June 27, 2023

4 Eyes Principle: Effective Governance Management

Discover the power of the 4 Eyes Principle in governance management. Learn how this principle safeguards data, prevents fraud, and enhances accountability.

Dear Legal Ops!
Welcome to this week’s Let’s talk about Legal Ops, offered by Newton. We tackle corporate legal departments, speed up processes, and career growth. Please send us your questions; in return, we come back with real insights and actionable tips.
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Effective governance management is crucial for organizations to ensure data integrity, security, and compliance. One of the powerful principles that have gained prominence is the “4 Eyes Principle”, also known as the 2-Man Rule. This principle emphasizes the importance of having two people approve actions, decisions, and data to enhance accuracy, and accountability, and prevent potential errors.

In this article, we will delve into the core of the 4 Eyes Principle and explore real-world examples where it safeguarded valuable data.

In this article, we will cover the following:

Understanding the 4 Eye Principle

The 4 Eyes Principle, also known as the “Two-Person Integrity Principle”, is based on the premise that essential tasks or actions should be reviewed by at least two authorized people before they are considered finalized. The principle acts as a control mechanism, reducing the risk of errors, fraud, or malicious activities that may compromise sensitive data. By enforcing approval by two people, companies create a robust system of checks and ensure the accuracy of critical processes.

From the legal perspective, implementing the 4 Eyes Principle helps organizations achieve compliance with regulatory requirements and standards such as the General Data Protection Regulation (GDPR) and the Payment Card Industry Data Security Standard (PCI DSS).

Examples of the 4 Eyes Principle

  • Financial Transactions: Financial institutions rely on the 4 Eyes Principle to protect their customers’ assets and financial data. For example, when transferring large sums of money, the 4 Eyes Principle is typically required to review and approve the transaction before it is processed. This double-checking procedure minimizes the risk of fraudulent activities and errors that could result in financial losses.
  • Software Development: In software development, the 4 Eyes Principle plays a vital role in ensuring code quality and security. Before code changes are merged into the main branch or deployed to production environments, they undergo a review process by at least two developers. This practice helps identify and rectify potential vulnerabilities, improves the overall reliability of the software, and reduces the likelihood of security breaches.

What are the benefits of the 4 Eyes Principle?

Adopting the 4 Eyes Principle within governance management brings several benefits:

  • Error detection and correction. Relying on two or more individuals in making critical actions or decisions significantly enhances the chances of identifying errors or inconsistencies. By catching and rectifying mistakes before they escalate, organizations can maintain data integrity and prevent potential financial or legal consequences.
  • Fraud Prevention: Dual approval is an effective way to prevent fraudulent activities. Requiring two people to validate critical transactions or access sensitive data reduces the risk of unauthorized manipulation or misuse, providing a higher level of data security.
  • Accountability and Responsibility: The 4 Eyes Principle establishes a culture of accountability within organizations. This means that each person involved in the review process is responsible for the accuracy and integrity of the approved actions. This shared responsibility creates a sense of ownership and causes a greater level of diligence and attention to detail.
  • Compliance and Regulatory Requirements: Many industries are subject to strict regulatory frameworks and mandate having more security measures. The 4 Eyes Principle serves as an effective system to ensure compliance with such security requirements and protect sensitive data.

Best Practices for Implementing the 4 Eyes Principle:

To effectively implement the 4 Eyes Principle within governance management, organizations should consider the following best practices:

  • Clearly Define Approval Processes: Establish clear guidelines on which actions or decisions you need double approval. Clearly define the roles and responsibilities of each individual involved in the review process to avoid confusion or gaps in accountability.
  • Rotate Reviewers: To reduce the risk of collision, periodically rotate people, who are involved in the review process. This practice ensures fresh perspectives and helps maintain an unbiased and rigorous approval system.
  • Documentation and Audit Trails: Maintain documentation of all approved actions, decisions, and reviews. This documentation serves as an audit trail, enabling organizations to track and verify the accuracy and integrity of critical processes. It also aids in compliance efforts and provides valuable insights for process improvement.
  • Training and Awareness: Provide training to all users involved in the 4 Eyes Principle process. Ensure they understand the importance of their role in maintaining data security, accuracy, and compliance.

How Newton implemented the 4 Eyes Principle

We asked our CTO, Christian Kirchhoff to explain the 4 Eyes Principle process and how it is implemented in NEWTON.

“The 4 Eyes Principle can be configured on a per data model and field basis. This means that for each data model (e.g. entity, contact, project) we can configure which fields need the 4 Eyes Principle. It is configurable on a general level, but also for each field, which users can review (which means confirm or decline) change requests in such fields.” - explains our CTO, Christian Kirchhoff.

4 Eyes Principle is integretable in different ways. In Newton, reviewers see all their pending change requests. They can see who requested the change, the optional change request reference, but also the current and requested new values, as well as links to the data itself to review the data in the context of all other data. The reviewers can either confirm or decline the request. After declining or accepting the change, it is displayed in the history of all past changes, making it easier to track all change requests.

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Wind-up

The 4 Eyes Principle is a core principle for effective governance management that promotes accuracy, accountability, and protection of valuable data. By implementing this principle, organizations can strengthen their control mechanisms, detect errors early, prevent fraud, and comply with regulatory requirements. Newton can help you to implement that. We allow companies to not only manage entities, but also assign roles, enable the 4 Eyes Principle, and have a trial audit. All of these are implemented in one place to ensure the efficiency and simplicity of entity management.


