Protecting the Board: Board Risks and How to Mitigate Them

The board of directors play a critical role in a company. They represent the company and have a fiduciary duty to its shareholders and assets. While they do not participate in the day-to-day activities and decisions of a business, they do oversee strategic planning and company operations, set overall policy, exercise an oversight role, and review the actions taken by the company’s officers and executives. This puts the board of directors in the unique position of being accountable at the top-most level for a company’s success, but also at a distance that can impact what is happening at ground level. This can cause a set of unique risks to the board, and by extension to the company and employees at all levels. A number of headlines over the last few years, showcase the damage that can happen when a board, and by extension the entire company, is left unprotected.

Not aware of the potential dangers to the board, and hence the company at large, many businesses fail to have the proper safeguards in place to mitigate potential hazards. Risks include damage to finances, reputation, employee morale, incurring government oversight and fines, and even complete collapse. Fortunately, once aware of these risks and what measures to put in place, companies can easily establish proper protective measures.

Learning from Others

Elizabeth Holmes, founder and CEO of Theranos, a medical technology startup, had promised to revolutionize blood testing with the ability of her company’s product to test blood with only a few drops. This device would make testing easy, quick, and convenient, and would one day be available in people’s own homes.  It was even claimed that this blood testing equipment would be able to identify 200 health conditions. The problem was, it didn’t work. In February 2022, Elizabeth Holmes was convicted of four of eleven charges of fraud brought by Department of Justice (DOJ), and her company, once valued at over $9 billion, dissolved in 2018. 

The boards of directors of Walgreens, Safeway, and even Theranos’ own board all fell prey to the allure of Elizabeth Holmes and her imaginary technology. Some board members had years of experience and numerous accolades, so how could things have gone so wrong, and what could have been done to protect these boards and their corporate wards. 


Fortune called the Theranos’ board “the most illustrious board in U.S. corporate history.” It included big names, such as James Mattis, a retired US Marine Corp general, former Secretary of State Henry Kissinger, William Perry the former US secretary of defense, former US Senator Sam Nunn, retired US Navy Admiral Gary Roughead, former US secretary of defense William Perry, Richard Kovacevich the former CEO of Wells Fargo, former director of the Centers for Disease Control and Prevention William H. Foege, heart and lung transplant surgeon and former US Senator William Frist, and the chairman of the board for the Bechtel Group Inc. Riley P. Bechtel.

All seem to have been taken in by the sincerity and confidence of the oddly charismatic Holmes and her promise to save lives. When interviewed about what he thought about Holmes, Mattis replied “integrity” and “competence” – “both technical and scientific but also focused on human rights in the most classical sense of what human rights are about.” The promise of a righteous cause can often lead people down the wrong path without vetting either the cause or the source.

Boards need to ask tough questions and press the issue if the forthcoming answers are evasive or tenuous. One board member, Avie Tevanian, lifelong friend of Steve Jobs and former Apple chief software technology officer did just that. In return, he was asked to leave the board under specious litigation threats. Holmes brooked no opposition and wielded the threat of lawsuits against anyone she deemed a threat.

In March 2008, two employees approached the board chair. They had evidence that Holmes deceived the board about the efficacy of both Theranos’ blood testing technology and its projected revenue. The board decided to replace Holmes as CEO, but when they went to give her the news, she changed their minds. Homes, less than two weeks later, fired both employees who had spoken up. No one on the board looked into the firings, if they were even aware of them.

Directors are fiduciaries and are responsible for the oversight of a company’s compliance function, ensuring the activities of the business comply with the applicable industry, legal, and regulatory frameworks. The United States Sentencing Commission (USSC) sets out the requirements for an effective compliance program in the Federal Sentencing Guidelines. §8B2.1 of the guidelines reads: 

The organization's governing authority shall be knowledgeable about the content and operation of the compliance and ethics program and shall exercise reasonable oversight with respect to the implementation and effectiveness of the compliance and ethics program.”

Clearly, the board had little to no oversight program in place, which is something that is particularly prevalent in startup environments and emerging businesses. No-one conducted any due diligence on the principals of the company even when investing millions of dollars at early stages. For Theranos, there was no monitoring system in place for compliance with medical and laboratory regulations. Holmes consistently flouted regulatory issues and directly lied about the efficacy of her product. Her blood tests were unable to run the analysis she touted them as being able to, going so far as to hack commercial blood analyzers to clandestinely run tests on them instead of her own product. 

If the sudden firing of the whistleblowing employees was not a red flag, the departure of CFO Henry Mosley in 2006 should have come under more scrutiny. Mosley was fired by Holmes when he questioned the “reliability and integrity” of the Theranos’ blood testing systems and equipment.

There were numerous other egregious actions by Elizabeth Holmes that the board appeared to be unaware of. One example took place in 2015, when Centers for Medicare and Medicaid Services (“CMS”) conducted a surprise lab inspection. They found unqualified lab staff, mishandled blood samples, and expired testing reagents. CMS also required that the company void up to a million tests results ran on the Theranos equipment and in 2016 banned them from running a blood testing laboratory. The board was unaware of this as well. 

Safeguarding the Board

The Theranos’ Board wanted to do good. Unfortunately, goodwill and a powerful cause is not enough. In this case, the board needed protection even from itself. Why is protecting the board important and what can be learned from Theranos and similar cases?

Protecting the board is important, because the board plays a critical role in a company and can be a tremendous amount to a company, its employees, and shareholders.

What Can be Learned

Take Away

A Board of Directors plays a critical role in any corporation and safeguards should be established to guarantee that they steer the best course for the company.  Theranos provides a substantive lesson in how many things can go wrong in a company. The lives, finances, investments, and jobs of many people were negatively impacted by the unethical acts perpetrated by Elizbeth Holmes and Ramesh “Sunny” Balwani. The board was taken in by Holmes, as were many others outside of Theranos. 

This does not mean, however, that other companies are free from malfeasance or are safe from bad actors. Just because board members or some executives and employees have integrity, does not mean all do, and without establishing an ethos of integrity and accountability with proper safeguards and measures in place, a company has no way of protecting or mitigating risk. This starts from the top down.

Protecting the board, is establishing measures to safeguard the whole company from investors and shareholders to employees to clients and partnerships. Fortunately, setting up the proper oversight, due diligence, compliance, risk management, accountability, and culture of integrity can safeguard their success and indeed the future of the corporation.

Mentoring and Entrepreneurship in Challenging Times – An Interview with Candice Tal (Part 2)

This is part two of Mentoring and Entrepreneurship in Challenging Times. To listen to part one, click here.

Candice Tal, CEO of Infortal Worldwide, a leading global security and risk management company, knows what it is like to be an entrepreneur and the challenges of starting a company and weathering difficult times. She has been an industry leader in the due diligence arena for over 30-years. Recently, she was asked by Daniel Ayala and Lisa Beth Lentini Walker of MentorCore, to sit down with them for a two-part interview. During this interview, Candice shared her insights and experience about how to weather difficult times, how mentorship can help entrepreneurs, and how to find the help they need to achieve their business and personal goals. 

Mentors can help unlock potential, talent, and resiliency in a person they did not even know they have. Mentorship and coaching may bring together support, development, encouragement, networking, skills, advice, direction, goals, and training. Not all mentors will supply all of these things, and having multiple mentors for different areas of life can be advantageous. So, how do you find a mentor? How do you build a team of people around you who will be supportive and offer good advice and encouragement? For some, physical distance in the age of a global pandemic and dispersed workplaces make networking seem difficult. But this does not have to be the case, and may actually be advantageous. Internet and video meetups greatly expand a prospective networker’s pool of mentors, making people who were once unreachable in other parts of the country or world, just a click away.

Today, Candice leverages every network she belongs to, but it was not always that way. When she started out, she was a single mom. “I could not get out in person to networking events or I would have had no time with my son. So that was not an option for me for many, many years.” 

