Due Diligence and Decisions

Due Diligence: “Due diligence is a term used for a number of concepts involving either the performance of an investigation of a situation, business, person or the performance of an act with a certain standard of care. It can be a legal obligation, but the term will more commonly apply to voluntary personal investigations.”

An example is, due diligence becomes a process through which a potential acquirer evaluates a target company for acquisition.

In finance, due diligence is the process of research and analysis that takes place in advance of an acquisition, investment, business partnership or bank transaction in order to determine the value of the subject of the due diligence or whether there are any "'skeletons in the closet'". In other words, it is the process to discover an “opportunity.”

Due diligence is also frequently conducted into the integrity of sales agents, consultants and distributors, or companies for merger, acquisition or joint venture, to ensure that potential business partners do not carry any liability of bribery and corruption.

In lay terms, due diligence is the responsibility one has to investigate and identify issues, and due care is doing something about the findings from due diligence.

Due diligence in civil litigation (also known as due care) is the effort made by an ordinarily prudent or reasonable party to avoid harm to another party. Failure to make this effort may be considered negligence. This is conceptually distinct from investigative due diligence, involving a general obligation to meet a standard of behavior. Quite often a written contract or agreement will specify that a party is required to provide due diligence.

In criminal law, due diligence is the only available defense to a crime that is one of strict liability. Once the criminal offense is proven, the defendant must prove on the balance of probabilities that they did everything possible to prevent the act from happening. It is not enough that they took the normal standard of care in their industry - they must show that they took every reasonable precaution.

The reason for these definitions and applications is to again stress the propriety and importance of taking all the necessary time, effort and research that will fulfill your own due diligence at this critical stage of thinking and decision making. More on this subject...