Reporting and compliance – Legal Tech journey part 3

22 March, 2021

Insights

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 organization can start and implement efficient processes and digital solutions within your legal department.

The need to be on top of this topic has increased during recent years with the increasing workload and regulatory development. At the same time, legal functions need to be more transparent in supporting the business to justify the need for resources to manage the legal environment in a multinational organization.

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 the second article, we discussed how you start your digitalization journey. This final article discusses how to set up reporting and compliance for specific areas of concern.

Set up and prioritize processes for managing different reporting and compliance tasks for specific areas of concern

With firm reporting processes for entity data in place and a flexible structure for adding reporters and allocating users to different tasks, it is possible to decide which areas the group legal department will need to focus on.  Below we have commented on some basic areas that could be supported by implementing our solution, but many other areas could benefit.

Read more: Starting your Legal Tech journey – part 1: The overall need

Risk Management, Legal Compliance and Legal Transparency

There is data that needs to be collected to be compliant.  This is easiest to explain by giving a few examples within legal risk management.  There will be a need to gather data on internal and external transactions, such as a description of transaction types, agreements, and counterparties. An important area will also be about significant and strategic events within the group, such as:

  1. Acquisitions and disposals
  2. Mergers and liquidations
  3. Intragroup transactions of business lines
  4. Start-up of new business lines and in new jurisdictions

Therefore, the solution must include a process for keeping the legal structure and transactions related to shareholding up to date. Such a process should also include selecting and storing relevant documents related to these events (e.g. contracts), linking them to each transaction, and making them easily accessible.

A system solution that creates a comprehensive source of necessary, accurate, and current data, documentation, and reporting functionality will significantly contribute towards implementing a robust control framework for the effective management of legal risks.

It is crucial to keep track of transactions such as dividends, shareholders´ contributions, mergers, and other transactions that affect the group’s legal entities from a risk management perspective.  The underlying documentation will also be required for all transactions, if applicable.

A platform must be able to collect and manage transaction data, including documentation for each transaction. It should enable the compilation and analysis of transactions for any given period.  As part of the entity data, it should be possible to gather and compile management information such as the number of employees, management members, and formal officeholders such as directors, including when they are appointed and resign.

There are other areas, from a content and reporting perspective, where groups will need to include figures and narrative information, such as management and ownership details, including changes over time.

The data requirements will inevitably vary between jurisdictions.  This will demand a flexible platform that can be adapted to collect different data in different jurisdictions while at the same time being able to efficiently present it on a global level, ensuring consistency between data that is filed locally and by the group.

Legal Risk Reporting

One of the critical information areas is risk reporting.  Most groups include figures-based reporting of risk exposures in the financial reporting process.  However, this process does not always contain the data that makes it possible to follow and manage risk over time.

A reporting process for risk issues and exposures should support the gathering of relevant documentation related to the reported risk issues (decisions, memos, calculations), together with the ability to describe how risk issues are being mitigated and resolved.  Revaluations and changes (including documentation) should be made and recorded in every reporting period for each legal entity to allow the legal function to follow how the identified risks develop over time, the amounts at stake, provisions, and settled amounts.

As part of the risk management process, some groups may benefit from setting up a tracking and sign-off process of the risk and control framework.  Such a process could be set up in different ways, e.g., through questionnaires, self-assessments, or as a filing tracker. It could be built into the existing processes for risk management and reporting or separate processes.

Read more: Starting your Legal Tech journey – part 2: Getting started

Document Management

We see three main steps that are taken when working with most documents. The first is the drafting of documents, the second is the signing step, and the third is the archiving and monitoring of finalized documents.

To a large extent, we will leave out the drafting of documents in this description since there are many drafting tools and every group has its specific needs concerning these tools. We will also leave out the signing step, where there are many digital signing tools available.

Instead, we will focus on the steps which often are helpful for most groups.

  1. Document collection – collect documents throughout the group
  2. Document generation – automatically create documents with a document generator
  3. Filing, monitoring, and deadline tracking – ensure that filing has been made on time and monitor if any action needs to be taken

Document collection

Any solution’s natural and necessary capability is to store legal-related documents and make them easily accessible for the relevant users.  As mentioned above, documents will be gathered through different processes, and they should be accessible to the responsible persons for the respective process within the respective entity.  Key information from these documents must be searchable and linked to appropriate companies, periods, legal areas, and relevant transactions.  It should also be possible to store documents not related to a particular process, and thus a solution should be flexible enough to allow linking to companies, functions, or users. Irrespective of how you collect documents, they should be stored in that specific process and centrally available in a single store to find all documents.

