Hopehead Explainer: How to commission a due diligence report

“So how does this work?” is the most common client question I encounter. Although business intelligence is a decades-old industry with revenue in the billions, the process of engaging consultants to undertake research is still a new experience for many.

This Hopehead Explainer sets out to demystify the process of commissioning investigative due diligence – what to ask, what to expect and how to get the best results.

1.       The brief

Clarity about the subject of the inquiry is the starting point for any research engagement. Yes, this is stating the obvious. But early thought given to the core objectives of a project correlates closely to a successful outcome. And a clear brief is vital in managing the cost and duration of a project.

There is no such thing as a standard brief because client needs vary so much. So encourage clients to ask themselves – “Where are the key reputational risks I am worried about?” “What questions do I need to ask for regulatory or compliance purposes?” and “What do I really want to understand to manage future business risks?”

Defining the core objectives at the start of an engagement means everyone has a clear understanding of why research is being commissioned and what the output will be.

2.       Scoping

Once research goals have been set, the first step we take in any inquiry is a scoping exercise. This happens before commissioning in order to establish the feasibility of a project. Scoping involves establishing the identity and location of a subject, carrying out initial conversations with our network and identifying any limitations (i.e. availability of records, political or business sensitivities) that need to be considered.

Clients have a big role to play in successful scoping of their projects. You will often know a lot more about a subject than you realise and the more information you can share with us during scoping, the more successful and streamlined the process will be.

Questions to think about include – “Which entity within a corporate structure will you actually be engaging with on your deal?” “Are there any key stakeholders outside the corporate structure whose reputations need to be considered?” “Are there areas of the brief that can be addressed through different channels?” or “Can some individuals or entities be excluded from the scope?”

3.       Timelines

The brief and the scope are the key factors in determining how long a project will take to deliver. We have to balance commercial deadlines with the complexities of a research brief that often has multiple inter-related parts.

So what is a reasonable turnaround time? The vast majority of due diligence research engagements are completed within a matter of weeks. Thanks to increasingly sophisticated technology, much public record gathering can happen very quickly; however, more time is needed when a project involves discreet referencing or interviews. These add huge value to the due diligence process, but good conversations can’t be rushed.  Time is also needed for review and analysis. Proper assessment of research findings is vital to ensure clients receive an accurate picture.

All of this can make it feel like a long wait for a due diligence report to be produced. So its important to always ask for regular update calls to ensure information keeps flowing.

4.       Delivery

What should you expect when you receive a due diligence report? It will most likely involve a written report detailing our research findings and highlighting key takeaways. This is your reference point and a record that you have undertaken due diligence.

When you read this report, remember that it may include factual data and the personal opinions of interviewees, similar to the format you might encounter in a newspaper article. These two types of information help to build a full picture of the subject, but should be treated differently.

Data drawn from public records help you to identify misrepresentations or omissions that might cause a future compliance problem (e.g. undisclosed shareholders); information from interviews can help fill in your understanding of a counterparty’s motivations, but it is subjective and should be assessed against the reliability of the source. Our goal in presenting your report is to make the nuances of the research as transparent as possible, so that you can interpret it appropriately.

5.       Follow up

Due diligence doesn’t end with a written report. Our research often sparks questions for clients and, if it surfaces unexpected information, may prompt further inquiries. Due diligence can identify grey areas where judgement and nuance is required to reach a full understanding.

To get the most out of the follow up process, you should use the report as a prompt to challenge your prior expectations. Ask yourself: “How has my knowledge and understanding of the subject changed as a result of this process?” “Am I comfortable with the remaining areas of uncertainty?” “Are there any risks identified here that I need to dig into further?”

A prompt follow up call is a great way to work through these questions and identify any areas that require further inquiry.