About this article

Sources

Erçin Dedeoğlu (2022)
4-Eyes-Principle
Wiebe de Roos (2020)
The four-eyes principle: what’s important in a DevOps world
Cros Legacy (2019).
Four Eyes principle
Niccolo Abriani & Armando Catania (2022).
Corporate Governance and the So-Called ‘Four-Eyes Principle’
German Federal Ministry of Finance (2020)
Principles of Good Corporate Governance and Active Management of Federal Holdings.

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May 12, 2023

Ultimate Beneficial Ownership (UBO) in 2023

Learn more about Ultimate Beneficial Ownership (UBO). Understand better what UBO means, why it is important, and how it can be identified and managed effectively.

Dear Legal Ops!
Welcome to this week’s Let’s talk about Legal Ops, offered by Newton. We tackle corporate legal departments, speed up processes, and career growth. Please send us your questions; in return, we come back with real insights and actionable tips.
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In 2022, the Court of Justice of the European Union reconsidered the accessibility of UBO to any member of the general public due to fundamental rights for private life and the protection of personal data. That caused several changes and new rules to follow for companies, operating in the EU.

But first, here is what you need to know about UBO:
UBO refers to the real person(s) who own or control a legal entity or asset. This means that they are the ultimate beneficiaries of any income or profits generated by the entity. The concept of UBO is important because it helps to prevent financial crimes by increasing transparency in ownership structures.

In this article, we will cover the following:

What is the difference between BO and UBO?

The terms “UBO“ and “BO“ both refer to beneficial ownership, but they differ in their scope and level of detail.

“BO“ stands for “Beneficial Ownership“, which is the legal and financial concept of who ultimately owns or controls a company, asset, or property.

Beneficial ownership can be:

  • direct, where an individual or entity holds legal ownership
  • indirect, where ownership is held through other entities or individuals.

“UBO“, on the other hand, means “Ultimate Beneficial Ownership“, which is a more specific and detailed concept.

UBO refers to the individual or entity that ultimately owns or controls a company or asset through a chain of ownership or control. Basically, the UBO is the person or entity that has the final say over the decisions made by a company or asset, regardless of holding legal ownership.

Why is Ultimate Beneficial Ownership Important?

UBO is important because it helps to prevent financial crimes such as money laundering, terrorist financing, and corruption. Due to many different scheme opportunities for frauds to hide the identity and the source of assets, it is important to have a tool such as UBO to be able to identify the origin of assets or who stands behind the legal entity. By identifying the UBO of a legal entity, law enforcement agencies, and financial institutions can better assess the risk of financial crime.

Identifying Ultimate Beneficial Ownership

Identifying UBO can be challenging, especially when complex ownership structures are used. Some common methods used by criminals to hide their identities include using nominees or shell companies, transferring ownership through multiple layers, and using offshore companies in tax havens. However, there are several measures that can be taken to identify UBO, including conducting due diligence, using beneficial ownership registries, and implementing Know Your Customer (KYC) procedures.

Learn more about how proper KYC procedures would warn Silicon Valley Bank from collapse.

Managing Ultimate Beneficial Ownership

Once UBO has been identified, it is essential to manage it effectively to make it in use. This includes maintaining accurate records of ownership, monitoring any changes in ownership, and conducting regular risk assessments, creating Legal Entity Management Identifiers (LEI). Learn more about LEI and who needs it. 

It is also important to ensure that all relevant stakeholders are aware of their obligations and responsibilities under anti-money laundering (AML) and counter-terrorist financing (CTF) regulations.

New EU regulations regarding UBO

Recently, there were implemented some changes to the EU UBO register access rules (effective 23 November 2022), that impact compliance requirements for companies operating in the EU. Precisely, companies that are not traded publicly are given the option to restrict public access to UBO registers.

Based on that, compliance requirements might be different for companies and depend on in which country the company is registered and operates. For example, in Luxembourg and Netherlands, access to the register may be restricted, while in other EU member states, the UBO register can be accessed by providing additional documentation to authorities.

Other than that, the new regulation obligates any foreign investors (directly or indirectly) owning German real estate must prepare for extended UBO reporting requirements. Due to the Sanction Enforcement Act II, legal provisions on extended reporting requirements for purposes of the German Transparency Register came into force on 28 December 2022.

Previously, foreign entities investing directly or indirectly in German real estate were obligated to repost their UBO to the German Transparency Register. Due to the new regulations, foreign entities are required to report the UBO for the previously existing investments in German real estate by 30 June 2023, which were not registered before.

Overall, businesses operating within the EU should be aware of these changes and ensure that they comply with the relevant regulations and requirements of each country in which they operate.

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Conclusion

Ultimate Beneficial Ownership is a critical tool in preventing the growth of the black economy, money laundering, forgery, and corruption. By increasing transparency in ownership structures, UBO can help to identify and prevent criminal activities. However, identifying and managing UBO can be challenging, and it is important to take appropriate measures to ensure compliance with AML and CTF regulations.

How does Newton help with this?

Newton delivers an easy and seamless platform to manage and automate your legal entities’ information, governance, and compliance, including UBO declarations. If your entity management processes are currently creating friction for your team, be sure to get in touch to explore how Newton can help you have everything you need to be in control of your entity portfolio.


