“Everything should be made as simple as possible, but not simpler” Albert Einstein
Why complex structures?
A lot of corporates (not just ASX200 companies) appear to shine in creating complex structures. Of course, the intention was not always to make matters cluttered. Generally, they were set up for a specific financial or operational purpose, or for tax effective reasons. Perhaps, they were an outcome of M&A activity.
Regardless, before you know it the group structure has grown, and the corporate house is cluttered with irrelevant trinkets.
What are the consequences?
Retaining cluttered entities can be expensive, risky (for the corporate itself and directors personally). Moreover, it can hinder the execution of other strategic aspirations of the corporate structure. Accordingly, ‘spring cleaning’ should not be delayed but undertaken continuously as part of a broader strategic review.
What are the key signs to consider when conducting corporate simplification?
From our experience, some key signs are:
- You cannot illustrate your own corporate structure.
- You need two whiteboards to sketch out your structure.
- Your employees are experiencing and airing daily frustration caused by complexity.
What are some of the benefits from corporate simplification?
- Reduce audit, tax, regulatory and other compliance costs.
- Reduce/cut internal costs related with maintaining unnecessary entities (i.e focus on core activities).
- Release capital tied up in balance sheets of individual entities.
- Managing director personal risk and corporate risk associated with compliance failings and potential contingent liabilities.
How can Charles & Co. can help?
Charles & Co has worked shoulder to shoulder with numerous clients on corporate simplification strategies. A well-defined corporate simplification strategy can produce valuable benefits for your organisation. The key is to make sure those benefits are adopted by making ‘spring cleaning’ as part of your ongoing business performance review.