Ethics in due diligence

This topic contains 14 replies, has 13 voices, and was last updated by  Suwinto Johan 2 years, 1 month ago.

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    Lisa Chan

    Sometimes a DD team is working at the direction of top management who already gears to decide to buy a Target prior to any due diligence. DD team may simply the due diligence procedures or even tune up the due diligence report in favor of a “buy” recommendation. The outcome could be undesirable and unfair to the shareholder of acquiring company. For instant, I saw a real case that the DD team failed to locate an original title deed of a real estate property before or even after completion of a deal.


    Lisa Chan

    Could there be a standard for ethics in due diligence? Should the judgement line be different between buy side and sell side?


    Albert TAN

    i feel that ethics is difficult to enforce in a buy and sell situation. It is a buyers beware market. Of course, the sale and purhase agreement can cover one legal liability by warranties to avoid a bad deal. But what else can one do ?


    Alexander Eck

    In an ideal world, you need to correspond to your boards’ wishes but I would always make sure you have something in writing pointing out cautiously what you believe goes wrong. If I were playing with my own money, this issue sometimes happens when walking into the deal in a preconceived manner… but that’s a different story:)



    I believe as professionals we owe a duty on honesty and integrity to our clients. Being willing to express concerns and document them is vital in the event of future legal issues.


    Enrique Blanco

    Although a M&A operation is quite straight forward in terms of legal & financial aspects, ethics can also play a vital role in the process.
    As a seller, we should oblige ourselves to share as maximum information to the potential buyers as maximum regardless how controversial it may be.
    As a buyer if we confront unethical situations, a mitigation plan should be implemented accordingly? Should we, for example, notify the authorities that we’ve been aware that in the past the target company has conducted any illegal activity? Should we accept privileged information that could benefit us in securing the M&A deal?
    No matter what type of operation we are dealing with, ETHICS always comes first (or at least that should be the case…)!



    This brings a very interesting question. I love the way you put it Albert, “buyer beware”. We have regulatory watch dogs for all kinds of industries and transactions yet it seems like corporations, especially the larger ones, are on their own when negotiating a M&A deal. Might be an opportunity for some organization to create an ethics certification for M&A. For example, the CFA Charter for financial services is very heavily weighted on ethics (and exceptionally difficult to obtain) and if you are a charter holder and found to be “unethical”, you lose your charter. If there was an M&A industry standard for Ethics that one could obtain that validates them above other people who don’t have it, it would self regulate. People work hard, pay fees etc to obtain the M&A Ethics Certification which makes them more desirable to employers and potential clients but if they are found to be unethical by regulatory standards, they lose the certification.


    Ethics must be a standard in our business life as it must be in our life in general.
    In business and as leaders the difference is that we do not play with our own life but we play with the life of hundreds and thousands of stakeholders involved, so there is no room to play around.
    Regarding M&A’s and during DD process either a buyer or a seller we have to be transparent and honnest, disclose them upfront and possibly include in the valuation any potential issue existing in the business.
    In case we discover unethical practices or actions simply walk away…


    Gabriele Frigerio

    I am extremely interested in topic. I assume ethic aspect should be on topic of DD process.
    For instance any hiring of consultants should take this pillar into account.


    Christoffer Balieu

    Although I do not believe it should or could be legally enforced, I still think M&A advisors on both the buy- and sell-side should adhere to a high ethical standard. Ideally, the sell-side advisors should make all relevant information on the target readily available for the buyer to assess. The data room should, therefore, allow for a fair assessment of potential DD risks within the company, which ought to minimize potential surprises for the buyer post-deal. As mentioned in a previous comment, it would be a good idea to have an M&A industry standard for ethics. Buy- and sell-side M&A advisors could thereby attain this certification, which, if widely recognized, would ensure potential clients that this particular advisor adheres to a high ethical standard.


    Shayekh Ahmed

    I take a personal angle to this issue. As an accountant, I would perform the DD to the best of my capability and will standby my decisions. Due to my integrity and honesty, if my jobs in jeopardy, I would leave the company at my own will. How would you create value, if all the hard work done during DD does not creat value to the process?


    Shayekh Ahmed

    However, Due diligence costs a significant amount of resources and fundamental to the success of the M&A. Results of the DD should be Incorporated into corporate governance. This should be presented to BOD for the final decision making.


    Josh Liang Wee Ooi

    I’m not sure if its really an issue of ethics during DD. To some sense I don’t think investigating parties would ethically violate doing a proper DD. Sellers would of course try to ‘manage’ a DD to ensure the deal for their shareholders, but even then I believe that with all the legal clauses in place and the fact that many sellers will end up working for the buyers, there is some degree of check and balance built into the process.

    There are also other mitigating factors such as time and resource constraints that prevent full DD being completed. Thus it is always a matter of identifying the key risks and being able to address those. Of course any deviation from base assumptions that materially affect a deal need to be highlighted, but that’s more a company culture thing than an ethics issue IMHO. Also, there needs to be a sense of accountability in place for those conducting the DD and those approving the deals.


    High ethical standards should be maintain as professionals. Recommendation made by professional advisers should adhere to several legal entities. If you work for shareholders, please be professional enough by putting a clause to protect yourself. If the document is not there for you to inspect put a note or clause to protect yourself.


    Suwinto Johan

    I believe there is an ethics in due diligence. We did sign the confidentiality agreement and other things. Therefore, it should be have a high ethical of conducts.

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