Due diligence is an evaluation process into organizations and individuals – by definition, due diligence means “the care that a reasonable person takes to avoid harm to other persons or their asset and property”, according to Merriam-Webster Dictionary. It is also a “comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities and evaluate its commercial potential”, according to Oxford Dictionary.
With due diligence possible in many forms, such as financial, legal, and environmental, Dynamic Research focuses on reputation due diligence to support other forms of due diligence by different fields of professionals. The purpose of reputation due diligence, which is aimed to identify risks and ethical issues that may potentially create negative reputable damages, may serve different purpose. Typically, reputation due diligence is required because of: 1) potential business transaction, such as IPO, investment, or M&A; 2) regulatory requirement, such as for anti-money laundering, or preventing FCPA risk; 3) ethical concerns, such as CSR, environmental violation, workers’ rights violation; and 4) risk management, such as pre-employment verification.
Most service providers, including Dynamic Research, offer two levels of reputation due diligence. A full, comprehensive reputation due diligence may cover many aspects with a more adaptable research approach, while a focused due diligence has a relatively defined work scope and process mimicking a client’s internal policies and procedures.
Comprehensive reputation due diligence is suitable for business transactions, such as for the purpose of M&A, IPO, investments, joint ventures, partnerships, and long-term contracts. Verification could be made into the target’s reputation, organization structure, financial status, business operations, and ownership / key stakeholder’s profile and behavior.
Typical objectives of comprehensive due diligence may include:
- Verifying the background of organization(s) as well as the controlling person / top shareholder(s) / key stakeholder
- Identifying corporate structure, subsidiaries, and other entities key to the business
- Identifying any potential events and trends that may cause reputation damage or lingering interruption to normal operations
- Understanding the character and track record of important individuals, which may require ascertaining rumors, hearsays, and chatters
- Collecting off-the-books intelligence about the targets’ financial situation (assets and debts).
Focused Due Diligence is designed to fulfill a set of policy and procedure requirements (such as for compliance and operation), and typically has a defined work scope. Although Focused Due Diligence could come in many types, Dynamic Research categorized them as follows:
Risk Management Requirement
Corporate policy is driven by risk management, and different functions may require focused due diligence. Below are some examples:
> Human Resource Department’s Pre-employment Verification – Not a typical reference check
For HR managers based in western countries, pre-employment verification in Asia adds several layers of difficulties because of differences in languages, cultural habits, and privacy preferences. For high-ranking executives, the stakes for corporations are high in making non-suitable hires. More robust verification beyond simple reference check is essential.
Dynamic Research focuses on verifying the character of the candidate, and whether a history of misconduct or undesirable behavior exists. Our methodology covers both standardized public domain research and reference inquiries. Cross-referencing such information with client’s own job interview shall provide a reliable profile of the candidate.
> Marketing Department’s KOL Verification – Minimize unexpected reputation damage
Today’s marketing efforts increasingly are driven by leveraging the presence, image and reach of Key Opinion Leaders, or KOL in short. Because of how KOL could tie to an image of a brand, the KOL’s reputation now could directly influence the perception of the business that hires the KOL.
Focuses due diligence verifies the character of KOL, their personal activities, and any past opinions that may be detrimental.
> Operation Department: Asia-based Business Partners Risk Screening – Pre-onboard and regular monitoring of key suppliers and distributors
Many corporations have requirements to screen and verify the authenticity and sustainability of their business partners. Confirmation of any political connections, non-compliance and criminal activities and other ethical and regulator risks is required for meeting company policy that are based on strict regulations. Dynamic Research’s team has strong expertise in this area, and is well-positioned to support clients in executing their business partner due diligence in the Asia region.
Regulatory Requirements (Such as Anti- Money Laundering, FCPA, ESG)
Regulatory requirements could drive the need of focused due diligence. Examples include:
> KYC support
Know-your-customer (KYC) verification is a compliance requirement for financial institutions, government organizations, and corporations with significantly risky financial transactions (such as gambling operators, fintech companies, auction companies, franchises, etc.). The subject of a KYC verification could be both individuals and organizations, though the former has a higher frequency. Many clients require verification in PEP exposure and source of funds. In some cases, more in-depth KYC with customized research plans is required, in particular into very high net-worth individuals. Dynamic Research has vast experience in providing such KYC verification support.
> ESG support
Environment, social, and governance (ESG) have become critical to many organizations. Our research approach supports clients to conduct focused due diligence including the target’s past track record, activities related to supporting the development of corporate social responsibility and sustainability, ESG-related capability and permits, and reputation of senior management in terms of governance.
> Other regulatory requirement support
Catered Focused Due Diligence may be required on meeting different jurisdictions’ unique, specific regulatory requirements. Dynamic Research will work with your team to develop a cost-effective solution.