Meeting people is the first step. It’s not always easy and there can be impediments to overcome. “If you're not going to conferences, try and get yourself to a conference,” Candice advises. “If you're with an employer that won’t send you to conferences, try to save money yourself and sponsor yourself to a conference. That's what I used to do many, many years ago, before companies actually sent people to conferences. They didn't always back in the past, and so I would take myself to events or go on the weekends to different kinds of groups that I could join…. But get out to any kind of networking events, start anywhere, because the universe has a way of leading us places—some would say that it's our brain giving us subliminal instruction—to get out and meet other people, and those networks bring you to other networks.”

She also suggests leveraging the internet. “Today online there are many resources. It's very easy to attend online events like this, Compliance Career Connections (CCC), a fantastic resource for anyone in the compliance field or security. There are all types of events that people can go out to. Ask friends and colleagues, ‘What do you do for networking? What kind of professional networking do you do?’”

Not everyone feels comfortable reaching out. Some people are shy, are introverts, or simply may not know how to network authentically. With in-person networking, Candice advises to “Try to speak with other attendees. Have a goal to at least speak to ten people at an event.” For herself, she sets an even more challenging goal. “As a business owner, if I go to an event, I’m also trying to do some kind of sales development for the future. So, I try to make sure I’m meeting as many as 100 people in an event. That's difficult to do in three or four days, but have a goal in your mind before you go to a networking event: tell yourself  “I’m going to speak to at least one person.” It’s also important to know something about the people you want to connect with if you can. “If you can research who the people are who are going,” Candice explains. If possible, in advance, “get in contact with them…. arrange to have a cup of coffee together. Most people will get together with you for a cup of coffee. There's no obligation there. Then try to keep that conversation focused on what you're trying to accomplish” and get to know the person and their interests.

Have some questions ready to ask, or discussion topics you would like input on. Candice gives the following examples: “I’d really like to sort of pick your brain about something” or “I met you at a conference somewhere else, we didn't have a chance to connect on XYZ and  I’d love to get your feedback on an idea I have.” Questions could also be entrepreneur-related, such as: “’I’m thinking of starting a business in XYZ, and I noticed that you do something that could tie into that,’ or maybe you want to talk to a person who could be an advisor for your business.”

Mentors and connections can also be from different backgrounds, business levels, and industries. These connections bring unexpected ideas and support. Candice, herself is not only involved in compliance organizations, but a variety of other ones as well. Some that are C-suite, since this is her target business audience, but she is also a member of a trusted advisor network. She describes this as “a pop of color [with] the different types of people…. What that networking group does is bring a whole different perspective about business, and because we're all in different avenues of business, we learn a lot from one another.” 

“Linear advice is helpful, but it's not enough.”

Networking and speaking with others, also helps you bring your best to your clients and business, something very important in business from early-stage entrepreneurs to long-term larger businesses. Candice explains how this helps her add increased value, expertise, and insight to her clients and stay on top of industry, world, and technology changes:

“My business is consultative. We provide a product or a service that delivers specific kinds of results, but the reason that my clients come back to me time and time again for years, many of them for over 20-years, is that they value my perspective on the issues they’re facing that have to do with what they hire us for. Clients buy from us for who we are as a human being, number one, who we are professionally, our expertise (whatever that expertise might be), and our whole life experience that we’re bringing to the table in that conversation. It's the detail in the conversations that we have together. Most of my clients at some point during the year are going to ask me, many of them frequently, ‘What do you think we should do next?’ It's the value of that information and discussion that brings clients back to you. Yes, we provided this information, but what are you going to do with that information that makes the difference. That helps that client to be a repeat client. 

So, if I’m not networking, if I’m not getting refreshed myself, whether that's educationally, or academically in some cases, experience-wise, and also my resources. Who am I hearing from? What do I hear that's out there? What are the new techniques going on in our field? What should we be doing? What should we be looking for the future? If I don't have that refresh constantly from all these other trusted advisers that I know, then my advice to clients would be much more linear. Linear advice is helpful, but it's not enough.”

Talking to other people helps increase individual inspiration and sparks ideas. “I would highly recommend that you think about how do you open up,” Candice advises. “How do you open up your own resourcefulness, because it stimulates your own creativity as well when we talk to other people. We get an exchange of ideas, exchange of opinions, advice, understanding, but we also get to share not only experience, but trajectory into the future. What else could be done, how do you move things forward.” 

“I’m always looking at how are we going to progress things along, and towards the future.”

People today are often stuck in the here and now and do not think long term. Short term gain of clients, consumers, application users, can be too myopic and an entrepreneur or long-time business person can lose sight of the more critical importance of long-term gain.

“I’m always looking at how are we going to progress things along, and towards the future,” Candice says. “While today is most important, you have to live in the moment, but as a professional what you're bringing to the picture is how is this project goal or thing you're working on going to shape over time. If you're not looking at that, you’re not really bringing perspective. You’re only just functioning today. If you're functioning today and you're doing your job well, or brilliantly, that is fantastic, but driving things forward is really essential….” especially if you want to demonstrate extra value.

This also ties in to mentoring. Part of mentoring is helping a person progress to or even formulate long term goals. Mentorship should be tactical and can be applied to different aspects of an individual’s life. “It's important to have strategic mentors, or to be a mentor yourself, and be strategic for people you're mentoring. Then it’s important to have operational mentors as well,” Candice explains. “We all need supportive mentors,” she goes on to share. “The people that we turn to who really support us, whether that's emotionally, or any in any way, any type of support structure that you can think of that you might need in your life. For some people it might be a health mentor, because they're not feeling well, something's going on in their lives and they need that kind of support, which can be just as important, often it’s more important of course. If you haven’t got your health, nothing else counts.” 

“Mentors help us to shape ourselves. They see things in us we don't see in ourselves.”

Mentors help us not only in our business or career aspirations, but bring together other aspects of our lives that help us overall. Candice gives us insight into this, and says: “Think about having different kinds of mentors. Mentors help us to shape ourselves. They see things in us we don't see in ourselves.”

“I would encourage everybody to find different types of mentors. If you don’t have them, look for them.”

Some of the most supportive people can come from the least expected area. One person who helped Candice greatly was an employee, when her business was going through some business difficulties. “I actually had at one time a bookkeeper who was a tremendous support to me, who totally understood what was going on, because she understood the financial picture of the company. She inspired me to think about things very differently. We can draw from all of these different channels. I would encourage everybody to find different types of mentors. If you don’t have them, look for them.”

Locational limitations or not knowing where to start are not the only impediments to finding mentorship. Some people are uncomfortable reaching out because they feel they are not experienced enough, too experienced, or have a reputation to uphold that they feel will be impacted if they reach out for aid. None of these things should hold anyone back from seeking mentoring and support; we all need a little support or a fresh perspective from time to time.

I think there's tremendous strength in our vulnerability.”

“When you’re afraid to reach out completely,” Candice says, “find other people outside of your business environment that you can reach out to.” She explains, “I know that a lot of attorneys and executives have difficulty asking any kind of outreach question. I know it's extremely difficult the higher up in an organization for people to reach out, because they don't want to be perceived as weak or vulnerable. I think there's tremendous strength in our vulnerability. Also, if we think about the people that we most resonate with, they may be public figures, whether it's an Oprah or Brené Brown, or someone from the past, Gandhi, for example, or anyone we resonate with, it’s because they show their vulnerability, but they also show us how to improve our own inner strength, how you can create better resolve and resiliency for yourself.” 

Candice also suggests online research as a strategy. “The most unusual question you can possibly think of has probably already been asked by somebody somewhere in the world online,” but this is not, in the long run, a substitute for human mentorship. “There’s something in the dynamic of human connection and human contact that we find strength in, or it just sparks that little tiny speck of strength that you have that may be necessary for that situation.”

“If you only treat things linearly, you’re probably not going to find the answers that you need.”


That spark can also be ideas or new ways of looking at something. “How many times have we encountered things, maybe when we were younger that we found difficult and someone came along, sometimes randomly, who said something that sparked an idea for you, perhaps totally unrelated to what they said, that you could then use.  Then that that idea, that gem, suddenly starts having its own life and drama and sparkle to it, if you think of a gemstone. Or, if you think of it as an inanimate thing to take it out of the realm of human experience, you can take complex situations like that. If you only treat things linearly, you’re probably not going to find the answers that you need. That’s been my experience.”

“You've got to find your inner strength. That’s the bottom line.”

