canarim reflects on Enron, pointing out that one key lesson is to minimize complexity. ‘The more complex the structure, the greater the risks, costs and challenges in maintaining transparency.’
Abdellatif recalls: ‘Enron may have played its part into elevating entity management further…it demanded more transparency from the industry.’ He emphasizes that technology today makes ‘it possible to avoid that complexity or at least have that transparency,’ but ‘the entity management profession has a role to play in building out this culture of transparency.’
Timmons adds that legal entity governance must marry enterprise-wide governance. ‘The way you do business globally is through legal entities,’ he says. ‘Risk and liability sit with local boards and entities’ so it’s important to ‘manage the relationship between legal entities, their legal entity boards and the parent company and its board or executive team.’
Matthew Timmons, partner, PwC
Strategic housekeeping and the regulatory landscape
Dormant or legacy entities often accumulate unnoticed, creating hidden liabilities and administrative burdens. Canarim refers to their management as ‘strategic housekeeping.’ Regular portfolio reviews help ‘free up resources, reduce administrative overhead and simplify the corporate structure.’ Rationalizing or dissolving entities that no longer serve a business purpose ‘reduces the risk of unforeseen liabilities’ and maintains a ‘leaner, more agile’ organization positioned for future growth.
Neglecting dormant entities risks triggering unexpected tax liabilities, regulatory scrutiny or anti-corruption issues that can harm governance and financial performance.
As regulators globally increase scrutiny on corporate structures and transparency, the role of digital entity management systems grows. However, Canarim cautions against heavy-handed mandates. Instead, he sees ‘guidance and incentives’ as more effective to encourage digital adoption. Many companies already recognize that digital systems ‘create efficiency, improve accuracy and make it easier to demonstrate compliance across jurisdictions.’
Abdellatif adds an educational dimension, questioning whether ‘professional qualifications around international entity management’ might help build industry standards. Regarding regulatory mandates on digital systems, he believes regulators ‘should probably define the outcomes they want to see and leave it to the market to find the best solutions.’
Timmons sees regulators harnessing AI themselves to analyze disclosures and detect discrepancies, but their primary focus is on whether organizations have ‘the right balance of controls and processes to assess and mitigate risk.’ Adding, ‘I don’t think a regulator is going to stipulate you need to use a legal entity management system, or indeed what type of system. What a regulator is looking for is, have you got the right controls and processes in place now?’
Ultimately, boards and executive leadership must move beyond seeing entity management as a back-office legal or compliance function. Instead, it requires strategic oversight, supported by accurate, accessible data, integrated technology and a culture of continuous transparency.
Catch both Henrique and Matthew speaking on the panel titled ‘Governance and AI: Leverage AI and technology to make governance easier, safer and more efficient’ at the Corporate Governance Forum in New York on November 6.