What is due diligence?

Due diligence is the inspection of a business agreement to assess its integrity and the risks involved. Like preparing homework before an upcoming lesson, exercising due diligence equips the relevant parties with the information they need before entering into a business contract or mutual relationship. Examples of due diligence include:

  • Checking references before signing on a new hire
  • Analyzing a company’s financial information before merging and acquisition (M&A)
  • Investigating a product before closing with its vendor
  • Implementing safety precautions to prevent employee injuries at work 
  • Reviewing and communicating job duties and expectations 

Why should HR leaders care about due diligence?

HR leaders oversee human due diligence, which directly impacts an organization’s overall success. Practicing due diligence helps HR professionals make informed decisions to improve:

  • Workplace safety
  • Work performance
  • Employee experience
  • Collaboration
  • Hiring processes
  • Compensation and benefits
  • Management and organization  

And, ultimately, meticulously following through with comprehensive due diligence can increase employee:

  • Retention
  • Engagement
  • Productivity 

What can HR leaders do to implement effective due diligence?

No matter the context, HR leaders should use a systematic approach. Incorporating these strategic steps can help HR professionals practice due diligence that lays a solid groundwork for successful business transactions and HR processes:

  • Ask relevant questions to identify goals. HR leaders should outline determinative questions that can guide them towards achieving objectives. To conduct due diligence for an upcoming merger and acquisition, for example, then they may pose questions such as: How can we seamlessly fuse company culture? Retain top talent? Reclassify positions while maintaining productivity? Facilitate clear communication among employees? 
  • Create a checklist. A checklist emphasizes the objectives and can help HR leaders break down tasks for optimal achievement. Like a roadmap, a checklist helps HR professionals stay on track as they employ specialists to advise on challenging topics, sift through the issues at hand, and delegate tasks to appropriate teams.
  • Research. Gathering a team to research and compile information that addresses the essential questions empowers HR professionals to make smart decisions that benefit their employees and the company at large.
  • Analyze. Assessing the data and the risk factors allow HR leaders to make informed decisions regarding the business contract or relationship under scrutinization. If the terms and conditions are not favorable, they can figure out which areas to adjust for their benefit. 
  • Get an early start. Due diligence is a demanding process that can extend longer than expected. To encourage professionals to give each stage thorough attention, begin the process as early as possible. 
Recommended For Further Reading

How does effective due diligence improve company culture?

Executing essential behind-the-scenes investigations ensure that processes, procedures, contracts, and employees align with company objectives. Though due diligence can be time-consuming and costly, it can protect a company’s assets, employees, and success, while also helping improve internal processes. Due diligence enables HR to keep their finger on the pulse of the employee work experience, so they can continuously improve it and contribute to creating a healthy company culture.