Candice also warns that at times individuals can get stuck “in the weeds” and are unable to move forward, because they fear asking for assistance. She says, “So, people who don't want to ask questions, people who are afraid to ask for help, get stuck, and the problem when we get stuck is we kind of go into the weeds of our brain. How do you get yourself out of that? If you just start paddling faster and faster, probably you're just going to get more stuck.”

This “happens if you're thinking only linearly…by that I mean along a specific trajectory, a specific line of rationale, and if you don't start diagnosing what is actually preventing movement forward.” To free yourself from the weeds, Candice says, “You've got to find your inner strength. That’s the bottom line.” Often, speaking with others and communicating where you are stuck can push you forward. 

A technique Candice uses herself, which can be used with your own situation, or by applying suggestions or ideas from mentors or others, is this: 

“Turn the issue around. Think of it as sort of a three-dimensional sphere. Rotate it. Turn it over. Think about how could I answer this from a different point of view, look at the issue from every angle… but don't let yourself get stuck.”

“Fear of failure can block forward momentum”

Sometimes a fear of failure can block forward momentum. “But what if you don't fail?” Candice asks. “What if you actually succeed? Most of the time we succeed, even if we’re thinking that we're going to fail. Sometimes failure has a way of moving us forward in a slightly different direction, and guess what. Now we’ve got the resources to move it forward into a different direction that does work for us. The other part of it is that failure is not always linear either. I hope that this resonates for people, because I found this to be extremely helpful.”

“Become a mentor yourself”

Entrepreneurs and other individuals should not only seek out a mentoring network, but become mentors themselves. Being a mentor is something that helps you as much as it helps the mentee. “You should consider weaving that into the fabric of your life. Your experiences that make you special is who else are you mentoring along the way,” Candice says, “Sometimes when you're talking to other people, they come up with a situation that you’ve had difficulty with before, and suddenly you're advising someone on an issue that you thought you were stuck on yourself and you go, wait a second, I’ve actually encountered something like that and this is what I did to get out of it. Maybe it's helpful to that person. Maybe not, and they can take it or leave it or they can take it and build on it as well. But you have the benefit of hearing yourself. It's sort of that echo in your mind of I’ve been down that road before, and this actually would help me in a different situation I’m facing today.”

It’s important to think about what type of mentorship you need and what type of mentorship the person you are mentoring needs “Does that person need you as a strategic mentor or an operations type of mentor or a supportive mentor, someone they can come and have coffee with once a week or once a month or once a quarter or whatever it might be, whatever time frame works for the person, because you don't ever want to give somebody so much information it’s crushing and they don't know what to do with it.”

Setting up a regular schedule for mentoring is important, and come prepared with what you want to discuss. Candice also advises that mentors be careful not to info dump: “I have encountered that at times in the past, where I’ve got so much to share with the person and they're very interested in what I have to share with them, but then they get mired in the weeds of their own processes and don't really actuate what we've talked about,” so it is important to access what is helpful to your mentee at the time and meter what you have to share with them accordingly.

“Take those pieces of wisdom that you can hear, that you can glean from other people, even if it feels terrible in the moment.”

Sometimes, mentors will have to give hard advice.  When Candice was starting out, she worked for someone who did what she calls “reverse mentoring.” ‘My boss at the time 

told me that they didn't think I had it in me [to do sales] which was crushing to hear at the time, but they meant it positively. It just came out. It was awful. She was a senior VP. And actually, it spurred me to do things differently and created a tremendous relationship with her. She became an important mentor to me.” Instead of giving up, the honest assessment spurred Candice forward. “[She] then launched into being able to do sales, technical sales.”

“So positive advice and difficult to hear advice are both valuable,” she says, “Take those pieces of wisdom that you can hear, that you can glean from other people, even if they feel terrible in the moment. I felt absolutely crushed at the time, but because of it, I had this tremendous mentoring relationship with someone who was a star performer and was a top multi-million-dollar sales advocate for an established environmental engineering and civil engineering company. I learned tremendous things from that person and most of all I learned how to be extremely precise and never promise to do something you can't over deliver on.”

To read part one of the interview with Candice Tal click here and to find out more about her company Infortal, go to

The entire audio-video interview with MentorCore, a community focused on helping people grow their careers and skills through mentoring in the security and compliance fields is linked in the title “Mentoring & Entrepreneurship During Turmoil.”  

Mentoring and Entrepreneurship in Challenging Times - An Interview with Candice Tal (Part 1)

Starting and growing a business is challenging, but can prove even more difficult during tumultuous times. Business formation requires bringing numerous elements together successfully: dedication, specialization, skill development, resources, careful planning, financial investment, making connections, and the hoped-for clients and customers. Mentorship supports entrepreneurs and people trying to improve their skill sets within their chosen careers. They provide information, guidance, resources, networks, and encouragement. Candice Tal, CEO of Infortal Worldwide, a leading global security and risk management company, recently sat down for a two-part interview with Daniel Ayala and Lisa Beth Lentini Walker of MentorCore, a community focused on helping people grow their careers and skills through mentoring in the security and compliance fields, to discuss “Mentoring & Entrepreneurship During Turmoil.” 

Many people rightfully classify the last two years as tumultuous, from the pandemic, growing inflation, shipping delays, and various types of civil unrest. Numerous businesses have folded or suffered loss, but entrepreneurs need to remember that peaks and troughs are the rule, not the exception. It is important to remember that “business fluctuates,” Candice stated. “Business goes up and down. It's a really bumpy road…lots of people think it's going to be smooth sailing all the way. Absolutely not. That is just not going to happen.” 

Asked if “different phases of maturity of a business play into that as well,” Candice replied, “Not only the phases of maturity of the business, but our own experience base.” It is that experience of going through prior difficulties that helps entrepreneurs weather new ones though, “that doesn't mean that you're completely prepared for the next level.” So, what should an entrepreneur do? Candice advises “to draw on your inner strengths, your resourcefulness, and to reach out to others.” 

There are many ways to be resourceful. One is to study. “Studying is about researching and using other people's resourced ideas that have already been documented for you in books or online.” Still, it is other people that can be your best resource.

Not everyone is comfortable seeking assistance or advice however. They may not even know what questions to ask. In those situations, Candice advises to “start with baby steps…break it down into steps you are comfortable taking. If you’re not comfortable taking a step, you probably won’t take that step.” These small steps begin to add up and provide the forward momentum needed to make progress. “If you have no forward momentum, then your static.”

A personal technique she shared is to think about a question you are too afraid to ask and then try to break it down. “Flip things over and try to create a question from the opposite standpoint. What if I don’t do that? What would happen then? Or what if I turned it on its side…and approach it from a completely different angle? Or what if I imagine I was somebody else asking that question, how would I go about asking it?”

By breaking the question down and looking at it from different angles, it can lead you to “a place you feel comfortable at.” After doing this, if you still don’t feel comfortable “try out your idea with a close business confident or a friend.” The question can genuinely apply to your business and situation or, if it is of a confidential nature, you can “sterilize” substitute a hypothetical question. This is a great way to get feedback and to practice reaching out.

Along with resourcefulness, another important quality to help an entrepreneur through difficult times is resiliency. “You develop resilience over time, and that really has a lot to do with experience…. It's your experience based on handling difficulties that builds resilience.” This can be a challenge these days. “You see that a lot today, where people are moving from company to company, you’re not necessarily developing a lot of resilience along the way.” Resilience is something, however, that can be developed. One way is to have mentors “that help you to navigate difficult areas, that help you navigate into new directions in your career.” This is an “elemental aspect of resiliency.”  There are other elements, as well and they “intertwine.” You need to look at: “How do you build [resiliency]? how do you develop it? how do you become a resource yourself to other people? how do you bring people along the way with you? These all sort of intertwine together.

“Then there's actual resilience…. Let's say you're an entrepreneur today going through market turmoil. …. You feel like you're going to fall right into the abyss, you're right at the edge, you're going to fall off.” Things can get very bad in the economy and you may have to make some “very difficult decisions. And even that may not be enough.” In those times you will need to be able to draw on your resilience.

