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Due diligence

Due Diligence vs Corporate Compliance

Due diligence is a common concept across all businesses and industries and is a vital part in tackling anti-bribery and corruption in the workplace. The Corporate Financial Institute defines due diligence as a process of verification, investigation, or audit of a potential deal or investment opportunity to confirm all relevant facts and financial information and it can be understood that due diligence should ideally be completed as measure of insurance before a deal is closed between a buyer and a supplier or any form of commercial and professional relationship.

Compliance on the other hand means what it would in the consensus of the word; to follow the rules. IONOS further elaborates the meaning of phrase in a business environment as conforming to the laws, regulations, rules and policies is the part of business operations often referred to as “corporate compliance.

Both are terms used in and out of the business sphere but why are these two terms the foundations of running a both morally and ethically clean business? Simply put, it is because these two aids in combating the issue of anti-bribery and corruption in the workplace long before they are even raised in the workforce.

Ideally, the completion of due diligence and compliance start before an employee, vendor or supplier is even introduced to the business. Both systems can help business reduce risks in professional relationships and help satisfy the legalities of running a business. Due Diligence and Compliance are beneficial to both the purchaser and the vendor.

For example, from a purchaser’s perspective, due diligence would provide them with all the correct and accurate information to help them make an informative decision in their acquisition of a property, good or service based on the data that can be found about the company.

This information can range from the company’s existing customer base and partner relationships to the areas in which they display irregularities – in contrast, compliance would ensure a set standard for the delivery of the good, service or process.

And from a vendor’s perspective, due diligence provides business owners with the financial integrity of their business, facilitating them in unearthing the fair market value of their company.

A compliance audit on a vendor conducted by the buyers or their agents to would aid in validating and strengthening the professional relationship between the two entities.

However, it is important to actively remember that despite their active roles in helping come to a final decision, due diligence and compliance are not the same.

The difference between due diligence and compliance

The consideration of the two components help you finalise a decision but the difference between them lie within your reasons for investigating and what the end goal is. CRI helps highlight the important distinction using Due Diligence 360 and ISO 37301:201  – packages tailored to your organisation’s needs, helping assure compliance in all areas and keeping you one step ahead of regulatory requirements, But what aspect truly makes them different?

One major difference between these two components is the reactive versus proactive facet of it. Compliance is typically reactive, and a legal obligation made mandatory by a government or a regulatory agency. Due diligence on the other hand is proactive and is not usually mandated though many organisations like to implement due diligence as a part of their guidelines and procedures. From industries ranging from Pharmaceutical & Healthcare to Oil, Gas & Energy, it is often noted that due diligence is of best practice.

Another difference between the two is the tactical as opposed to the strategic factor. Compliance is tactical whilst due diligence is deemed to be strategic. The end goal with compliance is usually short term but frequent; complete what is necessary in the required time frame.

Alternatively, due diligence screens the known and unknown and evaluates it against your company’s objectives, considers the pros and cons of the decision to help you shift towards a judgment or action.

Compliance also relies on a checklist orientated view and searches for specific items and checks them off a list, while due diligence creates a full profile in search of previous occurrences, factors leading up to the occasion, and actions taken after the incident.

There are various scenarios in which the failure of due diligence as well as compliance have cost companies millions, if not billions of pounds. One of the most infamous examples of this was in 1994 with BMW’s decision to acquire Rover. the decision rendered when Rover’s owner at the time, British Aerospace, were facing stygian times. BMW had set out with plentiful goals including engendering trade and diversifying products with the brands icons such as the Mini as well as the Land Rover.

However, the deals between the two brands were solidified in a mere ten days, accrediting the £790 million loss to the lack of due diligence and compliance. The failure to perform their due diligence and compliance saw BMW overlooking financial data concerns as well as inaccurate sales data. BMW also failed to comply with Rover’s learning culture and were reluctant to accept other manufacturing approaches.

To top it all off, the frequent disputes between BMW’s directors resulted in a poor leadership after the acquisition followed by mass resignations. Had the company performed their duties to the highest capability, it is understood that they could have avoided such a costly mistake.

A more recent event in 2012 saw HP pay the price of $11.1 billion due to their failure to do accurate data checks concerning income statements, cash flow, balance sheets and footnotes halting their plans to move from producing hardware to producing software and resulting in a $5 billion loss for the brand overall.

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