A recent article in Business Week highlighted the importance of incorporating a comprehensive due diligence process into your boardroom practices. While the article focused primarily on financial reporting and the role that it plays in corporate governance, there is also much merit to be discovered in the area of due diligence.
In addition to the importance of ensuring that due diligence is applied to all financial reports, the article goes on to point out that due diligence should also play a role in the boardroom process. This is particularly so when the boardroom or executive suites are involved in mergers and acquisitions. The reason for this is the impact that mergers and acquisitions will have on the company’s books, not only due to the fact that the acquisition itself will often require a large write off, but also because the combined entity is expected to generate earnings in a shorter period of time than either company individually.
In addition to these factors, the merger can also have an adverse effect on the company’s accounting statements, which are often prepared using the combined entity’s accounting systems and methodologies. A careful due diligence process is therefore critical in ensuring that all merger activities are accounted for appropriately.
It is also important to ensure that the merger is executed carefully, both technically and legally.
For instance, when a deal is under negotiation, it is common for one party to offer “sweeteners” to the other in order to secure the deal. One such “sweetener” is a waiver of certain accounting and bookkeeping requirements. A proper due diligence process would therefore require thorough analysis of both the proposed transaction and any potential issues that might arise as a result of it.
If a company does not have a dedicated virtual boardroom due diligence department, it is important for senior management to take the initiative and find one. There are a number of firms that specialize in doing just that. However, it is always best to make sure that a firm specializes in due diligence and that they are properly regulated.
It is important for the appropriate regulatory bodies to be consulted, even when a firm is considering entering into a merger or acquisition agreement with a non-regulated company. Even if the firm has a reputation for being very diligent, it may still be wise to check with the appropriate regulatory body. Even a firm with a very good record of due diligence may not be regulated enough, due to various factors, such as the fact that it may not be operated by a bank and that could pose a risk to the firm’s assets.
When the boardroom process is well managed, it makes the boardroom process much more transparent.
Not only do the companies that are getting into a transaction feel confident that their processes are being carried out appropriately, but the public also becomes better informed and so does shareholders.
Even if a company does not make use of all the tools that are available, it is advisable to ensure that all the necessary information is investigated in order to ascertain whether or not a merger or acquisition agreement is in line with the requirements of applicable regulations.
Due diligence can help a company to avoid making mistakes that could have devastating consequences. It can help to provide a good example for the other companies in its sector. As the boardroom process proceeds, it is important for shareholders to be aware of any potential problems and to be able to understand why they would be a good idea to proceed with a merger or acquisition agreement. This is particularly important when a company is under scrutiny from regulatory bodies and when it comes to new investments.
In order to be effective, the due diligence should be thorough. It should include not only technical analysis of the facts involved, but also an assessment of the background of both parties to the deal and how it fits the company.
It is therefore important for the companies to make use of the services of firms that are properly regulated and have experience in due diligence. The firm should also ensure that it has hired an experienced lawyer who can conduct a thorough review.