Candice knows this first hand in her own business. “Back in 2007, actually is when the financial crisis started to happen and then deepened by 2008. We had stellar clients. We've always had stellar business clients, and we still do today, thankfully.  We didn't lose any clients, but they stopped sending work…. So, we lost about 75% of our business revenue in a matter of weeks.” 

“If you're an entrepreneur you know what that means. Your cash flow is going to fall off into the abyss in probably around two months. So, about two months after that started to happen, we got into very difficult decision points. When do you have to let go of staff? As an entrepreneur you never want to let go of your staff, because it took forever to create your staff, and to build them, and educate them, and train them, and then you've developed a great team. I’ve always had great teams around me, and I value all my employees, but when you're in a time of that kind of crisis, you have to make these very, very difficult decisions. And then that may not be enough. So, you let go of employees, but that's not going to be enough either to recover your business.”

There was “a year of very tearful nights. [Then,] One day I was driving home and had a lightbulb moment, and I thought, wait a second, if I was just starting out my company, and I had the revenue stream that I still have today, at that time, I would be breaking open a bottle of champagne and celebrating, because I’d be thrilled with having clients and business... yet instead I’m crying over the business that I’ve lost.” This put a new perspective to what was happening.  “If you’re an entrepreneur and you're going through a difficult time, or if you're an employee and going through a difficult time, and you're thinking well maybe I’d like to go out and start my own business, [know]: number one: it's a bumpy road; number two: be resilient; number three: be resourceful; number four: if you face difficulties, think like a startup company, think like a startup, re-examine everything in your business. Does it have to be done that way? Can it be done better? Can it be streamlined? Are there technological advances that you haven't taken advantage of? What are you doing for your networking?” 

Which brings us to: “Business networking is essential. Because if you don't network, you’re probably not being active enough in bringing new sales in, new leads, new contacts, and so no matter how bad your business is, you've got to stop and think about what am I going to do next to bring in more clients, more business.”

“And, on the resiliency note, ask other people to give you feedback about what's great about you, what is unique about you, what is unique about your company, what do they think of you, because it will be a big boost for you, because if you are going through turmoil, the biggest thing on your mind is: am I failing? Nobody wants to fail, so how do you boost that? How do you boost and bring yourself out of that sort of negative self-talk? So, reach out. That's the biggest message. Reach out. Speak to other people.” Expand your networks and resources to help you during good times and they will be there for you during bad times.

“If you're not actively mentoring, even in times of turmoil, when you don't think there’s another minute in the day you could possibly do another thing, that’s exactly the time you should think about doing something else. When you reach out to other people, something amazing happens, you get energy from them, you get positive feedback from other people and particularly if they know you’re having difficulties, they’re going to want to support you. People want to help us, and that was the hardest lesson. I learned it back in the financial crisis. I never ever asked for help. I just never did my whole life, but then I learned to ask for help and help came to me in from places I could never have dreamt of!  It really helped me to recover my business. And today I have a growing, thriving business, and as a result of that resilience that I learned back then, we are in a much better position to deal with turmoil now.” 

Remember, “Turmoil creates that experience and resilience that brings you through another time of turmoil more smoothly. Never give up. Stay focused.... Keep it moving forward. Stay as positive as you can in the moment, and find people who can lift you up.” The last one is emphasized. “That was something I really, really learned back then. I hadn't really paid attention to that in the past, and I think most people don’t,” but it’s something to always take heed of.” Surround yourself with good people.

Read part two of Mentoring and Entrepreneurship in Challenging Times - An Interview with Candice Tal.

Listen to the full interview with MentorCore at “Mentoring & Entrepreneurship During Turmoil.”

Spotlight on FCPA Violations – Q2 2021

Ongoing global business connections provide great benefits, but also conceal great risks. This has led to increased cooperation between corporations and multi-national government agencies to uncover FCPA violations. As a result, there has been an increase in multi-jurisdictional FCPA cases, and other countries began adopting FCPA laws similar to those in the United States.

Individual FCPA enforcements have also risen. Thirty-six individuals were charged by the Department of Justice (DOJ) and Securities and Exchange Commissions (SEC) for FCPA connected misconduct.

In the first quarter of 2021, things were quieter, due in part to the COVID-19 shutdowns. There is no better time than now to be proactive in safeguarding your business.

Consequences for FCPA violations are on both an individual and enterprise level

Bribery Violations/per violation

Accounting Violations/per violation

The following are basic guidelines, additional penalties that may be imposed include: injunctions, forfeiture of associated profits, forfeiture of assets, and suspension (or in some instances banning) from doing business with the government. Unlisted costs are loss to reputation, effects on company and staff performance, and future revenue.

Second Quarter 2021 FCPA Highlights

A UK-based global engineering firm and subsidiary of John Wood Group plc, agreed to pay $48 million in settlement of FCPA agent-related offenses related to a bribery scheme to pay Brazilian officials in exchange for an approximately $190 million contract to design a gas-to chemicals complex.

This number is something to note; along with the impact of COVID-19 related shutdowns and difficulties in conducting interviews over this period, things have been slow moving, but with more than 100 open investigations are likely to pick up speed.

Best Practices

It is critical for businesses to have a robust and vigorous compliance program which encompasses internal risk management and due diligence practices, including: regular board and executive background checks—a deeper dive than standard background checks—along with requests to perform due diligence on business partners, contractors, and your supply chain.

Prior to any M&A transactions, executive due diligence should also be conducted. Whether hiring at home, abroad, or acquiring foreign businesses, it is critical to perform effective executive due diligence with an investigative firm that specializes in this type of deep dive due diligence. A background check will not yield hidden or undisclosed information. If the executives have lived or worked internationally remember to verify this information also.

These “deep dive” due diligence investigations must be very thorough to keep you, your board, your investors, and your business safe from bad actors and rogue players. Preventative measures are an essential best practice in risk management that every business should adopt, both at the individual and corporate level.

Top 5 Things You Should Know About Protecting Investors

Investors play a key role in the success of many businesses. They invest their capital into your business to provide the money necessary to fund your ideas, visions, plans, and products. By doing so, they allow new businesses to start or existing businesses to grow and flourish. At the same time, they are taking on great risk; if your business succeeds, they should get a substantial return on their investment, whereas if it fails or does poorly, they stand to lose money or their entire investment.

There are numerous examples of people investing in companies, only to lose significant amounts of money. In many cases, some have even lost everything. A few famous examples include:

The Enron scandal - The founder, CEO, and Chairman were found guilty of corporate abuse and accounting fraud. Other charges against executives included money laundering, securities fraud, wire fraud, mail fraud, conspiracy, and insider trading. Enron’s shareholders lost $74 billion during the four years leading up to the company’s bankruptcy. Employees lost billions in their pension funds.

Stanford Financial Group of Companies - Investors lost a total of around $7 billion US dollars in a Ponzi scheme run by Allan Stanford who is now serving a sentence of 110 years in federal prison. Many of his victims were retirees who were promised “safe investments”, and not all of these losses have been recovered.

Clients of Bernie Madoff - Stanford comes in second, however, to Bernard Madoff. Madoff was involved in widespread fraudulent activities that wasted the investments of thousands of investors. In November 2008, prosecutors estimated the fraud to be worth $64.8 billion.

Theranos - Elizabeth Holmes CEO and  COO Sunny Balwani perpetrated a massive years long fraud according to the SEC. Executives at Theranos claimed the company's innovative blood testing technology was successful.  Theranos raised $700m in venture funding from prominent investors. Yet the product did not perform as expected, it was surrounded in secrecy and access to the main lab was locked to prevent anyone from exposing the real situation. They further claimed $100m/year in sales which was a substantial misrepresentation of the company's financial situation.

These are just a few notable mentions. Many other cases of mismanagement of funds, fraud and outright theft - big and small - can be found. During the dot com crash, many investors learned the hard way that the tech companies they invested in were only fronts with empty desks where no real work was being performed. The damage done by these fraudulent companies was very real, and had a ripple effect on legitimate businesses when their investors pulled out of companies with strong potential for fear of being stung by additional fraud.

Anyone with a serious mind to success is interested in protecting their business. They also realize how important it is to protect their investors who want a fair return on their investment and who you want to be there for the long-term. So, what steps can you can take to protect yourself and your investors? Let’s take a look.

