Why do Legal Entity Rationalisation (LER) projects fail?

LER touches so many areas of a business, even with a seemingly clean target structure – it is often described as a “mile wide and an inch deep”. Tax, legal, finance, CoSec are usually the most impacted functions in a business but several others will also have a key part to play.

So why do so many LER projects fail or, more accurately, fail to fully deliver? How can you ensure your project does not leave LER value on the table….

1. Oversimplification – it’s just a project right? Wrong!
LER is far more technical than is often perceived – even the simplest dormant entity requires cross-functional input and most activity has many interdependencies which often mean the plan is subject to regular directional changes. There are no tolerance margins and no insurance policy if something is missed – with balance sheets needing to be wound down to the penny; liabilities to be discharged in full; assets to be realised and off-balance sheet factors to be considered, understood and acted upon.

2. Lack of ownership – C-suite please
The benefits of LER can be difficult to quantify – tangible (hard) cost savings (audit, compliance costs) are not always material and intangible (soft) cost savings (internal simplification, reduced risk, improved corporate governance, etc.) are difficult to quantify. In addition, benefits are often spread across an organisation which can result in no clear responsibility for or ownership of driving the LER initiative forwards. Sponsorship at senior board level is required with success often achieved when LER is on C-suite executives’ personal objectives with a very clear picture of the upside.

3. The absence of an LER experienced project manager (and in that specific order)
Oversimplification often leads to either no project management or project management being provided by “generalist” change managers rather than those specialised in the art of LER. There is no standard waterfall project management methodology for LER. The constant changes in pace and direction require agile, qualified, restructuring project managers to coordinate and drive the project forward. Extensive knowledge of how seemingly simple matters can lead to real issues in execution is required. And by contrast, knowing which matters will present REAL issues to be resolved is also key to ensure “noise” does not derail true momentum.

4. The absence of a clearly articulated and accepted group goal
Elimination of even the simplest dormant entity will require input from +10 functions across an organisation. Some functions (e.g., finance, legal, tax, CoSec) will need to be more involved than others but all will need to input at different stages throughout the LER lifecycle. The highly cross-functional nature of LER requires not only a central project manager experienced enough to coordinate and pull each thread together as each elimination matures but also buy-in from all departments/ teams. Without clear and senior support at department level prioritising LER when required, the chances of success are limited.

5. Lack of resource allocated to the task of doing!
LER is very rarely the responsibility of any one person within each team – it is often ‘edge of desk’ work for all and therefore deprioritised over other business-as-usual activities like month-end close, for example. Getting timely, detailed finance information is an early requirement and a dedicated point of contact should be identified and given the time to focus on assisting the project manager and core team. The same applies to other departments and areas of the business. Building the team with a focus on those that will be central to getting things done is key.