In this series of articles we share some practical insights on starting your Legal Tech journey.
As a Head of Legal in a multinational company, you will most likely have spent some time thinking about how your organisation can start and implement efficient processes and digital solutions within your legal department.
The importance of this topic has increased during recent years with the increasing workload and regulatory development. Simultaneously, legal functions need to be more transparent in supporting the business to justify the need for resources to manage a multinational organization’s legal environment.
In three articles, we will describe how you can start your Legal digitalization journey focusing on requirements that we have come across. Our work is based on experience from supporting legal departments in large multinational companies in Europe and beyond and providing a legal IT-platform for more than 30 years.
The first article dealt with the overall need to digitalize the legal department. In this second article, we discuss how you start your digitalization journey.
In the third article, we will discuss the management of additional reporting and compliance tasks for specific areas of concern.
How do you start your digitalization journey?
You always start from the beginning!
The above might sound like an obvious statement, but it is easy to start a process by reviewing the issues that the function needs to handle and then starting to create a plan to solve these issues one by one.
Instead, we recommend the following overall road map.
- Take control of your entities (incl. permanent establishments), data related to these, and the ownership structure.
- Identify and review your critical areas.
- Identify and review where data to handle these areas can be found throughout the group.
- Identify existing systems or people that can feed this data into a legal solution.
- Set up processes for managing different work, reporting, and compliance tasks for specific areas of concern. Then make a list of how to prioritize them.
Control of entity and holding structure data
When implementing legal tech processes, it is recommended that the process is based on the group’s legal and organizational structure and the people who will be responsible for managing the information.
The reason for the above is that you need a “framework” to build your processes around. Using the legal structure and persons responsible for different entities’ tasks is a natural way to create this framework’s foundation. At the same time, there are several areas where you must use the legal structure as the basis for your current work processes:
- In M&A processes, internal reorganizations, and similar, you need up-to-date data regarding your entities and legal ownership structure.
- In the contract management process, you need information regarding ownership structure and entities that you can rely on and avoid the time-consuming task to verify this data every time you need it.
- You also need information regarding signatories and similar on a timely basis and other data linked to the entities.
- Most compliance (GDPR, beneficial owner, and other assessments) is also based on entity reporting. It is necessary to be on top of all general data related to the group’s entities and the ownership structure.
- To conduct compliance reviews, such as reviewing ongoing legal audits and legal risks, you need an up-to-date list of your group entities.
- Other functions as tax, finance, and sales need someone to take responsibility for the entity’s control and structure data to be used by them. These functions may have their specific requirements on how data should be delivered, and thus it is vital to meet their needs.
How to set a process in place for entity data and legal ownership structure
The first thing to consider is implementing a process to manage data and documentation regarding legal entities and the ownership structure. The responsibility for such a process could rest with one department or be a shared responsibility. It may be the legal department, company secretary, group accounting department or the tax function that has or share this responsibility. It is essential to define who is responsible for maintaining this data from the start and how often the stakeholders need the data updated.
Many groups have a significant number of entities within their legal entity and ownership structure. These entities generate a lot of data, which is vital to manage: primary data (and supporting documents) such as company numbers, Tax Identification, and VAT numbers, name history, and, importantly, changes in the legal ownership structure.
In a group, many functions and people within functions require access to the same data to complete the various tasks for which they are responsible. Working with a platform where everybody can share the same base data on entities saves time and provides a source of accurate, consistent, and up-to-date information. This is important since more and more data is filed with authorities and sometimes made public. In these situations, information in each filing must be consistent, and thus a common database will be beneficial to maintain consistency.
Often the corporate structure found in the group accounting system is based on the operational or line of business structure and does not reflect the legal entity and ownership structure required for most processes within the legal domain. A system solution, which creates a bridge between the legal entity and operational structure, can prove helpful, allowing data to be gathered and analyzed on a legal entity basis. Also, the necessary data on permanent establishments often may not be found in an accounting system and therefore requires a separate process to be kept accurate and current.
When you have an established process for collecting and maintaining data on entities, it is possible to keep track of data over time since the process will build history on all data points. This gives you access to historical data on the group structure for any period or at any point in time. Questions from authorities often concern data from several years back, and therefore a solution that provides quick and accurate access to historical data saves time.
Identify and review your key areas
In addition to implementing an entity management system, you likely need to address several other key areas. Examples of such areas could be matter management, legal risks, or contract life cycle management. When you have identified the most critical areas for your department, you need to break down what information you need to keep track of for each area and how often you need that data.
When you have done that, you need to identify where you can find the required information and who could help you to retrieve it. That leads us into the next section, data collection.
Data collection – You have to set up a data collection process first since this is the key to successful reporting, compliance and analysis!