About this article

Sources

Oraz K. (2023).
UBO: Understanding the Ultimate Beneficial Owner
CT. Corporation Staff (2023).
The importance of UBO due diligence in the global M&As
Netherlands Enterprise Agency, RVO.
UBO register for ultimate beneficial owner
Eversheds Sutherland (2022).
EU court orders UBO-register to be closed to the public
Simon L. (2023).
What does the EU UBO register access removal mean for compliance?
Eva J., Lukáš P. (2022). Changes in ultimate beneficial owners recording legislation – a modified definition of the ultimate owner and broader reporting duties
Financial Times (2022).
European countries begin taking down public company registers after ruling
FlickGocke Schaumburg (2023).
Foreign investors (directly or indirectly) owning German real estate must prepare for extended UBO reporting requirements

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April 21, 2023

Legal Entity Identifiers

What are legal entity management identifiers (LEIs) and what are the benefits of them. Discover how they streamline financial transactions and enhance transparency.

Dear Legal Ops!
Welcome to this week’s Let’s talk about Legal Ops, offered by Newton. We tackle corporate legal departments, speed up processes, and career growth. Please send us your questions; in return, we come back with real insights and actionable tips.
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Legal entity management identifiers (LEIs) are unique codes assigned to legal entities to identify them in financial transactions. While they may seem like just another bureaucratic requirement, they actually offer several benefits that streamline financial operations and enhance transparency. In this article, we will explore what LEIs are, why they are important, and how they benefit legal entities.

In this article, we will cover the following:

In today’s fast-paced global economy, it is essential for financial transactions to be transparent, secure, and efficient. Legal entity management identifiers (LEIs) play a crucial role in achieving these goals by providing a standardized way of identifying legal entities in financial transactions. LEIs were introduced in response to the 2008 financial crisis, which exposed the lack of transparency in financial markets. LEIs offer several benefits, such as enhancing transparency, streamlining financial operations, and enabling regulatory authorities to monitor systemic risk.

In other words, the publicly available LEI data pool creates a global directory and enhances transparency in the global marketplace.

LEIs are 20-digit alphanumeric codes that identify legal entities in financial transactions. Each LEI is unique and is linked to information about the legal entity, such as its name, address, and legal form. LEIs are assigned by Local Operating Units (LOUs), which are authorized by the Global Legal Entity Identifier Foundation (GLEIF). Legal entities must obtain an LEI if they engage in financial transactions, such as buying or selling securities, or if they participate in financial markets. Obtaining an LEI is a simple process that involves registering with a LOU and providing information about the legal entity.

LEIs are important for several reasons. First, they enhance transparency in financial transactions by providing a standardized way of identifying legal entities. This makes it easier to track and monitor money flows, which is essential for preventing fraud, money laundering, and other illegal activities. Second, LEIs streamline financial operations by reducing the need for manual data entry and reconciliation. This saves time and money for legal entities and financial institutions. Third, LEIs enable regulatory authorities to more easily identify and monitor systemic risk, which is essential for maintaining financial stability.

Legal entities that obtain an LEI can benefit in several ways. For example, LEIs make it easier to open bank accounts and obtain credit. They also enable legal entities to participate in financial markets, such as trading securities or derivatives. Additionally, LEIs can help legal entities comply with regulatory requirements, such as Know Your Customer (KYC) and Anti-Money Laundering (AML) rules. LEIs also enhance transparency, which can improve a legal entity’s reputation and credibility.

Learn more how proper KYC procedure would warn Silicon Valley Bank from collapse.

According to industry estimates, universal adoption of the global LEI system could save the financial sector up to $10 billion.

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The future of LEIs

Blockchain Technology and LEIs

Blockchain is one of the new technologies that have the potential to revolutionize the future of Legal Entity Identifiers (LEIs). The security and transparency provided by blockchain technology make it an ideal platform for storing and managing data associated with LEIs. By utilizing blockchain technology, the precision and openness of data associated with each LEI can be significantly improved.

Artificial Intelligence and LEIs

The future of LEIs could be greatly influenced by another technology on the rise: Artificial intelligence (AI). AI-driven systems have the potential to enhance the precision and calibre of the data related to LEIs by automatically validating information and detecting any probable mistakes or irregularities. This can lead to a smoother LEI registration process and minimize the likelihood of inaccuracies in financial reporting.

In summary, the future of LEIs appears promising as new developments and technologies are expected to enhance identification systems’ accuracy, transparency, and standardization.

What is next?

With numerous legal entities bearing similar names and operating across the world, several of the largest multinational banks possess thousands of such entities. As the global LEI system continues to grow, it is anticipated that it will assist regulators and market players in comprehending and recording these intricate corporate structures and hierarchies.
Our technology aids companies to manage legal entities efficiently and seamlessly. It assists in automated document assembly, permitting users to promptly generate, assess, and amend documents.

About this article

Sources

Ka Kei Chan and Alistair Milne (2013)
The Global Legal Entity Identifier System: Will It Deliver?
Stewe Waite (2023)
The Importance of LEI in Global Trade and Supply Chains
Office of Financial Research (2019)
Trust and the Global Coffeehouse: Digital Verification and the Legal Entity Identifier in a Modern Financial Market
Linda F. Powell, Mark M., Elena S. (2011)
Legal Entity Identifier: What Else Do You Need to Know?
GLEIF
Get an LEI: Find LEI Issuing Organizations
Karen Redman (2019)
The past, present and future of the legal entities identifier.
John Foster (2023)
The future of legal entity identifiers: Emerging trends and technologies - AZ Big Media
Simmons+Simmons
The Global LEI System and Other Unique Identifiers

Image

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March 10, 2023

What is Legal Project Management?

The legal profession is constantly evolving. This blogs explores what legal project management is and the impact it can have on legal operations.

