Definition

Due diligence (Ro: diligență minimă, raport preliminar extern de evaluare, audit intern, investigare, verificare, Gr.: δέουσα επιμέλεια Cz.: povinná péče) (See also: Audit, Examination, Legal & Financial Analysis, Inspection, Scrutiny, M&As, Hedge Funds, Corporate Governance, Tort Law, Negligence) =

(Broad meaning) The measures taken by a prudent, reasonable person in a certain situation in order to avoid the materialising of the potential risks. The term is used with this sense in tort law, related to negligence cases, but it can also be found in criminal law, referring to the cases when the defendant has to prove that he/she has done everything reasonably possible to prevent an offence he/she has committed (Ro.: teoria agentului model). 

(Specific meaning) The process of investigating a business, particularly before a merger or acquisition, a privatisation or other transaction. Its purpose is to verify its compliance with specific standards, under a variety of circumstances and to identify risks. In some cases, it can also be applied to individuals (e.g. before signing an employment contract). Although due diligence can sometimes emerge as a legal obligation, it is most often made voluntarily by companies, either internally or as a result of an external contract. 

 

Useful links

Online articles

http://www.marsdd.com/articles/securing-investment-due-diligence-process-in-venture-capital/ - MaRS, Due diligence process in Venture Capital

http://hbr.org/2007/04/human-due-diligence/ar/1 – David Harding & Ted Rouse, Human Due Diligence

http://online.wsj.com/news/articles/SB119810791163740721 – Rachel Emma Silverman & Sally Beatty, Doing due diligence on your donations

http://www.mckinsey.com/insights/corporate_finance/due_diligence_in_china_art_science_and_self-defense – David Kogman, Due diligence in China: art science and self defense

http://www.inc.com/articles/1999/11/15747.html – Inc., IPO Basics: Due diligence

http://www.divest.nic.in/due_diligence_process.pdf – Due diligence process

Reports

http://www.business-humanrights.org/media/documents/ruggie/ruggie-guiding-principles-21-mar-2011.pdf – John Ruggie, Human Rights Council, Report on the issue of Human Rights and Transnational Corporations and other Business Enterprises

Publications

Roodman, David, 2012, Washington, Due Diligence: an Impertinent Inquiry intro Microfinance, Center for Global Development 

Howson, Peter, 2003, USA, Due Diligence: The critical stage in Mergers & Acquisitions, Gower Publishing Company

Lawrence, Gary M., 1994, up-to-date 2004, New York, Due Diligence in Business Transactions, Law Journal Press 

Lajoux, Alexandra, Elson, Charles, 2011, USA, The Art of M&A Due Diligence, Second Edition: Navigating Critical Steps and Uncovering Crucial Data, McGraw-Hill Companies

Reuters, Thomas, 2012, USA, Business Due Diligence Strategies, Inside the minds

Gole, W.J., 2009, Due diligence: An M&A value creation approach, Wiley

Rosenbloom, Arthur H., 2002, USA, Due Diligence for Global Deal Making: The Definitive Guide to Cross-Border Mergers and Acquisitions, Joint Ventures, Financings, and Strategic Alliances

Camp, Justin J., 2002, New York, Venture Capital Due Diligence, John Wiley and Sons, Inc.

 

By Ioana Stupariu