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If you’re bringing on someone as an executive for the very first occasion, or thinking about merging or purchasing a business, or partnering with an external vendor, it’s important to understand those you’ll work with. If you’re bringing on someone as an executive for the very first occasion, or thinking about merging or purchasing a business, or partnering with an external vendor, it’s important to understand those you’ll work with — and in some cases, ensure they have the appropriate BPSS clearance.
Merging, hiring, or purchasing the business or executive blindly will result in a variety of issues. This is when the Executive Due Diligence procedure comes in. If you’ve done your research thoroughly and done your homework, you’ll be able to make the right decision based on a thorough awareness of the risk you’re assuming. If you’re not doing the proper research, then you’re vulnerable to many risks.
Many people do not know what due diligence means or why it’s important. It’s more than an easy search of public records or confirming details on the resume. It’s an in-depth look at their personal history and background. Through due diligence, you can uncover anything from fraudulent credentials to offensive public statements, as well as embezzlement, bribery, and fraud.
Also, it takes lots of time and money to accomplish due diligence, which is the reason that most companies skip due diligence or just perform a little digging. If you choose to partner with Infortal, we assume the responsibility of conducting due diligence. We’ll provide all the details you require to understand the risks you accept.
Do you have the time to investigate every executive hire as well as acquisitions or prospective partnerships? You should do it if you’re trying to stay clear of the possible repercussions that can result from making the wrong choice or working with a bad firm. Below are some potential risks that your business could be exposed to by not completing due diligence.
You Hire Someone Unqualified
The lack of due diligence at the executive level could result in the hiring of someone not qualified for the task. It is possible that they weren’t 100% honest regarding their qualifications or experience in the workplace. However, many employers don’t bother to verify the authenticity of applicants. those degrees that they claim to possess. The truth is that 33 percent (almost 1/3) of American applicants admitted they’ve made up their resumes. This includes the years of work experience as well as their education.
Certain lies were created to cover the fact that they’d been dismissed from their previous jobs, and others distorted the truth of their experiences or education. About 50% (44 percent) were lying about their education, and 27% of them lied regarding their professional qualifications. Based on research, the majority of those lying on resumes are offered jobs, and around a third of those who lie are not found out. If they did, some were given only an ejection. These people don’t only want lower-level jobs but also senior positions. Companies such as Wal-Mart, Sunbeam, and Yahoo have hired deceitful CEOs.
Hiring someone who’s lying about their experience may harm your company in several different ways. One reason is that they could be unsure of how they can accomplish the job they’re hired to do. There’s a chance that you’ll end up having an executive vice president who lacks leadership abilities or who may not be as knowledgeable about the industry norms as they claim to be. It’s possible to bring someone into your executive team who is making poor choices and trying to hide their inexperience.
You Hire a Criminal
The most dangerous thing about hiring a person who isn’t sure of how to do it is hiring someone with an arrest record. Most companies think that a regular background check will uncover any crimes However, that’s not an accurate assumption. Although a background check or a basic due diligence check may reveal any criminal convictions within the United States, it’s not likely to reveal many other things.
Was the individual involved in illegal activities but remained on the right side of the law? Certain criminals can make use of the system, and they are conscious of following the law while making money for themselves. Other criminals may have committed crimes in another country. If you do not check the databases of international courts and information, you could never realize that a person was found guilty of corruption, embezzlement, or even murder.
Sometimes, the problems remain unsolved.
This was the case for Moderna’s now infamous ” one day CFO.” The new CFO started work on the exact day that his former employer initiated an investigation into the financial practices of his company as well as the potential use of incentives. If Moderna had done its homework and analyzed the situation, it could have realized that an investigation was in the works. The error cost them $700,000 and caused them to look unprofessional.