Dear Legal Ops!
Welcome to this week’s Let’s talk about Legal Ops, offered by Newton. We tackle corporate legal departments, speed up processes, and career growth. Please send us your questions; in return, we come back with real insights and actionable tips.
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The legal profession is constantly evolving, and legal project management is a relatively new concept that has emerged in recent years. Legal project management involves applying project management principles and techniques to the practice of law. The goal is to manage legal matters in a more organized and efficient way, which can lead to better outcomes for clients, increased profitability for law firms, and improved job satisfaction for legal professionals. In this blog post, we'll explore what legal project management is and the impact it can have on legal operations. You can can also explore the best practices involves on our blog here.

In this article, we will cover the following:

Legal project management (LPM) is a growing discipline in the legal industry that focuses on applying project management principles and practices to the delivery of legal services.

LPM is the application of project management methodologies to legal matters, with the goal of improving efficiency, reducing costs, and enhancing the quality of legal services provided.

Legal project management originated in response to the increasing pressure on law firms to deliver legal services more efficiently and cost-effectively. The legal industry has traditionally been slow to adopt new technologies and methodologies, but as clients demanded more transparency and accountability in their legal services, law firms recognized the need for more efficient and effective project management practices - and this is now translating into an in-house context.

In the early days of LPM, individual lawyers were responsible for managing their own cases, with little coordination or collaboration between different teams or groups. However, as the legal industry has become more complex and specialized, both law firms and in-house teams have realized that effective project management is essential for delivering high-quality legal services.

Today, legal project management has become a critical part of the legal industry, with some legal departments even recruiting dedicated LPM professionals and integrating project management practices into their everyday operations. By applying project management methodologies to legal matters, legal teams can better manage their resources, optimize their workflows, and deliver legal services more efficiently and cost-effectively.

Over half of lawyers believe the optimization of workflows and project management is a “high priority”.

As an in-house legal team, you are responsible for managing a wide range of legal matters and ensuring that your company is in compliance with all applicable laws and regulations. LPM can be a powerful tool for improving your team's efficiency and effectiveness and can help you better meet the needs of your internal clients.

Here are a few reasons why legal project management is so important for in-house legal teams:

Cost savings

By using project management methodologies to manage legal matters, you can reduce the amount of time and resources needed to complete each project, which can lead to significant cost savings. With LPM, you can more effectively allocate your team's resources, streamline your workflows, and avoid unnecessary delays or rework.

Improved communication

Effective communication is critical for success in any project, and legal matters are no exception. LPM can help ensure that all team members are on the same page, and that everyone has a clear understanding of their roles and responsibilities. By improving communication, you can reduce misunderstandings and ensure that all parties are working towards the same goal.

Increased accountability

With LPM, you can establish clear goals and timelines for each legal matter, and hold team members accountable for meeting these targets. This can help ensure that projects stay on track and everyone is working towards a common objective.

Better risk management

Legal matters often involve complex and potentially risky issues, and effective risk management is critical for minimizing the potential impact on your organization. With LPM, you can identify potential risks early on, and develop strategies to mitigate them before they become major issues.

Improved client satisfaction

Ultimately, the goal of any in-house legal team is to provide high-quality legal services to internal clients. By using LPM to better manage legal matters, you can improve your team's efficiency and effectiveness, and deliver better results to your clients.

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As we’ve discussed, LPM involves applying project management principles and practices to the delivery of legal services. To ensure projects are completed on time, within budget, and to the satisfaction of internal clients, there are a few key components to consider.

Planning

The first step in any legal project is to develop a plan. This involves identifying the scope of the project, setting clear goals and objectives, and developing a timeline and budget. With a clear plan in place, you can better allocate resources, manage expectations, and ensure that everyone is working towards a common goal.

Budgeting

Legal matters can be expensive, and effective budgeting is critical for managing costs and avoiding surprises. By developing a detailed budget that takes into account all relevant expenses, including outside counsel fees, you can better manage costs and avoid overspending.

Communication

Effective communication is critical for success in any legal matter, and LPM can help ensure that everyone is on the same page. This includes establishing clear channels of communication, setting up regular check-ins and status updates, and making sure that all team members have the information they need to do their jobs effectively.

During an interview with Newton, Legal Service Delivery Expert Ignaz Fuesgen shared his thoughts on the importance of establishing a “common language” to improve cross-functional collaboration.

We place the human being at the centre of our process design and execution, a philosophy borrowed from design-thinking. A “common language” means understanding each party’s preferences for sharing and receiving information. Technology and processes are enablers of such a legal service delivery process, not more but also not less.

Risk management

Legal matters often involve complex and potentially risky issues, and effective risk management is critical for minimizing the potential impact on your organization. With LPM, you can identify potential risks early on, develop strategies to mitigate them and keep stakeholders informed of any potential issues.

Monitoring and reporting

To ensure that projects stay on track, it's important to establish a system for monitoring progress and reporting on results. This includes tracking milestones and deadlines, identifying potential bottlenecks or areas of concern, and providing regular updates to stakeholders.

So, legal project management involves a range of tasks and activities, including planning, budgeting, communication, risk management, and monitoring and reporting. By ensuring you give focus to these components, you’ll be able to better deliver your legal workload, manage costs effectively, improve communication, and deliver better results to internal clients.

LPM can be applied to a wide range of legal matters, regardless of their size or complexity. Below, we explore a few examples of legal matters that can benefit from LPM.

Litigation

Litigation can be one of the most complex and time-consuming legal matters for in-house teams, and effective project management is critical to increasing the likelihood of success. By using LPM, you can develop a clear plan for managing the litigation process, including setting timelines for key milestones, managing discovery, and coordinating with outside counsel.