A document management function should help you confirm that you have the required documentation in place for all entities. This help could entail a function for filtering out documents of a particular type, such as annual reports, filed for a certain period, together with information on which entities have not completed their filing requirements. The system should enable tracking of missing documentation and automatically notify the people responsible for completing the missing data to facilitate the review process.

Document generation

Compared to a document drafting tool, which is often specialized and involves collaboration tools, a document generator draws on the strength of a platform containing a lot of up-to-date information that may be useful when creating documents.

By integrating a document generation tool into your legal tech solution, you will automatically create documents based on templates. These templates could be local forms such as a letter of resignation or AGM protocol. The tool will then be able to make these documents for all your entities and populate them with the required information for the desired date, saving a lot of time for the person who manually creates these documents.

Document monitoring, filing, and deadline tracking

When you have finalized some documents, both locally and on a group level, you may wish to archive these and monitor them for potential actions to be taken or make sure they are filed on time. Two critical tools could help you with these tasks. One is a contract life cycle management tool, and the other is a filing tracker.

Contract Life Cycle Management

For most legal functions, inefficient contract life cycle management steals valuable time. It increases the need for phone calls and emails from end-users. It creates extra data entry work for legal practitioners. It also forces them to spend valuable time looking for missing information in contract requests.

By optimizing your entire contract life cycle management, you can minimize this work allowing your attorneys to focus on strategic contract-related and non-contract-related tasks.

When you have built an archive of contracts, you will quickly monitor and get notifications on action points such as decisions on renewals or when a contract is about to expire. It will be easier to find contracts. By integrating it with your entity management system, you can automatically keep the entity data in your archive up-to-date and get advanced notifications such as information on active contracts in a company reported as dormant.

Filing tracking

When you have created a document and an obligation to file it with an authority or internally would like to know that a document is ready, you can utilize a filing tracker to know that the appropriate action has been taken. With a filing tracker you can set up deadlines per jurisdiction and appoint responsible people who can confirm that a document has been filed or created/completed. It is possible to upload the document simultaneously, and the document will then be structured under the appropriate headings and stored in the document collection tool for easy access.

A filing tracker can be used to keep track of various compliance tasks, e.g., to make sure the annual report has been filed on time or set up a deadline for an internal project and have people report that they have completed it. By doing this simple task, you have complete control of who is late and where you need to focus your attention.

Company secretarial work from a group perspective

Many of the topics discussed above are topics that may be of interest for a company secretary or paralegal. A company secretary may be responsible for the legal entities, the ownership structure, director and officer information, document management and filing, and other tasks.

A company secretary may have to provide information both internally to other departments and file data with authorities. From a group perspective, it is essential that the person responsible for information required by the group can deliver information in the format needed to each stakeholder and keep it updated within the necessary timeframes. This could be a challenge if you do not have a system that is developed to deliver information in the required format to other departments.

A document generator, as described above, could be utilized by a company secretary to upload local forms and have them automatically populated with information found in the group system. This function will allow every jurisdiction to, at least to some degree, automate the generation of local forms, which could be of interest for a company secretary.

Another topic which may be considered is outsourcing company secretarial or administrative services work. With an in-house solution in place, outsourcing could be achieved more efficiently. You could appoint an outsourcing company to take care of all jurisdictions or a few select markets depending on where you need support. The outsourcing company could then be granted access to the solution to automatically retrieve what they need to perform their work or the documents they use for filing purposes. The outsourcing company could be responsible for keeping your solution updated, allowing you to control all group data in one place, both data you update and data maintained by external parties.

The above-described setup would allow you to benefit from the outsourcing services, and at the same time, be able to deliver data to your organization in a uniform way and the required formats. You would also be able to retain full control of your data and easily switch outsourcing provider or insource work since you always have all data in your solution.

Shadow legal function

When you have completed a part of your legal digitalization journey, you will most likely have a process to collect information, have control over your entities, and have appointed responsible people throughout the group to keep the information updated.

This means that you have created a shadow legal function!

It is now easy to add on responsibilities and start collecting other types of data or adding a new compliance requirement. You will be ready when a further need for information arises within the group or when external forces require you to deliver data.

Read more about how Blika can help you digitalize the legal department.

 

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