In our discussion with multinational companies, we often find that focus is on reporting, analyzing, and presenting tax data automatically and quickly. This is important. However, to succeed with that task, you first need to set up a process for having correct, updated, and relevant data on a current basis in place.
This is because any process will generate poor results if you cannot rely on timely and accurate data. When you start to look at your data’s quality, you often find it challenging to identify where your data is located and that it is not always up to date, and information you may need is missing. Often this leads to a lot of time being spent on finding data and maintaining a high quality of data.
Where do we find the data?
The primary source of information is the group’s accounting system and the financial reporting process. In some cases, the accounting system might provide the legal department with some data. Still, in most cases, the accounting system or the reporting structure is not set up so that it is possible, without a large amount of manual work, to access the relevant information on an everyday basis.
The legal department needs information to manage legal risks and other purposes, such as reporting, planning and forecasting, and contributing to the group’s strategic decisions; this requires additional data typically not found in the group accounting system or collected in a financial reporting process. The type of information needed varies between different groups and for various purposes. In discussions with our clients, we have identified, among others, the following areas:
- The legal entity structure, including permanent establishments
- Information relating to what business activities are performed and where
- Relevant KPI:s for analysis of the legal compliance situation
- Information and documentation on specific transactions, both internal and external
- Additional documents such as articles of association and board minutes
- Current and historical information on legal risks
- Information regarding significant events in the group
- Information on legal compliance obligations being met by group members
- Storage and monitoring of contracts
This information is often held by different functions, companies, or in the hands of specific individuals. Accessing and managing it without coherent, systematic processes and solutions is, in our experience, one of today’s principal challenges for a Legal function. Implementing a solution to gather and store this data increases efficiency and avoids duplication, and leads to critical data kept readily available. Allowing various functions to work with and access data they need from one source increases quality and effectiveness and contributes to creating structured, systematic, and accountable processes for any required purpose.
Below we will discuss some of the topics that are important to think about when implementing a solution.
How do we gather the required data?
As referred to above, the required data is likely to be found in many different places. It is important to collect it from the person responsible for its maintenance while ensuring the right person remains accountable for its maintenance and accuracy. At the same time, the gathering structure must be as efficient as possible and set up so that you avoid duplication.
Some data may already be held or could be collected at the group level, and some may need to be complemented from a local source. The solution should support a combination of collection and merger of data from different sources. It should therefore be capable of the following:
- Collection by integrating with other systems
- Collection via data import, e.g. from Excel
- Collection via manual input
- A combination of points 1-3
In this respect, we would like to point out the following.
The starting point when deciding what processes and solutions that could support the legal department is to identify a solution that could help a collection via integration with other systems to achieve automation. Here it could be noted that 1) information needed in the legal work can in most cases not be found in other IT systems, and 2) it is costly to integrate with many other systems.
Thus, we generally advise or customers to work with template data collection where a reporting structure is implemented that can be used by local reporters to gather and file necessary data in the IT solution via data import or manual input. Integration with other systems is only used when it is evident that the information in the system is correct, can be gathered without any further analyses, and is more cost-efficient than using the template solution.
A tailored data import can be very effective in achieving your goals. An example would be identifying what data you need to collect from other sources and building a bridge from one source to your system via Excel. You would then import data to Excel and automatically send it to your system. The Excel file would allow you to quickly change what data you import and make any adjustments that may be necessary. For instance, if you collect data from your group accounting system, you may have to split one figure from an operational entity into several amounts and allocate them to the correct legal entity before sending data for further analysis.
Roles and Responsibilities – Users and Reporters
A system solution must be excellent at managing data. It must also facilitate engagement with the people responsible for it and handle different tasks and processes you would like the system to support.
Al legal department consists typically of one or a group of people who work full time with Legal issues in different areas, both in terms of subject matter and in other geographical areas. Simultaneously, many legal-related tasks are often performed outside of the legal function, such as in a group or operational function, at divisional, country, or company level. At the same time, data to which the legal department needs access is often found on a local level. This means that a platform that supports different processes must be fully flexible when allocating roles and responsibilities for different tasks irrespective of where they belong organizationally.
Blika has created a platform where other functions and/or local managers can work in their own part of the system, but with a central oversight role for the legal function. Such a structure, set up correctly, will give the legal department the ability to allocate responsibility where appropriate while at the same time retaining overall control to ensure that other functions and local managers perform their legal tasks. Our solution enables granting of rights to perform different tasks, sign-off control functionality, and the ability to manage access and grant viewing rights to data on a detailed level.
Also, some information may be managed by another department but is also needed by the legal department. A solution should grant administrator rights for certain types of information for another department to manage and even allow that department to decide who else gets access to “their” data. Each department will have its own system in the same platform, utilizing the base data such as entities always up to date.
Read more about how Blika can help you digitalize the legal department.