The rise and exposure of litigious behavior within companies has  been the cause of scandal, lost profits, and reputational damage. Thorough "deep dive" due diligence could have mitigated, if not prevented, many of these situations and losses.

“It takes 20 years to build a reputation and five minutes to ruin it. If you think about that you'll do things differently.” ― Warren Buffett

1.    Choose Your Executive Hires and Business Partners Wisely

Some people choose their dinner items or coffee more carefully than their business hires and partners. From the entertainment field to the political arena, some of the biggest scandals to rock businesses have been a flood of accusations and cases of misconduct, ranging from sexual allegations to criminal activities. This brings to light the fact that even though those involved in malfeasance may have been experts in certain fields, they were also people of less than upstanding character.

Bad choices in hires and business partners result in a number of damages, including lost productivity, potential legal charges, reputation damage, and scandal. This can also have an impact in the form of revenue loss when clients and customers choose to go elsewhere. Additionally, there is the more subtle form of capital loss: money bleeding out due to the poor attitudes and conduct of employees, internal waste, poor morale, and bad work ethics. In larger companies, this may be less visible than in smaller ones, but it is still important. Your guiding principles regarding investors is to first and foremost safeguard those investments - something you should want to do in any case, since making a good profit in an ethical manner, for your company, yourself, and your employees should also top your list.

What are you looking for in your partners and hires? Is character and integrity at the top of your list? Are you working with people that are hardworking? Team players? Honest? Focused? Solution-oriented? Positive? If not, you need to invest in finding out more about the people you are entrusting with your hard-earned money.

How can you choose wisely when it comes to executive hires and business partners? Create a list of your top priorities and make the process integral to your hiring and partnerships, no matter the current trend in hiring practices.  Make sure you know who you hire by working with an investigative firm who will conduct executive due diligence on executive hires and business partners, rather than routine background checks, so you can protect your investors from regretting their investment.  Remember that investors can and may pull their money out if your company is rocked by fraud or corruption, sexual misconduct, loss of morale and productivity, misconduct or malfeasance, or reputation loss. Proper due diligence and wise choices are important.

“When cost is number one in importance, you’ve already lost.” Jim Rembach, Six Sigma Consultant

2.    Create a Culture of Integrity

Company culture has been lauded for the last decade or so and is increasingly important with Environmental, Social and Governance (ESG) investment  and social responsibility concerns taking center stage in the last few years. Understandably, different companies can take on different cultural tones. For example, a company that makes surfboards will have a different cultural feel to one that focuses on accounting. However, whether your product is high-tech, ecofriendly clothing or traditional banking, the most important aspect of any company culture is integrity.

Why is integrity so important? Because in any legitimate work environment, the primary focus is to create a successful business that is honest, fair, and focused on getting the job done.  Furthermore, more and more consumers prefer to spend their money and do business with companies that are committed to integrity as a core value, and are committed to great workplace culture. Integrity can also mean being more aspirational in your company's vision and/or mission, such as having a commitment to social values such as environmental sustainability. In the past, these values were often relegated by companies as “nice to have, but not essential to bottom line profits”. This is changing fast as more employees share personal workplace stories on social media and people have better access to information on workplace culture and values.

How do you define integrity? “Integrity is defined as the quality of being honest and having unshakable moral principles, situated at the intersection of consistent actions and strong values,” according to Learn Loft. As part of building a culture of integrity, you will want individuals who are team players, and who do the right thing at all times, even when no one is looking - and even when it is difficult.

Your leaders should also lead with integrity. A team that pulls together with leadership that is based on clear values, good character and guiding principles, will help instill integrity into the fabric of the company’s culture. No company culture should expect or accept less.  A company owes it to its investors to create a company culture that is based on integrity, fair, and equally applied policies that favor no one group or person over another. A company culture that fosters fair decision-making and does not allow internal or external pressures to negatively influence those decisions holds enormous value for executives, employees and investors.

One way to reduce the risk of hiring a leader who may not fit with your culture of integrity is to run due diligence checks on all new executive hires. Additionally,  routinely running due diligence checks on leaders can help ensure that any significant life changes or circumstances do not negatively impact your business or your investors.  Deep due diligence protects both you and your investors.

“It’s better to hang out with people better than you. Pick out associates whose behavior is better than yours and you’ll drift in that direction.” ― Warren Buffett

3.    Protect Your Business and Your Investors by Choosing Due Diligence Investigations to Mitigate Risks

Deep dive due diligence is significantly different from typical background checks. Standard background checks are often run when new executive hires come aboard. These standard background checks can miss numerous underlying issues that deeper due diligence investigations will catch.

Standard background checks generally uncover only a cursory level of information (less than 1% of serious issues), while executive due diligence investigates 30 components of public record information, in addition to in-depth reviews of media and news sources along with a deep, dark web and historical internet search, yielding 20% serious issues. Deep dive due diligence can uncover vital information that is unattainable in routine background checks.

Information reviewed in deep due diligence checks includes:

Criminals, imposters, and con artists abound in every society and are difficult if not impossible to detect using only basic background checks.

Finally, it's important to remember that people’s situations can change over time and as a result, so can their actions. This means that due diligence should be conducted more often than just at the start of a new hire coming aboard. How often due diligence should be conducted can be determined by your company’s unique situation, risk tolerancee, and with the advice and guidance of a professional investigative firm with international expertise that is well informed on regulatory compliance requirements.

"Whoever is careless with the truth in small matters cannot be trusted with important matters." – Albert Einstein

4.    Select an External Investigative Firm with Due Diligence Expertise

Not all investigative firms have the same degree of experience, expertise, or ability to perform deep dive due diligence investigations. In protecting your company and investors, it is critical to partner with an external firm that can perform individual and company deep-dive due diligence checks. The investigative firm you work with should have global resources as well as long-term expertise in the investigative field. Partner with an investigative firm that not only does deep due diligence investigations well, but one that does deep due diligence uncommonly well.  You can only mitigate those risks that have been identified.

“The secret of success is to do the common thing uncommonly well.” — John D. Rockefeller Jr.

5.    Be Willing to Invest and Commit to Vetting Business Partners

Just as your investors choose to risk their investments with your business, a smart business is committed to investing time and money to protecting those investments, along with protecting the company itself, its reputation, and its success.  This commitment is especially important in larger business ventures, Joint Venture Partnerships, international business ventures, and in M&A deals. As many as 35% of international suppliers have corruption related issues; basic due diligence may only reveal 5% of these serious concerns.

Fraud in international supply chains has been well documented with numerous companies incurring substantial fines. Every year, the fines for Foreign Corrupt Policies Act (FCPA) violations continue to rise. In 2020, the Department of Justice (DOJ) and Securities and Exchange Commission (SEC) imposed an astounding $6.4 billion+ in financial penalties for violations against 12 companies.

Since deep dive due diligence requires specialized expertise, this type of commitment involves a comprehensive analysis of all available public records data, augmented with detailed field intelligence, and deep web investigations to identify known and, more importantly, hidden and undisclosed situations.

Protect your investors who are investing in you early on. Be prepared. When you invest in a robust due diligence program and risk management maintenance plan, it is always an investment that yields a high return.

Due Diligence for Non-Profits

The Importance of Due Diligence for Non-Profits

Many people are passionate about making a difference in the world. For some, it is a matter of starting a non-profit, working for one, or giving charitable donations to an organization or non-profits committed to  projects they believe in.

In the United States, alone, there are 1.54 million non-profits as of January 2021. The United Kingdom also has a long tradition of giving money to charities and helping those in need. It is ranked near the top of World Giving with over 160,000 registered charities. There are many varieties of charities and non-profits individuals and companies can support, but one must do so carefully because not all non-profits are created equal. There are times when non-profits fail to live up to their mission statement and stray into unethical or illegal activity. This activity includes (but is not limited to) mismanagement, fraud, embezzlement, or incidents where money donated isn’t being routed to those the donor thinks it will be. Additionally, non-profit executives may have a history of financial crimes, abuse or sexual harassment, amongst other harmful characteristics.