Regulatory compliance

Compliance with regulations and laws is critical for every organization, and effective project management can help ensure that your compliance efforts are on track. This includes developing a plan for managing compliance, setting clear goals and timelines, and monitoring progress to ensure that your organization remains in compliance.

Contract management

Contracts are a critical part of many legal matters and effective contract management can help ensure that your organization is getting the most out of its contracts and business relationships while minimizing risk. With LPM, you can develop a clear plan for managing the contract lifecycle, including negotiating and drafting contracts, monitoring compliance, and managing disputes.

Mergers and Acquisitions

Mergers and acquisitions are also among some of the most complex legal matters, and LPM can help not only ensure the smooth running of the project but also the success rates of the transition. This includes developing a plan for managing due diligence, coordinating with outside counsel, and managing the integration process after the deal has closed.

Intellectual property

Intellectual property (IP) is a critical, valuable asset for many organizations and effective LPM can help ensure that your organization is protecting its IP rights. This includes developing a plan for managing the IP portfolio, monitoring for infringement, and managing disputes.

Legal project management has a significant impact on legal operations. There are several key benefits of LPM on legal ops.

Increased efficiency

By using project management techniques, in-house legal teams can streamline legal processes and improve efficiency. LPM helps to identify and eliminate bottlenecks, reduce errors, and ensure that legal matters are completed on time and within budget.

Better cost management

LPM can help in-house legal teams to manage costs more effectively. By setting clear project budgets, tracking expenses, and identifying potential cost savings, legal teams can better manage their budgets and reduce unnecessary spending.

Improved communication and collaboration

43% of lawyers believe the optimization of communication with the business as a high priority.

Effective communication and collaboration are essential for successful LPM. By establishing clear lines of communication with internal clients, outside counsel, and other stakeholders, in-house legal teams can ensure that everyone is on the same page and that legal matters are managed effectively.

Increased stakeholder satisfaction

By setting clear project objectives and expectations, and communicating regularly with stakeholders, in-house legal teams can build strong relationships with internal clients and improve their satisfaction with legal services.

Better risk management

By developing risk management strategies and contingency plans, legal teams can reduce the likelihood of legal disputes and other issues, and ensure that legal matters are managed in a proactive and effective manner.

Summary

Legal project management is a critical tool for in-house legal teams looking to improve their efficiency, effectiveness, and client satisfaction. By adopting project management methodologies, legal departments can streamline your workflows, reduce costs, improve communication, and better manage risks, ultimately leading to better outcomes for your organization.

Legal project management means ensuring the effective management of all legal matters. Newton delivers an easy and intuitive platform to manage and automate your legal entities' information, governance, and compliance. If your entity management processes are currently creating friction for your team (which they are for many), be sure to get in touch to explore how Newton can help you have everything you need to be in control of your entity portfolio.

About this article

Sources

Legal Project Management (2019). Who is best placed to act as legal project manager?
Law Vision (2022). The Latest Trends and Data Points on Legal Project Management.
Deloitte (2019). Legal Project Management has finally made its way into German in-house legal departments.

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March 3, 2023

What is Legal Entity Management?

Discover the foundations of legal entity management, entity management identifiers, requirements, and the benefits of LEM software.

Dear Legal Ops!
Welcome to this week’s Let’s talk about Legal Ops, offered by Newton. We tackle corporate legal departments, speed up processes, and career growth. Please send us your questions; in return, we come back with real insights and actionable tips.
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As businesses scale and adapt, companies must keep track of an ever-growing number of legal entities. These entities become increasingly complex and include subsidiaries, partnerships, trusts, and joint ventures, each with its own legal and regulatory requirements.

During this evolution, to ensure compliance and effectively manage risk, in-house legal teams are responsible for defining the framework in which their company can operate within the bounds of legal and regulatory requirements. This framework is what we call “legal entity management”; without which companies risk non-compliance, financial penalties, damage to reputation, and operational inefficiencies.

With this in mind, to effectively protect and propel your company, it’s important to understand the wider legal entity management landscape, its role in effective business governance, legal entity requirements, and the benefits of adopting legal entity management software vs more traditional solutions.

In an effort to support the 89% of companies that report facing challenges in managing their legal entities, let’s delve into the details to help you better understand the topic and how it can benefit your in-house legal team in managing legal entities effectively and efficiently.

In this article, we will cover the following:

Legal entity management is the process of managing all the legal entities that make up a company. These entities can include subsidiaries, partnerships, trusts, and joint ventures. This task becomes increasingly complex as your entity landscape expands, and each has its own legal and regulatory requirements.

Legal entity management is the process of organizing, tracking, and managing all the legal entities that make up a company to ensure compliance, mitigate risk, and achieve strategic objectives.

The ultimate goal of legal entity management is to ensure that the business operates effectively, complies with all legal requirements, and achieves its strategic objectives.

Legal entity management plays a critical role in ensuring effective business governance. Effective entity management enables companies to manage their legal and regulatory obligations, including compliance, risk management, and financial reporting. When done well, it also ensures that legal entities operate effectively and that the company meets its strategic objectives.

One crucial aspect of legal entity management is the use of legal entity management identifiers. Legal entity management identifiers are unique codes or numbers assigned to each legal entity within a company which allows for easy identification and management of these entities.

Entity management identifiers are used to track and manage legal entities and are an essential component of entity management. Examples of entity management identifiers include the legal entity identifier (LEI) and the global entity identifier (GEI).

According to a study by EY, 68% of companies report the lack of access to accurate, up-to-date information on legal entities as a major challenge.

The use of legal entity management identifiers can improve compliance, mitigate risk, and improve corporate governance. In addition, legal entity management identifiers facilitate due diligence activities, which can improve merger and acquisition outcomes.

