What is the Difference Between Basic and Deep Dive Due Diligence?

Imagine hiring a new executive only to find out that they were involved in a serious crime, have a major conflict of interest, or have a history of suing the companies they work for. Once the ink is dry on their contract, it’s too late to easily change your mind without some type of cost to your company.

Moderna’s board of directors found this out the hard way in May of 2022 when they hired Jorge Gomez to serve as their new chief financial officer. While they did some due diligence into his background, they didn’t look much beyond the basics. After publicly announcing Gomez was joining their team, Moderna make a shocking discovery: his former employer was under investigation for financial misconduct. Gomez served a single day as Moderna’s CFO before being released from his contract in exchange for $700,000, the costs and time involved in the hiring process, and a hit to their reputation.

This is just one example of why you must do more than basic due diligence when hiring an executive. A deep dive into Gomez’s history would have revealed the investigation and his role in it before he was hired, allowing Moderna to avoid the embarrassment of hiring a CFO with a checkered past.

What is Due Diligence?

Many people think due diligence is the same as a background check, but it’s much more detailed than that. Background checks are done when hiring anyone, regardless of their level in the company. This provides a very basic snapshot of someone’s criminal and financial past in that they will tell you if someone has been convicted of a felony or declared bankruptcy. However, they won’t tell you more than that.

True due diligence is typically only done when hiring executives, especially C-suite level leaders, and when acquiring or merging with another company. The goal of due diligence is to bring to light any risks that could result in a loss of reputation, income, or clients. This includes much more than felonies and the occasional bankruptcy. Due diligence should also look into items such as a criminal past in other countries, online activity, conflicts of interest, financial irregularities, civil suits, and more.

With this in mind, let’s take a look at how basic and deep dive due diligence are different, how a deep dive into a candidate’s past can help protect a company, and how Infortal Worldwide is here to assist you with these deep dives.

When is Deep Dive Due Diligence Necessary?

Basic due diligence is more than a background check, but it doesn’t really dive into someone’s background. It’s enough to shed light on whether a potential hire has committed felonies, embezzlement, or is extremely litigious. However, it only checks around 30 different databases of information. That’s not going to find everything. It might find some basic risks to hiring the person, but it typically only highlights about one percent of potential issues.

Even moving up to a second level of due diligence, which would include making use of open source intelligence tools to gather and analyze all publicly available information may not be enough. While this will pull in media reports, social media, court filings, public trading information, and more, it’s still only going to reveal around five percent of the information you truly need when hiring an executive. It’s better, but it’s just not enough.

That’s where deep dive due diligence comes into play. This level dives into all of the open source intelligence information plus scans international watch lists, dark web activity, connections to other businesses, and much more. It will look at aliases and connections to other people that could lead to conflicts of interest.

Whether than asking specific questions such as “did this person work at this company? Did they live in this area during this specific time period?” that background checks do, deep due diligence casts a very wide net. It looks at connections the potential hire has and how they could use those connections instead of simply verifying data. This is absolutely necessary when hiring a company executive. Because it’s so extensive, one of these searches can take up to 30 hours of work, but it will reveal much more than other levels of due diligence.

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Key Ways Deep Dive Due Diligence Protects Your Company

Deep dive due diligence will help your board of directors, hiring committee members, and others by providing information that would simply not be found without it. While using open source intelligence, watch lists, and other databases will bring up a variety of information on a potential hire, here are a few key ways deep dive due diligence in particular is necessary to make a fully informed hiring decision.

Learn Candidate Aliases and Other Names

Some candidates have used other names in the past. While some of these names will come up on basic searches, there’s always the chance that one or two will not. This is especially true if the candidate took pains to hide those aliases or use different names in other states or countries.

A deep dive also sifts through candidates with very common names to find information about them. Someone with a very common name like Joe Smith may not be easily searchable online because there are thousands of people with that name. A deep dive will use other factors such as addresses, birthdate, employment history, and other data to determine when information is about a candidate and when it is about someone with a very similar name.

Get the Full International Picture

Some companies only look at information in local, state, or federal U.S. databases. While this will usually reveal if the individual was tried or convicted in the United States, it will not reveal anything about any international civil or criminal cases. Executives, especially those who have worked with large multinational corporations in the past, are likely to be involved in business in other countries.

Knowing if they have been accused of fraud or were named in a malpractice lawsuit in another country can quickly make it clear that a candidate is not a good fit. This type of due diligence will also reveal whether the candidate is an investor or owner in any business based in another country. This could highlight potential conflicts of interest that would not come to light otherwise.

There’s also always the chance that a candidate left their home country to avoid being arrested or charged with crimes. This may seem like something out of a movie, but it does happen. Even if the person left for legitimate reasons, companies should still review their criminal history and business activities done before they moved to the U.S.

A Basic Search May Not Reveal All Conflicts of Interest

A conflict of interest can lead to misconduct. An executive who has a connection to another company may work to get that company better prices or to move contracts or partnerships to that business. While these partnerships aren’t always bad for either business, they do typically result in the executive getting a cut from both sides. That’s a serious conflict of interest that should never occur.

Unfortunately, basic due diligence may not necessarily uncover this, especially if the executive has gone out of their way to disguise or hide their connection to the other business. There are a number of ways this can be done, but it’s a conflict of interest regardless of what methods they use.

A deep dive due diligence will reveal these connections. Company leaders will be made aware of what other businesses the candidate has a connection to, allowing them to avoid any partnerships or relationships. Even if the business is in a different industry that the company would never interact with, knowing that the candidate was not forthcoming is good information. It’s a red flag, and it may indicate that they have been less than truthful about other things as well.

Basic Due Diligence Does Not Search the Dark Web

The dark web contains information that few people ever see. This information, however, can be vital when making hiring decisions. If the candidate has any sort of presence on the dark web, it’s almost always a red flag. Even if they did nothing wrong, there may be information about them out there that could be used to blackmail or coerce them. This could affect the company, especially if the candidate could be blackmailed for money or favors. Companies may want to make candidates aware that their personal information has been published on the dark web, even if they decline to continue the hiring process.

Why is it Important to do Deep Due Diligence?

As highlighted with the Moderna example, executive, C-level, and other highly visible leadership positions can quickly damage a company’s reputation at best and result in severe losses at worst. Hiring a CEO with a very checkered past can lead to a loss of respect and trust in the brand if their past becomes public. Bringing on a CFO who was the subject of a criminal investigation in another country or a CTO who has been a part of multiple SEC violations can be embarrassing, and it can result in business partners and investors cutting ties with the company.

If you’re lucky, you simply have to pay out a year or more worth of salary and take a small dip your stock price. Moderna was especially lucky in that they did bounce back fairly quickly as far as revenue goes. However, the embarrassment has greatly damaged their reputation, and that may haunt them for years. Not every company experiences such minor damage from a poor hiring decision. Some go years without finding out that their CEO, CFO, or other executive has a dark past or often engages in illegal activity. These individuals could even use company assets to line their own pockets, putting the entire business at risk.

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Infortal Provides Deep Dive Due Diligence to Alleviate Risks

Many companies understand how to do basic due diligence and do regularly check at least the criminal backgrounds of those they hire. However, few companies fully understand how to do a deep dive into a candidate’s background. They do not have the tools or the experience to find some of this information. Others simply do not have the time.

Infortal has the skills, tools, and time to do these deep dives. If you’re preparing to hire an executive, you need to have a full picture of who you’re about to invite to join your company. To learn more about how we can help, contact Infortal today.

            

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