Due Diligence investigations are  one of the best ways to protect your non-profit against fraud and to ensure that you invest in someone who is committed to ensuring your donations are used to support the people and projects you believe in.

Though the expense of performing due diligence investigations in non-profits seems unfeasible, there are companies specializing in deep dive due diligence investigations that give back to the community by offering discounts to non-profits.

Some non-profit employees may think that they do not need to do anything more than a simple background check on non-profit executive staff. Wouldn’t people choosing to work there be doing it because they want to do good? Others who want to give company or personal money to a non-profit may feel bad about doing due diligence as well. Wouldn’t it look bad? Shouldn’t I just do the right thing? Don’t I want my employees, investors, or the public to know that I am supporting a great cause and if I investigate, doesn’t it make the company look bad?

The answer to each of these questions is that the primary purpose of  due diligence is to protect your non-profit, your reputation, your cause, and even your organization’s board of directors. It would look worse if it is revealed publicly that that the non-profit you ran or that you supported was far from doing good in the world.  Reputational damage for non-profit organizations may decrease donations for many years and even lose donors that are committing their hard earned money for good.

Example of Fraud in Non-Profits

When We Think of Non-Profits

We usually think of organizations like Goodwill, Meals-on-Wheels or Habitat for Humanity when non-profits come to mind. They maintain non-profit status for the good they do in local communities and around the globe, as well as for positive tax benefits. Sadly, some non-profits use their tax standing and appeal to people’s desire to do good to bring in enormous profits for their board members and executives. In some cases, few funds or even none at all have gone to help the people or cause they claim to support.

Some non-profits employ routine background checks to help weed out potentially unethical workers. While these checks are important, they are often inadequate, especially at executive levels. However, these routine background checks are often unable to locate all of the data needed to protect the organization’s board of directors from fiduciary exposure or lawsuits if adverse material is revealed post-hire.

On the other hand, executive due diligence provides an in-depth look into an employee’s criminal history, civil litigation issues, behavioral history (for example litigiousness), financial and legal issues, relationships with other companies and board advisory positions, reputation, misrepresented education and overstated work history, business ownership, and undisclosed or adverse issues.

A Few Examples of Non-Profit Fraud

United Way of Massachusetts Bay and Merrimack Valley

The non-profit, was indicted in a $6.2 million IT fraud in 2019. Imran Alrai, former Vice President of Information Technology at United Way of Massachusetts Bay and Merrimack Valley allegedly stole $6.2 million over a number of years through the creation of a shell company. He was also brought up on charges of wire fraud.

The Key Worldwide Foundation

At the center of the college admissions scandal, The Key Worldwide Foundation, claimed it made donations or had partnerships with a variety of other non-profits and charities, which many are denying. William “Rick” Singer, the founder of the foundation has been charged by the Department of Justice (DOJ) with money laundering conspiracy, racketeering conspiracy, and obstruction of justice.  Other defendants include university athletic coaches, collage exam administrators, CEOs, and actresses.

Examples of Non-profits Whose Funds May Not Help...Much

Kids Wish Foundation

The Kids Wish Foundation takes in millions to help kids who are terminally ill and their families. In past decades, nearly $110 million in donations were directed to corporate solicitors and a hefty $4.8 million has gone to pay the founder of the charity and his personal consulting firm.

National Veterans Service Fund

Those who have put their lives on the line and made so many sacrifices deserve better. The National Veterans Service Fund was found to do very little regardless of their name with 80% of donations going to solicitors.

What the Statistics Say

The Association of Certified Fraud Examiners (ACFE), in their 2020 Report to the Nations, found that in fraud cases reported to the Certified Fraud Examiners (CFE), 9% of the victims were non-profit organizations with a median loss of $75,000 per incident and a $639,000 average loss.

Non-profit employees were likely to commit fraud around 39% of the time in these instances, but the magnitude of the fraud was greatly amplified at the board and director level. Non-profit employees averaged $21,000 in theft from their non-profit, while board and director-level employees averaged $250,000.

Non-profits, whether educational, social services, social justice, health, or other charitable institutes, are vulnerable to misappropriation of funds and potential abuse with devastating effects. Skimming and larceny are also common types of fraud that non-profits are vulnerable to. Fraud can have significant negative impact on non-profits, some of which operate under extremely tight financial resources.

Some Common Types of Fraud Schemes in Non-Profits:

Preventative care and ongoing transparency remain a non-profit organization's best health practice. It is not only important to create a built-in, on-going FCPA program within any business, it is crucial to partner with an external, third-party global security and risk management firm who is highly-skilled at performing deep due diligence investigations at both individual and company levels. These executive due diligence checks need to be of the highest quality and designed to keep your donations safe from risk.

Safeguarding Your Non-Profit or Safeguarding You Donations to Non-Profits

In order to safeguard the non-profit or charitable donations to your favorite organization, make sure you do your due diligence. Inquire whether the non-profit vets the executives hired with due diligence checks rather than basic background checks. Is the non-profit legitimate? Are the board of directors and higher level executives who they say they are? Is the money going where they say it is going or reaching those you expect it to reach?  Due diligence investigations will prevent these issues and reveal a prior history of malfeasance or misconduct at other non-profit organizations.

Best Practices in Executive Due Diligence

With so many recent scandals at senior executive levels, often resulting in dismissals and resignations, more companies are becoming proactive in checking the backgrounds of their executive ranks.

The issues range from fraud and embezzlement involving governments, sometimes implicating national and international law firms and auditors, to more than three dozen senior executives accused of sexual misconduct in one year alone (2018).

Egregious examples of recent corporate scandals such as 1MDB involving $4.2bn embezzlement from a state-owned Malaysian investment fund. The ensuing investigations implicated Malaysia’s Prime Minister Najib Razak, three former Goldman Sachs Executives (Jho Low, Roger Ng and Tim Leissner), and lawfirms Sherman & Stelling, Sullivan and Cromwell. Another case known as Operation Car Wash which resulted in the impeachment of the former Brazilian President and money laundering conviction of her predecessor. The Panama Papers, Paradise Papers and Operation Car Wash are additional cases that resulted in federal and in some cases global prosecutions for bribery, money laundering, and embezzlement on a massive scale, in addition to other crimes, some of which are ongoing. These are just a few of the headline news cases in recent years.

Then there was the #MeToo movement which focused on sexual misconduct, sexual harassment and rape.  Dozens of senior executives, university professors, Hollywood producers, directors, actors, comedians and photographers such as Harvey Weinstein, Al Franken, Kevin Spacey, Roy Moore, Bob Packwood, Junot Diaz, and Matt Lauer were publically shamed and lost their careers, including in many cases lucrative sponsorships and endorsements in addition to their reputations.  The examples seem endless and far too numerous to list here.

The impacts to an organization under such public and legal scrutiny are obvious: company reputation is damaged, loss of business and client confidence (often on a global stage), loss of revenue, distraction for the board and executive teams, loss of productivity and employee morale, dismissal of the executive plus the need to replace them, and the list goes on.  The damage is often in the millions to tens of millions of dollars and sometimes even higher.

Unfortunately many companies turn to routine background checks and believe that these very limited backgrounds will reveal the issues of concern. A simple background check will not reveal many of the issues of concern at the executive level. Best practices in business due diligence should always include a comprehensive review of all senior executives.

Infortal’s statistics show that 20% of executives do not pass a deep-level due diligence check.

The purpose of investigative due diligence is to ascertain whether executives being hired (or acquired) have provided the company with full disclosure of their background and prior substantive issues.

This is necessary to protect a company’s Board of Directors, improve risk management, comply with federal regulations, and optimize corporate profitability.   Effective due diligence will reveal issues such as corruption and money laundering or inappropriate political influence that may violate the Foreign Corrupt Practices Act FCPA.

All too often, companies rely on what they know about an Executive who has “worked in their industry for many years” and is generally well known for their business acumen and experience. However, what companies do not know is whether that person has an unknown or undisclosed history: bankruptcies, sexual harassment claims, civil litigation/ litigious history, SEC violations, & even criminal convictions may not be known to colleagues in the industry.

