Due Diligence for Business (EDDB) 604

Overview

Due diligence is considered a fundamental aspect of business risk analysis and is a requirement in many aspects of business. Enterprise Risk Management systems require due diligence be conducted to assess risks on an ongoing basis, as standardized in ISO 31000 and ISO 31010. However, often companies do not understand the sources of the risks, how to properly assess the risks, nor how to make decisions once risk factors are understood.

This course looks at aspects of the due diligence process from the following perspectives:

• Part 1 - What are the issues and risks that need to be investigated?
• Part 2 - How do you investigate those risks?
• Part 3 - What do you do with the results of your investigations? How do you use the information to make good decisions?

How does due diligence investigation relate to CSR and ethical policies of the company? This will be discussed throughout the course.

The course does not focus on specific financial risk issues such as whether the product will sell, how profitable the operation will be, and similar normal business risks. Rather, it focuses on the broader risks (both national and international) that companies face, based upon the environment in which they will operate such as:

• Political risk – What is the political milieu in which the business is operating and what are the ramifications if the government changes, or the existing government dramatically changes policies?
• Corruption risks – What are the corruption risks in the region and how will they affect the operations of the company?
• Business and human rights risks – What are the human rights risks to the company (e.g., unlawful searches and seizures, jailing of employees) and what human rights risks does the company face in regard to outsiders (e.g., social licence to operate, Indigenous rights, employees, community)
• Legal risks – What is the legal environment in which the company operates; what are the ramifications of potential changes to that legal environment?
• International political risks – Risks of sanctions or tariff impositions that may affect the ability of the enterprise to function profitably.
• Reputation risks

In order to assess risks, the existence and scope of such risks must be understood. While this seems axiomatic, reality is that few people are aware of the risks discussed in this course and therefore, companies tend to make poor business decisions as they did not understand the risks. Thus, the course will examine how to determine what risks exist and how to understand the sources of those risks. Once the risks are understood, then the process of investigation of the risks can be undertaken in a systematic way. However, the investigation of the risks worldwide often requires the use of outside experts. Finding those experts is an important element in the due diligence process, thus the course will look at how to find the necessary expertise.

Once the risks have been identified and investigated, the results must be then analysed in order to decide the level of risk and how that may impact the company. The company can then look at what tools or techniques can be used to reduce those risks. Next, the company must look at the risks, with the mitigation tools in place, and assess how their CSR and ethical policies relate to the risks in order to make a properly informed decision.

This process can then be applied to undertaking due diligence in merger or acquisition transactions or assessing business partners or third parties, such as agents.

Thus, the course is highly interdisciplinary in nature. It will combine aspects of ethics, corporate social responsibility, corporate governance, international politics, international law, domestic politics, domestic law, securities regulation as it affects business decision making, reputational risk issues, mergers and acquisitions issues, and human rights and business concerns.

Objectives

• Understanding that good business decisions require sophisticated assessment of risks based upon an interdisciplinary approach. Many business fiascos have resulted from failure to understand this concept or inability to bring this approach to the decision-making process.
• Understanding that because of the foregoing, it is usually impossible to find the necessary expertise in-house. The course assists students in determining what outside expertise is required and how to best choose such analysists.
• Recognizing the importance of ongoing risk assessment throughout the life of the company, as these risk factors change often.
• SWOT analysis requires a very complex understanding of the risks and opportunities, based upon the interdisciplinary approach used in this course in order to be effective.
• Understanding that the identification of risks is only the first step – how to evaluate the risks and determine the best course of action is a very complex process, based upon ethical considerations, long term goals of the company, and the competing perspectives of the various corporate stakeholders.

Evaluation

Activity	Weight
Participation in weekly forum posting	30%
Group Assignment 1	20%
Group Assignment 2	20%
Final Individual Assignment	30%
Total	100%

Important links

• Graduate Diploma in Management (GDM)
• Contact an Advisor
• Master of Business Administration
• Accelerated MBA for Executives
• MBA for Accountants
• MBA for Health Leaders
• MBA for Supply Chain Management