Due diligence, whether legal or financial, refers to the investigation of a potential product or investment in order to confirm all the facts. This is usually performed when a company aims to enter into a financial transaction with another firm, or during a merger & acquisition scenario. Simply trusting the numbers presented by a company and skipping the due diligence process is a risk venture, as it will make the transaction a gamble. A deep review might uncover information that will either kill a deal, or enhance the perspective about it and thus help change the terms of the deal.
One form of due diligence that is often times overlooked is the investigation performed before making a major executive hire. This form is considered to be “people due diligence”, and performing background checks on people is an important process, as the success or failure of a company relies on the people running it, which means it’s crucial to have on board people that are trust worthy and reliable.
Due diligence can be performed in-house or by third parties. Performing investigations in-house can be dangerous, due to the fact that the investigation might yield contradicting information or a deep enough dig might not be performed. Choosing the services of a third party firm who has experience in performing private equity due diligence, such as Corporate Resolution Inc., is an ideal option, as their team will be able to provide a full picture.
Knowing the people that get hired is a significant aspect, as it will lead to the protection of the company’s reputation and also preserve its corporate culture. If issues from an employee’s past see the light, this development might be damaging to the company. Whether we’re talking about a new M&A partner, new board member, or even a Chief Executive Officer, a strong investigation is necessary in order to make sure that there will be no surprises uncovered by the media, shareholders, or even the Securities and Exchange Commission.
The investigation includes interview with professional and personal references conducted by the staff of the firm in charge with performing due diligence. They will also cover business interests, verification of credentials, civil litigation, criminal history, global regulatory review, verification of certifications, motor vehicle review, consumer credit review, traditional as well as social media review, and expert analysis and recommendations will also be included.
In order to perform proper due diligence, a research strategy needs to be in place. While in some cases might seem too much, in actuality, there is no such thing as due diligence. The company must request all the necessary paperwork – from memberships in professional associations, to licenses, degrees, certifications, awards, military honors, etc. Depending on the job they apply for, some documents might be more important than others.
Reference checks should be performed before the interview. This part plays a role for two reasons: 1) if candidates apply from all over the country or all over the world, having poor reference could lead to them not being hired, which means that times was wasted with the interview, and 2) candidates might perform well on the interview, but taking a decision based on the interview alone is risky.
The candidate should be asked for references who can provide important details and information that the company might be after. Checking references takes time, which is why having references who can confirm the honesty and integrity of the candidate is essential. Once again, depending on the kind of spot they apply for, candidates might be asked for different references who can provide not just information about their characters, but also details on aspects such as their financial reports or their ability to budget.