Introduction

In today’s compliance marketplace, choosing the right business partners is not only a concern of the compliance department, but is also on the minds of the executives responsible for a company’s success and profits. The severe penalties for picking an unethical partner can include governmental fines and damage to the company’s reputation, as well as lost productivity, revenue, opportunities and time.

Decision makers are faced with numerous challenges when identifying the right people to drive their company’s internal and external growth. Due diligence efforts commonly cover potential employees, distributors, vendors, clients, agents, suppliers and other third parties.

Today’s due diligence doesn’t just include the standard reputational due diligence driven by prescribed legislations such as the United States Foreign Corrupt Practices Act and the United Kingdom Bribery Act – consumers and investors are also increasingly and meticulously assessing their target’s environmental, social and governance (ESG) framework before spending their resources.

The need to engage the right vendors includes many types of due diligence, including:

  • legal
  • commercial
  • operational
  • ESG
  • financial
  • tax
  • human resources

The above types of due diligence all require a high attention to detail because the burdens on compliance professionals are increasing at a fast pace. One bad due diligence report or missed detail could be the difference between a profitable deal and a government enforcement action. Therefore, choosing the right due diligence provider involves several strategic considerations, including:

  • timeliness
  • completeness
  • accuracy
  • technology
  • available languages
  • justification of price versus value to the business
  • ongoing monitoring and reporting of new data
  • customer service and response times if issues are found.

To help compliance practitioners make better decisions The Red Flag Group® has compiled best practice guidelines for selecting a due diligence provider. This guide contains the key elements that need to be considered before a company partners with a vendor.

STEP 1: Objective setting and needs assessment – why do you need due diligence?

Before embarking on the process of looking for someone to help you with your due diligence needs, you first need to establish the reasons why you need due diligence in your organisation and what your risk appetite is. Answering the ‘Why?’ question will help you establish a list of goals and a definition of success for your due diligence programme. These objectives should clearly indicate why you need due diligence in your organisation, and what you hope to accomplish with it at the end.

Ask yourself these questions:

  • Am I doing due diligence to fulfil certain prescribed legal or regulatory requirements?
  • Which risks are most important to the company?
  • How can the actions of this business or person potentially harm the company?
  • What will I do with the information that is provided? Am I willing to end that relationship if needed?
  • What don’t I know about the target that would help make my decision easier?
  • What advice would be the most useful to see in a due diligence report?
  • How much do I want to know about the target company or person?
  • How quickly do I need the findings?
  • What information should I expect to get from the target, if any?
  • What information can I gather myself and where do I need help?
  • What information do I need to see to be convinced that this business or person is okay to work with?
  • What is important to the leadership of my company and what do they want to see in a report?

Appropriate responses to these questions will set the tone for your due diligence project and form the basis of choosing the right due diligence provider. Read more