Legal entity management is a critical function for in-house legal teams, but who is responsible for managing legal entities? The answer is not always straightforward and can depend on various factors, such as the size and complexity of the organization, the jurisdiction, and the type of legal entity.

68% of companies report only having 1 to 3 employees involved with legal entity management processes.

Below, we explore the different roles that may be responsible for legal entity management and how they might be involved.

Corporate secretaries

Corporate secretaries are typically responsible for managing legal entities’ day-to-day operations, ensuring compliance with legal and regulatory requirements, and maintaining accurate records. They play a crucial role in corporate governance by providing support to the board of directors, coordinating shareholder meetings, and ensuring the company’s policies and procedures are followed.

The legal ops function is responsible for optimizing the legal department’s processes and systems to enhance efficiency, reduce costs, and improve outcomes. They often oversee legal entity management to ensure compliance with legal and regulatory requirements, improve the accuracy of legal entity data, and mitigate risk.

Paralegals

If available, paralegals can play an impactful role in legal entity management by providing support to in-house legal teams in managing legal entities’ day-to-day operations. They typically assist with maintaining legal entity records, drafting legal documents, and managing compliance with legal and regulatory requirements.

Board of directors

The board of directors plays an important role in legal entity management by providing oversight and direction to the organization’s legal entities. The board ensures that legal entities align with the company’s strategic goals and objectives and comply with legal and regulatory requirements. They also approve significant transactions involving legal entities and monitor legal entity performance.

Management/senior leadership

Working in conjunction with the board of directors, the management team is responsible for overseeing legal entity operations and ensuring they align with the company’s strategic objectives. They also work with corporate secretaries, legal ops professionals, and other stakeholders to manage legal entities’ day-to-day activities, including compliance with legal and regulatory requirements, risk management, and improving performance.

Shareholders

By nature, shareholders have a vested interest in legal entity management as they own a portion of the company. They can influence legal entity decisions by voting on proposals and electing board members who oversee legal entity operations.

Legal entities have various legal and regulatory requirements that must be met to ensure compliance and mitigate risk. Compliance with these requirements is critical to ensure that the company operates effectively, complies with legal and regulatory requirements, and manages risk. There are three core requirements when it comes to legal entity management.

1. Risk mitigation

Legal entity management helps organizations mitigate risk by ensuring compliance with legal and regulatory requirements, managing litigation risks, and protecting intellectual property rights. If you fail to manage risk through legal entity best practices, you risk financial, operational, and brand damage challenges.

2. Compliance

Legal entity management is crucial for ensuring compliance with legal and regulatory requirements, including tax laws, data privacy regulations, and labour laws. Non-compliance can lead to financial penalties, legal liability, and damage to reputation. Effective legal entity management helps organizations maintain compliance and avoid legal and regulatory issues.

3. Achievement of strategic objectives

Legal entity management plays a crucial role in working towards business goals and achieving strategic objectives. Organizations can use legal entities to structure their operations, expand into new markets, and raise capital. Effective legal entity management ensures legal entities align with the organization’s strategic goals and objectives.

To ensure effective legal entity management, companies should consider the following best practices as a starting point:

  1. Centralization – centralize legal entity management to ensure consistency and accuracy across the organization
  2. Automation – automate legal entity management processes to improve efficiency and reduce errors
  3. Standardization – standardize legal entity management processes and procedures to improve consistency and accuracy
  4. Integration – integrate legal entity management with other business processes and systems to improve efficiency and data accuracy
  5. Regular review – regularly review legal entity data to ensure accuracy and relevance

Excel has long been the go-to tool for in-house legal professionals for many purposes, one of which has been entity management. However, as organizations become more complex and regulations more stringent, using Excel for legal entity management is no longer sufficient.

Excel is a versatile tool that can be used for many different tasks, but it is not designed for legal entity management. There are several limitations of Excel that will hold you back if you attempt to use it for legal entity management in this day and age.

Heavily manual

87% of General Counsel report their department spends too much time on repetitive tasks such as legal entity compliance.

While you can write formulae, Excel is still a very manual and time-consuming way to complete the sometimes high-volume but low-value entity management tasks.

Limited data validation

Excel lacks the ability to validate data and ensure accuracy. Without data validation, errors can go unnoticed, leading to compliance issues and operational inefficiencies.

Limited collaboration

Excel is not designed for collaboration, making it difficult for multiple stakeholders to work on legal entity data simultaneously or keep track of version control.

Limited scalability

Excel is not designed to handle large amounts of data, making it difficult for organizations with many and a growing number of legal entities.

Limited reporting

Excel lacks the ability to generate sophisticated reports, making it difficult for legal teams to provide insights into legal entity management.

Lack of data security

As it is not a build-for-purpose platform, Excel does not have the capabilities to meet modern-day data security needs.

As companies scale, Excel becomes increasingly inadequate so businesses must consider more robust solutions for legal entity management.

Outsourcing legal entity management can provide many benefits to companies, including access to expert professionals, reduced costs, increased efficiency, and improved compliance. Outsourcing entity management enables companies to focus on their core competencies and strategic objectives while ensuring that their legal entities are managed effectively and efficiently.

Over 70% of companies expect their legal entity management staffing levels to decrease or remain the same in the next 12 months.

Adopting a legal entity management software like Newton provides companies with a comprehensive solution for managing legal entities in a more automated manner. In turn, this allows in-house legal teams to manage their legal entities more effectively while requiring less time.