Infortal Worldwide strongly recommends a Best Practices approach when conducting Executive Due Diligence.   Following multiple public company accounting scandals, the federal government introduced the Sarbanes Oxley Act in 2002.  All public companies today are required to submit an annualized assessment of the effectiveness of their financial accounting & internal auditing systems.

The benefits of screening executives

  1. Protect the interests of the corporation
  2. Protect the fiduciary responsibilities of the Board of Directors
  3. Minimize liability exposures for the company from future inappropriate activities & crime
  4. For corporate governance, FCPA & Sarbanes Oxley compliance
  5. Rule Of Thumb: if you have not personally known executive for at least 10 years then you do not know the person well.

Infortal’s data collected over a 25 year period show that 20% of executives (1 in every 5) have serious issues of concern in their history. This may include a broad spectrum of issues for example: no degree earned, forged degrees, criminal convictions such as felony fraud, IP Theft, money laundering, racketeering, trafficking, manslaughter and even murder. We may also find business conflicts of interest, ownership in other companies, civil lawsuits, including breach of contracts, SEC violations, interstate bankruptcies, corporate espionage, con artists, and a host of other issues which may be of concern.

Case Studies:

The candidate’s “history” can be checked in advance to avoid the embarrassment and public damage to your company at a later date. Many examples of this exist:

None of these histories were disclosed and all details were deliberately covered up.

Impact To Your Company

Officer-level involvement in other businesses that have not been disclosed can cause many problems later for your company if the second business is encumbered with lawsuits, FCPA or SEC violations, encounters negative publicity linked to your Executive, or worse is involved in criminal actions of any kind.

Due Diligence Objectives:

  1. Determine whether the person is who they say they are
  2. Check the veracity of their qualifications and stated history
  3. Analyze gaps and undisclosed information
  4. Assess how this information is matched with public records (factual verification)
  5. Examine discrepancies, and complex business & judgment issues that may occur at the Executive Level
  6. Determine any undisclosed, unexplained, criminal or litigious behavior
  7. Determine whether all information has been disclosed to you during or prior to your business transactions

Issues Of Concern:

A brief summary of the typical issues of concern which are evaluated during an effective Executive Due Diligence investigation include:

Essential Due Diligence

Executive due diligence investigations focuses on public records and other information sources.  A detailed report with Actionable Recommendations™™ are provided when the investigation is concluded.

Executive due diligence investigations should be considered essential today whenever:

The cost of due diligence backgrounds are minor compared to the cost of a single executive hire and pale in significance compared to the damage to reputation, stock market losses, adverse impact to client confidence, employee morale and business profitability.

Best practices in Executive Due Diligence involve detailed investigative review and careful analysis of all the data points found related to the executive’s history. This may include county level criminal records, county civil records, federal criminal and federal civil records, national criminal records, employment history verification, educational verification, credit history (where FCRA release forms are signed), suits liens judgments and bankruptcy records, department of corporations searches, UCC filings, adverse keywords/ negative keyword searches, and in some cases reference interviews. For best practices due diligence on executives we also recommend deep web searches using Open Source Intelligence (OSINT) techniques which yield the majority of hidden and undisclosed information. For more information on best practices in executive due diligence contact us.

International Due Diligence Investigations - Episode 4 Innovation and Continuity

Unlocking the secrets in M&A transactions for greater transparency and risk mitigation

I recently had the honor of speaking about various aspects of due diligence investigations with Tom Fox, The Compliance Evangelist. We explore issues ranging from deal volatility, succession liability and reputational damage in M&A transactions, to due diligence nightmares and how to prevent them. Unlocking hidden and undisclosed information that may sink the deal, cause volatility, or damage the buyer's reputation is key. Episode 4 addresses innovation and continuity in international due diligence investigations and improving results for regulatory compliance.

There are typically three levels of due diligence. The three levels are typically Level I, the basic level which typically looks only at a global watch lists for sanctions, politically exposed persons (PEPs), anti-terrorist lists, anti-money laundering (AML) and similar government produced lists. Level I generally provides a summary of the beneficial owners of a company, its corporate structure, perhaps some financial information and the Global Watch lists. Many companies use that as their primary tool for risk ranking. A Level II due diligence investigation is an intermediate between Level I and Level III. Level II takes a deeper dive looking at every aspect of public records information in addition to areas that are not necessarily in the public record. It encompasses items like a deeper dive of executive backgrounds. 

The final level, Level III, is also called a deep dive due diligence investigation. This level works to not to identify bad people or bad actors but also patterns of behavior which might tend to indicate a propensity for circumvention of internal controls or stepping over or even getting too close to the ethical line that indicates behavior that may turn criminal or turn in a direction that would hurt your business reputation going forward. There are behavioral issues that can be discovered through Level III due diligence. It can be through the online searching of media including newspapers, publications and digital media. A wide variety of information can come up in behavioral assessments in terms of what is the background of the executive or how they may have behaved in the past. Additionally there may be information available in a country that may not reach the rest of the press. So you may find that there are local issues that are well documented. Sometimes you can only find that information through local language searches online, other times Tal indicates you need to do in-country research.

Unfortunately most CCOs are working with limited information from their due diligence programs or due diligence providers. This means they do not have enough information to input into their risk assessment. As we previously explored, if a company is performing or having performed for them only a Level I due diligence, they may well only be uncovering up to 1% of the adverse information or raising the appropriate red flags. In a high-risk jurisdiction, Tal believes that if a company is not receiving up to 35% of the required information, they are really operating behind the 8-ball. 

Moreover, relying on computer searches raises an amount of concern for other reasons. These include both shell companies and front offices. There are still situations that without a physical drive by of the third parties facilitates, the address may simply be a local postal box. The problem of shell companies still exists far beyond the initial dump of information past the Panama Papers and Paradise Papers. Even with a real physical address, if your third-party shares an address of a flat in London that also houses some 1,500 additional corporations, this is a serious red flag that you are dealing with a shell company. That in and of itself is a red flag which, if not cleared, could lead to a serious legal violation and a significant reputational hit to your organization. 

The vast majority of FCPA enforcement actions over the past 10 years have involved some form of inadequate, insufficient or even a total lack of due diligence. We began by exploring how a company can perform sufficient due diligence without breaking the bank. Candice Tal noted that most companies perform Level I due diligence, which of course provides limited information. Typically in Level I, companies find less than 1% of the issues that are out there. When you couple that with the realization that 90% of FCPA enforcement actions are against companies who engaged third parties and third-party vendors, it leads Now if you add due diligence in the Supply Chain component where there can be 5,000 or even 10,000 companies, you can begin to see the daunting nature of getting your arms around these risks. 

Another key feature of almost all FCPA enforcement actions is that companies that sustained enforcement actions most usually had ‘check-the-box’ compliance programs. We considered this implication in the context of due diligence. To increase the percent of information about the troubling 1% figure Tal noted above, she said companies need to “start looking at incorporating deep media searches, into their due diligence.” Deep media typically looks at aggregated data from companies that amass millions and millions of digitized records, journals, newspapers, articles, periodicals or other similar information. Now overlay global watch lists, with some basic corporate financial information, and you might be able to move from finding only 1% to up to 5% of the corruption and bribery related issues that exist amongst the parties. However, when you further expand that and do a deeper level search on online, beyond simply adverse keyword searches, it can move your discovery rate up to as much as 35% of the corruption and bribery related information. 

Tal believes that AI will be a “game changer” in compliance. Massive data sets require some type of AI to sort through and analyze the information. This is particularly important for internal controls and accounting books and records provisions to identify massive fraud. This is yet another area which is still developing. Tal stated, “I’ll frame that by saying at least in the next few years, there will still be a need for the traditional investigative approach that the boots on the ground, one where an investigator goes out and physically checks on facilities. Artificial intelligence is going to have limited ability to do that.” While drones may become part of an investigators tool kit, Tal believes that AI will be used “in a similar way to most data aggregators today. They find about 80% of the information. Yet there will always be the remaining 20% which they cannot find and you will need human intervention on the investigative side.”

