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A growing number of companies are turning to ‘ethical due diligence’
before they embark on partnerships, mergers or takeovers of other
businesses.
An analysis by the Institute of Business Ethics suggests that such pre-deal checking – which it defines as ‘obtaining and judging information of an ethical nature about potential business partners and ventures as a prelude to a business transaction’ – is now more widespread.
The findings, based on in-depth interviews with more than 20 organizations, including Deutsche Bank, HSBC, Man Group, and Xstrata, have been released as stock markets are approaching all-time highs. At such times due diligence can be quite cursory, suggesting that now there is generally a greater sensitivity to intangible risk in corporate valuations.
Among companies that have begun to use ethical due diligence is Shell, which vets potential business partners to see if they conform to its business principles on sustainable development, human rights, the environment and transparency. The IBE says demand for such procedures has also led some consultancies, such as Environmental Resources Management (ERM), Control Risks Group, and Scott Wilson, to develop services in this area.
ERM said that social and ethical issues are ‘only occasionally found to be deal-breakers’ at present, but that some businesses feel ‘a clear advantage is gained by having such knowledge in the post-acquisition phase, as it allows a more rapid implementation of risk mitigation plans’. ERM has recently carried out ethical due diligence for corporate clients in biofuel and mining deals.
In two separate previous studies, the KPMG consultancy and the Enhanced Analytics Initiative, an investor group, both warned that due diligence is hampered by poor understanding of the associated social and environmental risks (EP6, issue 3 and EP8, issue 11).
The IBE says: ‘Traditionally due diligence has involved an examination of the third parties’ financial position and business record, but the growing pressure on companies to show they behave responsibly has added an ethical dimension.’
An analysis by the Institute of Business Ethics suggests that such pre-deal checking – which it defines as ‘obtaining and judging information of an ethical nature about potential business partners and ventures as a prelude to a business transaction’ – is now more widespread.
The findings, based on in-depth interviews with more than 20 organizations, including Deutsche Bank, HSBC, Man Group, and Xstrata, have been released as stock markets are approaching all-time highs. At such times due diligence can be quite cursory, suggesting that now there is generally a greater sensitivity to intangible risk in corporate valuations.
Among companies that have begun to use ethical due diligence is Shell, which vets potential business partners to see if they conform to its business principles on sustainable development, human rights, the environment and transparency. The IBE says demand for such procedures has also led some consultancies, such as Environmental Resources Management (ERM), Control Risks Group, and Scott Wilson, to develop services in this area.
ERM said that social and ethical issues are ‘only occasionally found to be deal-breakers’ at present, but that some businesses feel ‘a clear advantage is gained by having such knowledge in the post-acquisition phase, as it allows a more rapid implementation of risk mitigation plans’. ERM has recently carried out ethical due diligence for corporate clients in biofuel and mining deals.
In two separate previous studies, the KPMG consultancy and the Enhanced Analytics Initiative, an investor group, both warned that due diligence is hampered by poor understanding of the associated social and environmental risks (EP6, issue 3 and EP8, issue 11).
The IBE says: ‘Traditionally due diligence has involved an examination of the third parties’ financial position and business record, but the growing pressure on companies to show they behave responsibly has added an ethical dimension.’
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