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Summary

Legal entity management is a critical function for in-house legal teams. Effective legal entity management can mitigate risk, ensure compliance, and achieve strategic objectives. Legal departments should prioritize implementing best practices for legal entity management including centralizing the matter, automating and standardizing processes, and regularly reviewing legal entity data.

By adopting best practices and, importantly, capitalizing on modern software such as Newton, companies can ensure effective legal entity management, leading to improved outcomes and reduced risk.

Newton delivers an easy and intuitive platform to manage and automate your legal entities’ information, governance, and compliance. If your entity management processes are currently creating friction for your team (which they are for many), be sure to get in touch to explore how Newton can help you have everything you need to be in control of your entity portfolio.

About this article

Sources

EY (2021). The General Counsel Imperative: How can you evolve entity management into effective governance?
ACC (2022). Legal Entity Management Practices.

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December 30, 2022

What is Legal Operations?

Legal operations is revolutionizing the way the world of in-house legal operates. This article is an introduction to legal ops and how it can benefit you.

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In the past, legal processes were among the longest and most laborsome in business.

With the legal team often being the point of entry and exit for business matters, these cumbersome processes created friction both internally and externally. In turn, this resulted in damaged relationships, the slow development of business opportunities, and, in some cases, blocked revenue.

However, the pace of business has been increasing over the last decade. With 70% of companies now having a digital transformation strategy in place*, there is a strong focus on building more efficient and impactful processes.

While legal teams were once left behind, the emergence of a legal specialism dedicated to streamlining legal processes and implementing effective tools has enabled legal professionals to operate more efficiently and take on a more strategic role in the business.

Introducing “legal operations”, or “legal ops” (as it’s more commonly known).

In this article, we’ll share an introduction to legal operations and what areas you need to be thinking about to improve the efficiency and effectiveness of your legal team.

In this article, we will cover the following:

“Legal operations” describes the set of processes and tools that a business uses to execute legal work. It is all about driving efficiency and effectiveness to reduce costs and improve performance.

When you put a focus on legal operations, you’re taking action to streamline processes, embed tools and technologies that offer a high return on investment, and enhance cross-functional collaboration. In fact, legal operations professionals are often said to be the link between legal and the rest of the business. For example, priorities include controlling outside counsel costs, using technology to simplify workflow and manual processes, and focusing on internal data security.

As a result, the legal department is able to achieve more with fewer resources, deliver more impactful outcomes that are aligned with wider business goals, and the team will be able to take on a more strategic role within the company.

As technology progresses at pace and the number of legal tech vendors expands, legal ops functions will increasingly deliver significant cost and time savings for their businesses.

While the formation of the legal ops concept is relatively new, some aspects of legal ops have been around for decades.

Pre-1990, legal teams were focused solely on risk management*. As we moved through the 1990s and into the 2000s, there was a shift towards more strategic activity. However, this work was generally executed by outside counsel as in-house teams grappled with admin-heavy internal requests.

As legal fees began to skyrocket in line with inflation and demand, businesses and their legal teams began to focus on optimizing processes and saving money. Now, in light of the harsh economic climate and endless drive for efficient growth, legal departments are establishing a culture of continuous improvement.

The rise of legal operations encourages legal professionals to strategically use technology and legal service providers to drive efficiency and reduce costs.

When it comes to legal operations, your main point of reference should be the Corporate Legal Operations Consortium (or CLOC, as it’s usually referred to). CLOC is a global community of experts focused on redefining the business of law and it is one of the main driving forces behind the progression of legal operations.  

Defined by CLOC, there are 12 core competencies of legal operations. These competencies represent areas of focus that every legal department needs to manage to have a disciplined, efficient, and effective legal function. Think of these as the ingredients you need to have a well-oiled in-house legal machine. Let’s explore a summary of each.

Financial management

When budgets are stretched and, in some cases, on the decline, it becomes even more critical to effectively optimize the finances in the legal department. Where once there were discrepancies, friction with other teams, and a lack of informed decision-making, there is now a focus on proactive, intelligent financial management.

Legal operations include mechanisms to better set and manage the budget for the legal function. Legal departments need to work with the finance team to proactively spot efficiency opportunities, act upon spending trends, and explore cost savings.

Firm and vendor management

In the past, outside support was often chosen as a result of historical contracts or personal relationships. This approach often resulted in suboptimal rates and effectiveness of support.

But your portfolio of vendors needs to be well-monitored. Ensuring optimal fee arrangements with outside counsel and favorable payment options with legal tech vendors will ensure the sustainability of your legal function.

Observing the quality of output from vendors will allow you to secure a good return on your investment and deliver impactful outcomes for the business. In practice, this focus on cost and quality might look like regular reviews and the negotiation of fee arrangements.

Business intelligence

Historically, legal teams have had minimal access to data that could be used to inform decision-making. Now, thanks to cross-functional collaboration and new technologies, legal teams can now operate based on data, not guesswork.

Making use of the data and insights available both inside and outside of the legal department, you can identify trends and spot opportunities to improve the performance of the legal function. As your team grows, you’ll be able to nurture the skills within the legal department and make increasingly better use of the data available to you.

Information governance

Legal is the gatekeeper of valuable information. Yet, especially in companies that are growing quickly, it is often a challenge to maintain clean information governance. This lack of structure can put the company at risk and make it difficult to provide the right information at the right time.

Legal operations brings focus to the need for clear and comprehensive guidelines for the sharing and retention of this information. Good information governance reduces risk and creates confidence for teams internally as well as for customers and prospective clients.

Technology

Legal has been a slow, admin-heavy function for too long now. Thankfully, in an effort to manage a growing workload and drive efficiency, legal professionals are looking to legal tech for a solution. Now, 71% see using technology to simplify workflow as a high priority.

