Executive Due Diligence

 

All offers of employment and contracts state that they are “subject to obtaining satisfactory references”.  Just how often are these references actually satisfactory? Are they objectively sourced, or do they come from nominated referees where there might be either an existing personal relationship or a vested interest? Equally, does the person taking the reference have a vested interest in the outcome?  So, how objective are they really? Does the employing company unwittingly accept a level of risk which they had intended to mitigate?

A skilfully sought reference not only validates the claims of the individual in question, but equally gets beneath the skin of who they are as a person and how they operate in certain circumstances. Understanding their leadership and management style undoubtedly contributes to mitigating the risk of tissue rejection and, at worst, forewarns the potential of underperformance.

There are numerous examples where senior executives have been appointed to leadership roles without thorough and objective due diligence with some significant consequences.   Some companies and Nomination Committees, require psychometric assessments as a method of predicting performance likelihood and to show they have done as much as possible to mitigate the risk of a failed appointment.   Many still feel, however, that intelligent and thoughtful reference taking provides more accurate insight to how a person is likely to perform, what environment suits them best, what support they need to be successful and of course, any areas of concern or for development which, if left unidentified, might  disable further down the line.  The best predictor of future behaviour is, arguably, previous conduct and a skilfully taken reference can validate performance claims and test probity and integrity.


Where Executive Due Diligence has a role to play

  1. Public Companies  
    1. All senior executives, especially if they are to join the Board or are being appointed as part of the longer term succession plan. 
  2. PE Companies
    1. Chairmen, CEOs and FDs in particular as part of the pre investment due diligence process.
    2. Quality of management capability will add to enterprise value.
  3. Professional Services Firms
    1. Partner and Senior Director hires for firms which sell advisory services and trade off the provision of judgement with legal consequence.

Executive Due Diligence Output

In addition to providing performance and capability insight, thoughtful and discreet references provide a data point for the appointed individual’s transition and integration process. They help prioritise the development interventions needed to maximise career potential and equally will indicate the type of complementary skills the individual will need in terms of support to underpin performance.