If you employ one of these people and they are hired, the likelihood of their continuing the criminal activities they’ve been engaged in is quite significant. Even though there could be some who would like to get back on track and have an honest and wholesome life, the criminal you’ve hired will begin stealing from your business or engage in other illegal actions. They may drag employees into the same activities, which can be disastrous for your business. The company could be penalized or be involved in multiple criminal court proceedings. Just one person can ruin the business you run.
Your Reputation Could Be Ruined
Similar to the above hiring a criminal, anyone with a record of revealing embarrassing information could seriously harm your company’s image. It’s become increasingly common due to social media. However, it’s not the only way an executive’s new hire can harm your reputation. Perhaps they conducted interviews decades back that weren’t able to stand the test of time. They may have led practices at an organization a few years ago, which damaged the surroundings. Perhaps they were implicated in a scandal. However, even if the incident was in a way more personal, for example, the issue of infidelity, it could still create an image of your company.
Each of these things can negatively impact your business. Although people can change, hiring someone who has a history of controversies can be risky, even if they’ve disavowed any previous opinions or even worked to prove that they’ve made a change. Do you think it’s worth it to do damage control? If the potential executive was a proponent of poor environmental policies at the beginning of the 80s, however, they wouldn’t be the same as what they were doing it in the 2000s. This could be a risk that you are willing to take. If someone has had a history of anti-LGBT+ remarks within the last five years, they could be someone whom you would prefer not to hire.
Rebuilding your reputation after a bad experience isn’t easy. It can take a long time before potential clients and allies see you positively and will do so again. Because of the Internet, errors can be just a couple of mouse clicks away, regardless of whether they were made long ago. On the surface, chances are you’ll be unable to retain customers, and you may see contracts that fail. If you’re lucky enough to avoid this adversity, then you’ll need to begin building your brand slowly and cautiously.
A Lack of Due Diligence Can Lead to Government Fines
Are you aware of the countries that are currently subject to sanctions from the United States? If you don’t know, you risk having a partnership with a company that is located in one of those nations. Although some digging can tell the country that a company has its operations in, it might not be able to tell you exactly the location of where its vendors and other business partners are. As an example, suppose you collaborate with a business located in Germany. This company also has a partner situated in Romania that imports goods from Belarus. This company from Belarus receives its raw material in Russia, which is a nation that’s facing sanctions due to its war against Ukraine. Although you’re not directly in contact with Russia or the company that is importing Russian products, you could still face fines for violating sanctions.
That’s why care in the supplier chain is essential in your supply chain. That’s why some firms do not bother with this aspect of the procedure. It can take a considerable amount of effort and time to ensure that you thoroughly review every producer and vendor within the supply chain. The consequences of insufficiently vetting suppliers and manufacturers are severe. For the year 2022, the SEC had 462 enforcement proceedings against businesses. The median fine was less than $9 million. Does your business have the money to pay such a fine? If you can do so, it’s likely to impact your financial situation.
You Can Purchase a Company That Has Problems
Not doing the proper due diligence before merging or purchasing an enterprise can be risky as well. The company you purchase could be but discover that the prior board or owner hid a lot of problems to you. Then, you can look into the accounts only to discover that your business isn’t as successful as you had been told to believe. There’s a chance that the company’s name has had a bad history, which has a direct impact on your business.
When you merge, not being able to perform the due diligence may indicate that a few of the directors or executives who remain on the board have been involved in illegal activities before. It is possible that you are merging with a company that has received payments for bribes, used illegal hiring practices, or been questioned by authorities in your area due to a variety of factors. This is particularly true if you plan to join or buy a company from overseas. Very few U.S. companies can conduct an extensive study on businesses or people in foreign nations.
Infortal Will Help You Avoid the Consequences of Poor Due Diligence
If you’re looking to recruit an executive new to the company, buy an enterprise, join with a different company or enter into a deal with a new supplier, you must be sure that you are dealing with the risk you’re taking on. Infortal has years of expertise in dealing with the deep dive of due diligence as well as due diligence across other countries. For further information on what we can offer you, Contact us now.