Looking down the road to the veiled land of the future, Tal sees continued innovation facilitating investigative due diligence. While AI is more than simply on the horizon, she said it “is a tried and tested methodology that has existed for many years, in terms of how do you look for and locate shell companies.” It is also true about finding information about people who are trying to deliberately hide information. The bottom line is some of these investigative techniques involve old-fashioned shoe leather or simply hard diligent investigative work and “that’s not new”. Yet AI and other technological tools can make investigations more efficient and more cost effective, while giving better results. At the end of the day, AI can be used to sharpen and hone the due diligence process. 

I know you will find this podcast series useful. A new episode will release daily on the FCPA Compliance Report. All episodes will also be released daily on JDSupra. If you want to binge listen they have all been released YouTubeiTunes, or on the new hosting platform of the Compliance Podcast Network, Panoply.

International Due Diligence Investigations - Episode 3, What Is and Is Not Working

In this 5 part series, I am visiting with Tom Fox, the Compliance Evangelist. We consider various aspects of international due diligence investigations. In many ways this can be viewed as finding a needle in the corporate haystack of information and data.

We discussed ways through the maelstrom to find useful and actionable information for your compliance program. In Part 3, we consider what works and what does not work in due diligence investigations today.

Unfortunately most Chief Compliance Officers (CCOs) are working with limited information from their due diligence programs or due diligence providers. This means they do not have enough information to input into their risk assessment. As we previously explored, if a company is performing or having performed for them only a Level I due diligence, they may well only be uncovering up to 1% of the adverse information or raising the appropriate red flags. In a high-risk jurisdiction, Candice Tal believes that if a company is not receiving up to 35% of the required information, they are really operating behind the 8-ball. 

Moreover, relying on computer searches raises an amount of concern for other reasons. These include both shell companies and front offices. There are still situations that without a physical drive by of the third parties facilitates, the address may simply be a local postal box. The problem of shell companies still exists far beyond the initial dump of information past the Panama Papers and Paradise Papers. Even with a real physical address, if your third-party shares an address of a flat in London that also houses some 1,500 additional corporations, this is a serious red flag that you are dealing with a shell company. That in and of itself is a red flag which, if not cleared, could lead to a serious legal violation and a significant reputational hit to your organization. 

Tal pointed to another area which is often missed in due diligence investigations which is the extended relationships between people in Latin America, where you can see a lot of family run enterprises. Tal stated, “A Level I due diligence will not pick up on this where one company is a family which may run multiple businesses. Some other business may be corrupt and the question becomes how does that impact the primary relationship? This can be a very important red flag that is being missed as the US Company may not even know who the real owners are going forward.”

She added that if you do not have good information to begin with on the basics, such as a company name, you cannot research a matter correctly. A  wrong company name can lead to a false negative. Due diligence investigations might come back with no information about the company or with information on a different company, “so that’s another type of issue for some Chief Compliance Officers to be concerned about.” Of course the physical issue of whether a company actually exists or actually have employees working there can still be a problem as well.

We next turned to a strategy which a CCO could employ to allow for a sufficient level of due diligence but with an eye towards doing so in a cost-effective manner. In other words, what should be your investment in due diligence? Tal said, “a very good strategy would be to do the Level I due diligence but consider adding to it by building in deep dives on media and the Internet.” With such deeper dives a compliance professional can increase their due diligence yield to up to 35% more information than Level I can provide. This approach also allows for a quicker and more expeditious uncovering of red flags that might warrant more focused investigations. It can then allow a quicker clearing of red flags to move forward. 

With a more long-term focus, a CCO needs to perform due diligence on an ongoing basis. Even if a company has done a basic due diligence investigation, feel they have a solid compliance program around their third parties, internal controls and accounting provisions, recent enforcement actions mandate more due diligence and a review of your third parties more than every two to three years. The Panasonic Avionics enforcement action made clear that due diligence should be viewed as an ongoing process. Additionally, there has been and will continue to be political instability in various areas of the world. This political upheaval can mean you find yourself in a country now having to do business in a completely different manner. Both South Africa and Malaysia have had peaceful regime changes impacting whom you may have done business with and with whom you are doing business, therefore ongoing monitoring is really vital to a solid compliance program.

Next, we will consider due diligence in the mergers and acquisition (M&A) context from the compliance perspective. 

To listen to the full podcast click here. 

International Due Diligence Investigations - Episode 2, Insights from Recent FCPA Enforcement Actions

Incomplete due diligence results lead to a fragmented view of risks

I recently spoke with Tom Fox, The Compliance Evangelist on The Compliance Podcast Network regarding insights from recent enforcement actions, where we considered various aspects of international due diligence investigations. In many ways this can be viewed as finding a needle in the corporate haystack of information and data. We looked at actions that help us through that maelstrom to find useful and actionable information for your compliance program. In Episode 2, we consider some recent Foreign Corrupt Practices Act (FCPA) enforcement actions wherein insufficient due diligence was a key takeaway.

Excerpted from Tom Fox’s blog: The vast majority of FCPA enforcement actions over the past 10 years have involved some form of inadequate, insufficient or even a total lack of due diligence. We began by exploring how a company can perform sufficient due diligence without breaking the bank. Candice Tal noted that most companies perform Level I due diligence, which of course provides limited information. Typically in Level I, companies find less than 1% of the issues that are out there. When you couple that with the realization that 90% of FCPA enforcement actions are against companies who engaged third parties and third party vendors, it leads Tal to opine, “I would say that you’re not finding the needle in the haystack most of the time you should be concerned.” Now if you add due diligence in the Supply Chain component where there can be 5,000 or even 10,000 companies, you can begin to see the daunting nature of getting your arms around these risks. 

Another key feature of almost all FCPA enforcement actions is that companies that sustained enforcement actions most usually had ‘check-the-box’ compliance programs. We considered this implication in the context of due diligence. To increase the percent of information about the troubling 1% figure Tal noted above, she said companies need to “start looking at incorporating deep media searches, into their due diligence.” Deep media typically looks at aggregated data from companies that amass millions and millions of digitized records, journals, newspapers, articles, periodicals or other similar information. Now overlay global watch lists, with some basic corporate financial information, and you might be able to move from finding only 1% to up to 5% of the corruption and bribery related issues that exist amongst the parties. However, when you further expand that and do a deeper level search on online, beyond simply adverse keyword searches, it can move your discovery rate up to as much as 35% of the corruption and bribery related information. 

We next turned to key executive searches for senior management and even Board members. Tal notes that most information suggests that between 10 to 20% of all such persons have adverse information in their backgrounds, which is often not reported and not uncovered. This means that if you have 100 senior managers and Board members, you can reliably estimate that 10 to 20% of that group has a red flag in their background which should be cleared before hiring or even promotion. If you have 1,000 such people in your organization, simply do the math. You may well have hundreds of senior executives with bribery related issues or issues in their backgrounds that you would not want to be responsible for causing nightmares for an organization down the road. 

Another issue which Chief Compliance Officers (CCOs) and compliance officers struggle with is the number of red flags. Tal said that a key element is to consider a deep dive of internet searches different from a deep dive due diligence. This is because the deep dive due diligence provides a much fuller and richer picture of a candidate’s background; whether that candidate be an entity or individual. When you couple this with risk ranking it can lead to a more cost-effective approach to due diligence. 

The regulators have made clear a check-the-box approach to due diligence is insufficient because it will not provide sufficient information as required by them. A company must rank its third parties based on a variety of factors such as where they are doing business, who they are doing business with, how they are doing business, financial strength and even political risks. The recent Vantage Drilling Co. FCPA enforcement actions drove home this need. The company’s largest supplier was a drilling ship supplier who was so important to the organization that he was not only put on the Board of Directors but was also granted so much stock he became the largest single shareholder in the organization. 

The problem was this supplier, Board of Director and shareholder, had lied to the company about his ability to deliver as he had no assets. A deep dive due diligence investigation was certainly in order for any of the roles he held during his relationship with the company. It would have revealed that he actually had no assets to provide to Vantage Drilling. Further, it would have also indicated a propensity to skirt ethical niceties such as not paying bribes in violation of the FCPA. The company paid a very high price for its due diligence failures. 

Episode 2 (audio) can also be found here. Next, we will consider what is and what is not working in due diligence investigations today. 

International Due Diligence Investigations: Episode 1 When Basic Due Diligence Is No Longer Enough