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Organizational charts are a graphical representation of a business structure in terms of legal entities. These charts include a parent and subsidiaries, which make it easy to see complex relationships quickly. Jace (John) Harker, Sr. Product Manager at CT Corporation, discusses who needs to use or view org charts and why, what is included on them, how they are created, and an easy way to make custom charts.
Greg Corombos: Hi, I’m Greg Corombos. Our guest this week is Jace Harker, Sr. Product Manager at CT Corporation. Today he’s going to walk us through organizational charts, what they are, and how they can be a major asset to your business. Jace, thanks so much for being with us today.
Jace Harker: Thanks for having me.
GC: What exactly is an organizational chart?
JH: An organizational chart is a graphical representation of your organizational structure in terms of your legal entities. It’s going to look a family tree of your organization. It will start off with usually your parent entity, and then it will show those subsidiaries underneath the parent entity, and the subsidiaries of those and so on down the chart. It ultimately looks like a family tree of what your hierarchy is in terms of your organization
GC: Talk a little bit about what it shows. What information is encapsulated in the chart?
JH: An organizational chart is going to capture information that is relevant to your compliance needs. It’s going to show the entity names, and it’s going to have information that you’re going to use. For example, it will have the entity type--whether it’s an LLC, limited partnership, corporation, or something else. It will show the jurisdiction--what state it’s in if it’s in the United States or what country it’s in. It might show information, for example, about the tax ID. Of course, an organizational chart usually shows information about ownership. So for example, if entity A owns 50% of entity B, then that will be labeled on the chart. And you might put in more detailed information about specifically what securities are owned and the details about how the ownership relationship works.
GC: Who should be using organizational charts, or who at least should be able to see these, and why would they need to?
JH: A lot of different people within the organization are going to be using organizational charts. For example, the tax department will use the chart to look at tax liabilities and tax relationships within your organization. Your legal department and corporate secretary, anyone involved in compliance, may be looking at the compliance requirements for particular entities. Also if you have external auditors, they’ll potentially need to look at your organizational chart or portions of it for auditing purposes. And one new use we’re seeing recently, or upcoming recently is KYC applications, Know Your Customer requirements, especially in European countries. Frequently if you’re working for a lender or financer on a particular deal, they’re going to want to look at for a particular entity, not just the entity itself, but everything in the ownership structure above that entity to see who has a stake in or control over that entity to better understand the risks and compliance needs around that deal.
GC: Let me do one quick follow up before we move on here, Jace. How does a business owner know they need an organizational chart? How much complexity to the hierarchy, as you mentioned, is necessary before this becomes an asset you really have to have.
JH: Every organization is going to benefit from using organizational charts. Obviously the larger your organization, the more you will be using them. We’ve worked with clients who have hundreds or even thousands of entities in their organization, and all of them ultimately can be drawn together in one chart, usually under one parent entity. The larger and more complex your organizational chart is, the more having a visualization of those relationships is going to be helpful to you when you’re trying to determine what your compliance needs are, what your risks and liabilities are.
GC: Jace, you mentioned certain types of charts, outside of our conversation, which company owns what and subsidiaries all the way down the line. Are their other kinds of charts, and if so, what kinds are there?
JH: There are many kinds of charts. I mentioned the ownership chart, which is where you start at the parent entity and look at what’s underneath it. I also mentioned from the standpoint especially of KYC requirements, the owned-by chart, where you would be looking at one entity, and then the entities in a sequence going up from that entity. Basically with an ownership stake in that entity. We also see a lot of the time customers find it useful--especially if your org chart is large or complicated, to look at sub-charts. So for example, you might want to look at within your organization all the entities that are in a particular country, or all the entities that are in a particular state or in a particular business division of your company. You might also be interested in looking at all the entities of a particular type. For some reason, you might want to look at, say all of your LLCs.
GC: What is the best way in your mind to create a chart in terms of accuracy, ease of following, and time efficiency. Because as we already described, some organizational charts can be very very complicated. So what’s the smartest way of going about creating it?
JH: Creating charts can be complicated and a labor-intensive process. A lot of clients we work with typically use, they create the charts manually using Vizio, Powerpoint, or another graphics editing tool. And you can imagine for charts that are hundreds or even thousands of entities large, drawing that chart, updating that chart every time there is an acquisition or a change in ownership--this takes a lot of time and manual work. And it limits the ability to create custom charts on demand. If you have specific needs for a particular deal, you need to complete just one section of the chart. Or if you have internal stakeholders who need to say a portion or section of your org chart. It’s very difficult with a manually drawn chart to weed out all the things you don’t need to create a specialty chart for a particular application. What we recommend using is entity management software which will track all of the information about your entities, and will allow you to visualize your entity relationships in custom charts you can make on demand.
GC: So you pump in new information, and it automatically creates a new chart or an updated chart?
JH: Exactly. You can just draw a new chart with all the updated information from your database whenever you want. And if you need to make a specific sub chart or a filtered chart, some software will allow you to do that do. But it’s important that when selecting a piece of software that you make sure that the kinds of charts you need and the kinds of charts you need to do--if it’s filtering for sub-charts or looking for different entity types in your chart or other things--you want to make sure the software will support putting in the information that you need and creating the types of charts you want to look at.
GC: That’s a lot more efficient than breaking out the Sharpies. What’s been your experience, Jace, in terms of companies keeping up to date with this? It’s obviously critical, not only for their own reference point but also for those that they’re doing business [for] and perhaps doing contracts with, are they keeping up to date? Is the time-consuming aspect wearing on them? How have you experienced this?
JH: We’ve definitely seen that it can be difficult to keep org charts up to date. Especially if you have a large organization. Typically it can be a big project to update the org chart every six months or every year. And the drawback to that is that you only have the org chart available as of a particular date and time. So if you need to look at the chart as of another date and time, it’s very difficult to do that. And of course it’s a lot of manual work as well, so it has to be planned and budgeted into all the other work responsibilities that you might have for your division. So it definitely can be a labor-intensive process, which is why using software can be so helpful.
GC: You mentioned the software. Any other advice you would offer to business that has either a lot to keep up with or just getting started on this?
JH: I would say, just understand what your needs are--not only what you’re doing with org charts now, but what you would like to be doing with org charts. If you’re manually updating your chart a couple of times a year, but you frequently get requests for sub-charts or owned-by charts that you have difficulty meeting, that would be a need you’d want to discuss with your compliance service provider. And make sure that they have a solution that’s really going to work for you.
GC: Our goal is to make life easier for business owners, and this is certainly one tool for doing that. Jace, thank you for your time today. Appreciate it.
JH: Great, thanks so much for having me.
GC: Jace Harker is Senior Product Manager at CT Corporation. I’m Greg Corombos.
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