Due Diligence
Investigative Due Diligence (IVDD)
Although much is said about its counterparts in the financial and legal sectors, the venerable Investigative Due Diligence is rather less talked about, but just as necessary: it is about nothing less than knowing who you’re really doing business with.
Whereas a financial due diligence preventively addresses the financial implications of a potential commercial relationship with a target company (liabilities, financial exposure, long-term profitability, etc.) and a legal due diligence in the same context addresses the legal implications (issues of intellectual property, contractual continuity, employment and labour law, etc.), the Investigative Due Diligence addresses the human and reputational elements involved in this potential relationship.
In other words, the IVDD might well end up telling you, even before you get to the financial and legal stages, whether it’s worth doing business with a certain company at all.
When done properly, the IVDD should focus on answering the following questions:
- Do the people claiming to head the target company really head it? Or are they merely fronts for other people or organisations who for some reason might want to remain in the shadows? Who are the ultimate owners and key principals of the company?
- Who are these people? What is their background? Where do they come from? What other businesses or activities are they involved in? Do they have a proven record of competence in their field? What is the public profile of their company?
- Where do they fit? Who are they connected to in their particular field, and where do they fit in the general sector? Are they archetypes or outliers? What relationship might they have with government or other key players in regulatory or commercial circles?
- What did they do last summer? Any history of relevant litigation or criminality? Any history of fraud, scandal, corruption, unethical business and labour practices, or human rights abuses? Any other issues that might cause concern? What happened to the company’s last projects, deals or investments?
A proper IVDD is a comprehensive, analytical and qualitative profiling of a company. It is an essential mechanism to enhance transparency in a world rapidly becoming more and more opaque.
Personal Due Diligence & Pre-Employment Investigations
Appropriate derivations of the investigative due diligence exercise can in certain cases be applied to people, as well as to companies.
A Personal Due Diligence can be required in cases where a commercial relationship is contemplated with a high-net-worth individual, or simply with a person of major influence in a certain sector or jurisdiction. The due diligence in this case would focus on the same elements as it would for a company and cover similar ground, such as origins, track record, activities and business interests, reputation, network, government connections and any history of illicit or unethical business activity.
A Pre-Employment Investigation can be required in cases where particularly senior or strategic hires are contemplated, with a particular emphasis on verifying CV claims. This is not a “background check”, which is essentially a paper-chasing exercise, but a real, detailed and investigative examination of a candidate’s actual profile and track record.
Corporate Ethics Investigations
A Corporate Ethics Investigation focuses on a company’s ethical track record, often on behalf of a non-governmental organisation or a civil society body, in order to identify any instances of past bribery, corruption, mistreatment of employees or other corporate wrongdoing that would mitigate against a relationship with the company.