Corporate simplification: why complexity is a governance risk

Corporate simplification is a corporate governance risk: expert insights from restructuring and turnaround specialist Martin Barron. 

For many growing organisations, structural complexity is inevitable. Entities are created to support acquisitions, facilitate tax arrangements, or enable expansion into new markets. However, over time, those structures can become difficult to navigate, and the governance obligations can accumulate.

Corporate simplification involves reviewing and rationalising group structure to ensure it remains proportionate to an organisation’s needs. For boards, it is worth understanding that corporate simplification is not just an operational consideration, but also a governance one.

Group structures rarely become complex by design. Scenarios that often lead to this include when an entity is created for a specific transaction and remains on the books long after that transaction has concluded. A subsidiary acquired as part of a larger deal may be integrated operationally, but never formally wound down. Over time, group structure can inevitably increase in complexity. 

This is common, and it does not reflect poorly on the organisation; it simply happens when growth outpaces structural reviews.

When a group structure grows beyond what the board can account for, it introduces a number of governance considerations that must be proactively addressed.

Oversight and visibility. Effective oversight depends on having a clear, accurate picture of the group. Where structures are complex, it can become difficult to maintain visibility across entities, which in turn affects the quality of information available to the board.

Director responsibilities. Directors hold legal responsibilities for every entity, including dormant ones. Where those responsibilities are not fulfilled, compliance obligations can become a personal risk.

Transparency with stakeholders. Investors, lenders, and regulators increasingly expect organisations to be able to explain their structures, particularly in regulated sectors. 

Administrative cost. Each entity carries ongoing obligations — filings, professional fees, insurance, and management time. While these costs are easy to overlook individually, put together, they can accumulate.

The collapse of Carillion in 2018 offers a well-documented illustration of how structural complexity can compound governance challenges. The British parliamentary inquiry into the failure noted that the group comprised 326 entities, and that this complexity contributed to difficulties in accessing key information and maintaining effective oversight. This is a useful reminder that structure and governance are not separate concerns.

Corporate simplification typically begins with mapping entities to establish a complete and accurate picture of the group, including the status and purpose of each entity. This process alone can be valuable: it often surfaces entities that have not been actively reviewed for some time and provides a clear foundation for decisions about what to retain and what to remove.

From there, a structured review determines which entities continue to serve a clear operational, regulatory, or commercial purpose. Note that entities that appear dormant may carry contractual obligations, contingent liabilities, or regulatory authorisations that need to be addressed before any closure is pursued.

Where entities are identified as surplus, the appropriate closure route will depend on the circumstances, such as voluntary strike-off or members’ voluntary liquidation for solvent entities. Specialist advisory support is beneficial, particularly where tax, cross-border, or regulatory factors are involved.

Corporate simplification is most effective when it is treated as a periodic governance consideration rather than a reactive exercise. As organisations evolve, their structures should evolve with them — and a regular review of whether the current structure remains fit for purpose is a straightforward way to stay ahead of the risks that unnecessary complexity can introduce.

A useful starting point for any board is to ask whether the group structure can be described clearly, and whether the purpose of each entity within it can be readily explained. Where that picture is less clear than it should be, a structured review is likely to be worthwhile.