Risk Management for Your Organization's Foreign Subsidiaries

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4 min read
The return to economic growth that has occurred over the last year has led to a new round of expansion by multinational enterprises and institutions. However, this expansion is also taking place in what is, in some ways, a radically changed political context, with widespread alienation from the center and the ensuing rise of populist parties on both the right and the left.

An organization that has a global reach has access to unique opportunities for profit that are closed off to those that are walled in by national borders. However, this global opportunity also comes with exposure to the requirements of more regulatory authorities. This comes from within national governments and the higher levels of regional economic cooperation like EU law and free-trade agreements such as NAFTA, which make the entity and its leadership responsible for following the law in different competing jurisdictions.

There are good reasons why every multinational enterprise needs to think of its business in an interlinked manner. New regulations on one legal entity in a given country can have effects that roll onto other entities that are linked to it internationally. Furthermore, regulatory inquiries into business from one authority no longer stop at the boundaries of that particular state, if they ever did.

Consider the case of the Canadian mining company Hudbay Minerals, which was held responsible by an Ontario court for illegal actions engaged in by employees of its Guatemalan subsidiary, la Compa?'ia Guatemalteca de Niqu?'l, was involved in land disputes between the company and indigenous peoples.

More prosaic violations of the law can turn out to be just as embarrassing and damaging financially. For example, TOMY, a toy manufacturer, paid over $10 million to settle a class action suit against its US subsidiary for violating a rule requiring an opt-out clause on faxes it sent to thousands of merchants. Officials of the Japanese-based TOMY had not been aware of the Junk Fax Prevention Act, and it ended up having serious consequences.

Develop a Sense of the Risk Management Environment

An effective lobbying strategy is only the final outcome of many more basic practices that make your leadership aware of the regulatory environment, and your organization's ability to influence it.

Sensing the different regulatory environments a multinational entity operates within involves monitoring of legislation and policy where the firm is concerned to identify potential risks and opportunities. It's a basic responsibility of not only legal departments, but the board and senior management.

Smaller enterprises, or those that have grown recently but that want to have more of an influence on policy, first need a basic awareness of the regulatory environment they've come into. For example, even without a lobbying strategy or division, an organization can, by monitoring lobbying disclosures by competitors, get a sense of the current strategic issues.

Building a Strategy for Government and Regulator Relations to Better Manage Risk Management

Relations with regulatory authorities are essential, although they operate at very different scales and with different methods. One good example of this is investment management. While most large funds organize an independent team to handle government and regulatory relations, small or mid-size funds may combine the expertise of their own regulatory liaison with the services of an external support team, as well as taking advantage of the many benefits of membership in trade associations.

The kind of government relations strategy your entity develops will depend not only on its size but on the needs of its different operations and its overall growth strategy. Plotting a course past the shoals of investigation and penalties by regulators depends on accurate sensing and the mobilization of both internal and external resources to secure and influence policy.

Technology, Data and Analytics

Electronic access to pending legislation has been available from most governments for quite a while now. Regulatory risk analysts have developed increasingly sophisticated ways to grab this data, compare it to other data sets and deliver reports.

All entities should embrace the latest technologies, especially methods of data collection and analysis, in developing their strategy to sense and then influence the policy environment. But how your entities do this will again depend on your organization's specific needs. To return to investment management, large firms may find the need to combine their own legislative analysis with supplemental data collection through outsourcing, while many smaller ones will benefit from the cost-efficiency of hiring out their policy data and analytics to organizations with this specific expertise.


Sensing and developing a strategy around the various regulatory risks incurred by operating in different countries can seem like one of the murkiest and thorniest aspects of risk management, whether we're talking about the germ of a sensing operation within a small firm to the high-powered lobbyists operating in Washington or Brussels. Blueprint OneWorld has a number of elegant and effective software solutions that will assist you in building or revamping your government relations strategy.

Through our ChartIt solution, for example, you can get efficient automated production of charts and diagrams based on certifiable and historically accurate information on regulation that allows leadership teams to operationalize the different kinds of perspective a chart tells them through 'what-if' scenarios representing the effects of different kinds of reorganizations and restructuring on your entity. Please call or email us to discuss this solution and our other solutions today.