RELEVANCE OF DUE DILIGENCE AT THE TIMES OF COST CUTTING

The COVID-19 has posed an unprecedented challenge to the global workforce. This pandemic has incapacitated the global job market and governments all over the globe.

Some of the employment sectors that are most affected by the post-pandemic social distancing protocol include restaurants/bars, travel and transportation, entertainment, personal services, and most of retail and manufacturing. Since these sectors together account for a related higher percentage of employed persons, distress in such sectors have led to higher numbers of employee displaced from their jobs.

The International Labor Organization (ILO) estimates that more than 25 million jobs have been impacted due to the spread of Novel Coronavirus globally.

Companies both small and big, are badly hit by the present scenario, for many of them, just to survive is a challenge. Clark’s family of UK recently lost ownership of their flagship shoe brand Clarks to Chinese investors (Lion Rock Capital, Hong Kong). Even their century-old business couldn’t withstand the Pandemic onslaught. In the case of Clarks, the new Investors are entering into agreements with landlords of over 320 stores, called the Company Voluntary Agreement, which will ensure there are no layoffs and store closures for now. Mergers and acquisitions (M&A) is an easy solution for many to combat this situation and still maintain their brand name.

In this time of the unpredictable market, companies are only hiring skilled/experienced candidates to minimize their costs and increase their productivity in less time. As the market heats up, laid off and affected people are affected more and commit frauds to earn a living. Laid-off employees have been exposed to a Financial Pressure cooker situation. The Pandemic has imposed the Pressure, Opportunity, and Rationalization to commit unethical means that they may not have attempted. Needless to say, that they would attempt to get any job possible by hook or by crook. After all the Family survival is paramount.

This increases the Company’s challenge of hiring the right people. Hiring relevant and genuine people for a job has become onerous in the above-said circumstances. According to a survey 1 out of 6 job applicants lied in their resumes. False information on resumes is a regular feature these days. Surely, the Companies can’t afford to make wrong hires, especially during these pandemic times when resources are scarce.

Due Diligence is a good way to spot potential fraudulent business or investment opportunities as well as under-qualified executives. Due diligence uncovers barrier or risks be it a deal or recruitment. Making a deal or recruitment in absence of due diligence could turn out to be a significant loss of talent.

Due diligence, in the context of employment, refers to the process of investigating the background of potential employees that in turn helps a company in making a ‘Right Hire’. The process assists the company concerned to identify persons who are trustworthy and reliable for induction into the workforce. The process contributes towards building a workforce comprising people having the right social capital beneficial to the company.

Employees in ‘Start-up’ environments operate on a ‘close to each other’ level due to the restricted size of the workforce. Small companies do not usually have a large workforce, hence there also employees who share multiple responsibilities and work as a close-knit unit. A wrong hire can potentially affect the company’s efficiency and goodwill in the market place. Maintaining a better workplace is very important for small and big companies alike. Due diligence provides them an additional advantage to secure their overall investment in employees.

 

The relevance of Due diligence can be summed up as:

From Investors or Business perspective

  • Due diligence investigations allow investors and businesses to make informed decisions
  • Understanding of potential deal issues for investors, to develop appropriate negotiation strategies.
  • Lowers the risk of unexpected financial and legal problems
  • Enhances working relationship as it requires a great amount of communication between businesses or two parties involved when performing M&A

  • Good understanding of business competitors and industries
  • Provides valuable information to maximize the profit for the future

From an Individual perspective

  • Due diligence increases the credibility of an individual
  • Opens up new opportunities or possibilities
  • Understanding of exact market value

 

Due diligence provides “a more accurate, independent, and ultimately reliable view of the prospects”. Pre-employment screening helps companies safeguard their brand name, goodwill & hold, and expansion of the market.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

COMMENTS

  1. I am regular visitor, how are you everybody? This paragraph posted at this website is truly good. Philippine Benji Amalbena

    • MRKS India
      March 10, 2021 Reply

      Thank You!

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