# Clearing Out Your Garage – Benefiting from Corporate Simplification Author: Pal Sinha, Barnali Author URL: https://financedigest.com/author/pal-sinha-barnali Published: 2021-10-20 Category: FINANCE Category URL: https://financedigest.com/category/finance Meta Title: Corporate Simplification: Clearing Out the Garage for a Meta Description: Learn how removing unnecessary legal entities can reduce costs, manage risks, and create a more agile organisation for the future. URL: https://financedigest.com/clearing-out-your-garage-benefiting-from-corporate-simplificationhtml ![undefined](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/cropped-image-of-businesspeople-analyzing-financial-graphs-on-the-foreground-sbi-325537198-1736837544434-compressed.jpg) ![](https://prod.superblogcdn.com/site_cuid_cm5qst7v3003gwirgwqtxn8i8/images/eddie-bines-1736837544426-compressed.jpg) _By **Eddie Bines,** managing director, Restructuring Advisory, Kroll_ “Any intelligent fool can make things bigger and more complex. It takes a genius and a lot of courage to move in the opposite direction.” Whilst I’m sure Albert Einstein was referring to complex physics when he made this assertion, his words are true for business generally and more specifically, legal entity structures. Many corporates (not just large multinationals) seem to excel in making [things unnecessarily complex by setting up more legal entities than they know](https://www.financedigest.com/home-equity-made-simple-things-to-know-before-applying-for-loans.html "Home Equity Made Simple – Things to Know Before Applying for Loans") what to do with. Of course, it’s not always intended to make matters complicated. Often, they were formed for specific operational or [financial reasons or tax](https://www.financedigest.com/top-north-east-financial-adviser-firm-talks-corporation-tax.html "Top North East financial adviser firm talks corporation tax") structuring purposes. Alternatively, they were acquired through M&A activity. Irrespective, it doesn’t take long for the [group structure to grow and the corporate](https://www.financedigest.com/tarter-krinskydrogin-launches-corporate-investigations-group.html "Tarter Krinsky&Drogin Launches Corporate Investigations Group") garage to get cluttered with bric-a-brac. It’s not uncommon for an organization to have hundreds of companies in its structure. Even when these companies no longer serve an obvious purpose, groups often retain them, leaving them “as-is” rather than toying with the [status quo](https://www.financedigest.com/the-status-quo-is-not-an-option.html "The status quo is not an option"). [Keeping such entities can be costly](https://www.financedigest.com/how-analytics-can-keep-your-cost-base-low-plus-deliver-improved-cx.html "How Analytics Can Keep Your Cost Base Low Plus Deliver Improved CX") and risky (for the corporate itself and directors personally) and hamper the implementation of other strategic initiatives. Consequently, “clearing out the garage” is not something to continually postpone but tackle head-on in the [near term](https://www.financedigest.com/german-economic-growth-to-remain-muted-in-near-term-imf.html "German economic growth to remain muted in near term – IMF") either on its own or as a component of a wider strategic transformation/reorganization initiative. Indeed both during and as we emerge from the pandemic, many enterprises have been undertaking strategic reviews which have and will lead to the transformation of their [operating model](https://www.financedigest.com/is-this-the-start-of-the-race-to-redefine-the-banking-operating-model.html "Is this the start of the race to redefine the banking operating model?") as they position themselves for business in the “new normal.” We often find that companies will initiate a defined corporate simplification (CS) [project to tackle some of these issues and complement other transformation initiatives](https://www.financedigest.com/taylor-fay-homes-recruit-cordant-projects-for-innovative-property-initiative.html "Taylor Fay homes recruit Cordant Projects for innovative property initiative"), bringing the entity structure and operating model in closer alignment. When [implemented successfully](https://www.financedigest.com/synapses-premier-partner-green-light-change-completes-successful-implementation-of-insight-solution-at-ramboll.html "Synapse’s Premier Partner, Green Light Change, Completes Successful Implementation of Insight Solution at Ramboll"), execution is well planned, quick and can provide speedy payback. By clearing out the garage, you’re not only eliminating unnecessary entities, but also [managing risk](https://www.financedigest.com/managing-corporate-currency-risk-the-cfos-balancing-act.html "Managing Corporate Currency Risk: The CFO’s Balancing Act") and making a leaner, more agile organization to take into the future. So, what indicators should management look for when determining whether to progress CS efforts? In our experience, there’s no specific criteria. If you can’t describe your corporate structure internally, if it is hindering your corporate governance objectives, if it doesn’t match your organizational culture of transparency, if it takes up a whole wall in your office or if your [employees are facing and raising day-to-day challenges](https://www.financedigest.com/how-to-deal-with-challenging-employees.html "How to Deal With Challenging Employees?") caused by the complexity—those are some of the signs. You’ll have senior executives acting as directors of companies they know nothing about, swathes of dormant companies or intermediate holding companies creating unnecessary tiers in the group structure, or your [finance team](https://www.financedigest.com/finance-teams-have-been-left-in-the-dark-on-the-real-cost-of-working-from-home.html "Finance teams have been left in the dark on the real cost of working from home") (and other functions) spending an inordinate amount of time supporting non-core entities. The question is then whether you have the [capacity and energy](https://www.financedigest.com/varo-energy-buys-80-of-dutch-biogas-firm-aims-to-double-capacity-by-2026.html "Varo Energy buys 80% of Dutch biogas firm; aims to double capacity by 2026") to clear out the garage. Many have found this [whilst operating remotely](https://www.financedigest.com/how-to-enhance-productivity-for-your-remote-workers-whilst-minimising-risk.html "How to Enhance Productivity for Your Remote Workers Whilst Minimising Risk") during the pandemic. If you do, you’ll find lost family treasures and previously unidentified wasps’ nests in the process. As the CFO/financial director, you want to avoid being challenged by the board or other [senior management](https://www.financedigest.com/the-senior-management-regime-takes-shape.html "The Senior Management Regime takes shape") on the group structure and having to defend its complexities. Non-executive [directors and newcomers to the senior management team](https://www.financedigest.com/tailify-bolsters-leadership-team-with-addition-of-julia-burton-brown-as-commercial-director.html "Tailify bolsters leadership team with addition of Julia Burton Brown as Commercial Director") may have a different perspective on what “good” looks like from working with other organizations and through looking at the organization through a different lens. Furthermore, current and potential investors, finance providers, employees and other stakeholders will all value transparency and a [group structure that is easily explained](https://www.financedigest.com/saipem-shares-drop-group-says-cannot-explain-why.html "Saipem shares drop, group says cannot explain why"). Kroll has worked alongside clients of all sizes ranging from entrepreneur-led [privately owned businesses](https://www.financedigest.com/the-new-wifi-how-private-5g-networks-could-revolutionise-business.html "The New WiFi? How Private 5G Networks Could Revolutionise Business") through to mid-market and globally-listed corporates on CS initiatives. One that is properly planned and resourced can deliver a wide range of sometimes [unexpected benefits](https://www.financedigest.com/top-4-unexpected-benefits-of-remittances.html "Top 4 (Unexpected) Benefits of Remittances") (summarized below) for your organization. The trick then is to ensure that those [benefits are sustained through making CS business](https://www.financedigest.com/5-ways-cfo-and-cio-collaboration-can-benefit-the-business.html "5 Ways CFO and CIO collaboration can benefit the business") as usual, thereby facilitating long-term entity management. The moral of this story is to move clearing out the garage up your “to do” list—identify where everything is, get rid of unnecessary clutter and put things where you want them. You’ll feel good about it, [see the value in your achievement and be wary of letting it return](https://www.financedigest.com/delta-sees-return-to-profit-as-travel-demand-hits-historic-levels.html "Delta sees return to profit as travel demand hits ‘historic’ levels") to its previous state. **[Benefits of Corporate Simplification](https://www.financedigest.com/clearing-out-your-garage-benefiting-from-corporate-simplification-2.html "Clearing Out Your Garage – Benefiting from Corporate Simplification ") (CS):** - Reduced audit, tax, regulatory and other compliance costs - [Reduced internal costs](https://www.financedigest.com/cobots-in-the-financial-workplace-reducing-costs-attracting-talent-and-enhancing-sustainability.html "Cobots in the financial workplace: Reducing costs, attracting talent and enhancing sustainability") associated with maintaining unnecessary entities: Executive, Finance, Legal, Company Secretarial and Human Resources will all benefit from focusing on core activities - Mitigation of [corporate](https://www.financedigest.com/four-corporate-email-oversights-that-put-your-organization-at-risk.html "Four Corporate Email Oversights That Put Your Organization at Risk") risk and director personal risk associated with compliance failings, fading or lost corporate memory, potential contingent liabilities and misstatement in statutory accounts - Improved governance and transparency (and therefore reduced impact of disclosure requirements and [corporate governance reform)— this increasingly prominent in a world](https://www.financedigest.com/post-crash-banking-regulation-is-transforming-the-world-of-corporate-lending-for-the-better.html "Post-crash banking regulation is transforming the world of corporate lending – for the better") that demands legislation and guidance reform - Resolution of [issues resulting from unnecessary complexity such as tax](https://www.financedigest.com/six-securities-services-solves-withholding-tax-issues-for-investors-in-switzerland.html "SIX Securities Services solves withholding tax issues for investors in Switzerland") inefficiency and dividend blocks - Releasing capital tied up in [balance sheets of individual](https://www.financedigest.com/balancing-cybersecurity-and-individual-privacy-new-whois-data-protections-in-2018.html "Balancing Cybersecurity and Individual Privacy – New Whois Data Protections in 2018") entities - Restricted scope and cost of [future improvement and transformation](https://www.financedigest.com/future-of-finance-2023-digital-transformation.html "Future of Finance 2023: Digital Transformation") efforts - Synergies achieved through the alignment of the entity structure with operational activities --- This blog is powered by Superblog. 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