Gartner predicts that legal technology budgets will increase threefold by 2025*. Whether it’s a contract management platform, equity management software, or an entity management solution like Newton, the goal is to implement tools that will automate low-value, high-volume tasks and free up time to be spent on higher-value, more strategic activity.

Training and development

Where once the legal department operated in silo, it is increasingly acknowledged as a valuable business partner. After all, legal is a business topic; it’s not just for lawyers.

Legal operations propose the creation of quality, tailored training around legal matters for colleagues both inside and outside of the legal team. Whether you run a session on new legislation that’s coming into play or develop a section for the onboarding experience of new staff, delivering to the training requirements of the business will better ensure compliance and engagement.

Strategic planning

In today’s economic climate, all business functions must align and work towards the same overarching goals. Thanks to legal tech, in-house legal teams can now free up time to focus on more strategic work that helps to position them as business advisors.

To deliver better outcomes, you must set goals that serve the needs of the legal department and that are also aligned with wider business objectives. Legal leaders and their teams must take a more holistic approach to the design of their legal strategy, ensuring it supports the company’s longer-term vision.

Service delivery models

As we’ve all experienced, there are instances when historical processes can go against us. For legal departments, assigning work to a particular service provider by “default” can be surprisingly costly and have a negative impact on delivery.

The vendor ecosystem has become increasingly complex to avoid wasting time and delivering subpar work, build and monitor your vendor portfolio over time. Understand which vendors best deliver different types of work—and whether the costs align with your expectations—and route projects accordingly.

Project management

Project management is a critical aspect of legal operations. Often one of the most time-consuming yet impactful parts of legal ops, project management sees legal teams designing and implementing initiatives to make the legal team and wider business more efficient and effective. These are often complex projects that require competent change management skills.

Practice operations

Legal professionals are highly skilled individuals. Yet, many in-house legal teams are continually bogged down with a high volume of low-impact but necessary tasks. This results in wasted talent and money as an unengaged team.

The practice operations focus aims to enable legal professionals to focus on legal matters. By implementing automation and streamlined processes, lawyers can spend less time on operational tasks and more time on practice-specific matters such as entity management, eDiscovery, and contract management.

Not only will your legal team be more engaged in their work, but the business will reap the benefits of putting their skills towards higher-value tasks.

Organization optimization and health

For too long now, heavy workloads due to expanding job scope and lack of strategic responsibility offered by executives have resulted in legal departments being mostly reactive with no clear vision. Without a vision, it’s nearly impossible to adequately prepare for the future, meaning there will be an inefficient allocation of resources, and important aspects of the employee experience—such as career opportunities and skills development—will be overlooked.

Optimizing the legal department is all about building a high-performing and motivated team. You need to understand the legal department’s strategy (which must be aligned with the wider business strategy). From there, you can hire individuals with the right skills and diverse perspectives to encourage continual improvement and support career growth.

By supporting the individuals in the legal department to work towards their personal ambitions, you’ll create a sustainable, enthused team that delivers better business outcomes.

Knowledge management

As a result of a high volume of historically manual yet necessary tasks, legal teams have a significant workload. Often, this means there has been no time to define and implement best practices. However, as your team and function scale, it’s crucial to have processes in place that ensure consistency and quality while mitigating risk.

Effective knowledge management sees the centralization of knowledge. By centralizing documentation, insights, and best practices, you can create a more even playing field that empowers all team members. Moreover, when there is a clear understanding of procedures, the legal team will deliver more consistent service to other teams, ensuring standards are maintained.

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The formation of your legal operations function is unique to your business. It will also evolve as your team and company mature. There are generally three different ways that legal ops can make its way into your legal department:

  1. Legal ops as part of a wider job description
  2. A dedicated legal ops professional
  3. A dedicated legal ops team

For smaller companies, perhaps with a sole in-house lawyer or external consultant, legal operations may be one part of someone’s job description. For slightly bigger companies, perhaps with a legal team of three or more, you may have a dedicated legal ops professional. Some very large companies have a whole team to focus on these topics, but for the majority of small to medium-sized businesses, it’s likely that it will sit within the core legal team.

Legal departments of all sizes are under increasing pressure to mitigate risk while also understanding the risk appetite of the business. They have a responsibility to protect the company while also now enabling growth and advising on strategic matters. Not to mention, they need to manage outside counsel and ensure budgets are adhered to.

Reducing the time spent on low-value, high-volume tasks so legal teams can spend more time on high-impact, strategic work is exactly where legal operations come in. And it can benefit all businesses, no matter the size or stage.

But it’s not just about the team. To truly drive efficiencies and enhance performance, legal teams need to be equipped with the right tools and technology. As listed above, technology is one of the 12 core competencies of legal ops.

If you want to take your legal function to the next level, you need to assess your current situation—including business priorities, resource plans, budget, and most importantly, current pain points—and explore what technology will be able to drive efficiency in your company.

Where does Newton fit into all of this?

Newton delivers an easy and intuitive platform to manage and automate your legal entities' information, governance, and compliance. If your entity management processes are currently creating friction for your team (which they are for many), be sure to get in touch to explore how Newton can help you have everything you need to be in control of your entity portfolio.

About this article

Sources

Forbes (2019). 100 Stats on Digital Transformation and Experience
CLOC (2020). What is legal operations?
Gartner (2021). Gartner Predicts That Legal Technology Budgets Will Increase Threefold by 2025
Thomson Reuters Institute (2022). 2022 Legal Department Operations Index


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