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	Due Diligence: a Credentialed Profession While due diligence should involve checking representations with facts, and separating truth from fiction, there have been many case studies of due diligence failures globally writesDr. Linda S. Spedding.



Introductory Remarks

In today’s business world, the concepts of due diligence and corporate governance are of increasing importance. Both concepts have broadened as regards their scope and meaning. Indeed their application has also come to overlap as a result of the regulatory and voluntary frameworks that are emerging globally. From purely economic roots, they have come to encompass many aspects of corporate behaviour. Moreover, in view of the corporate scandals that continue to attract media headlines and demonstrate the need for improved due diligence and corporate governance, all organisations – regardless of their size or location – should regard these issues as paramount. An understanding and respect for due diligence and corporate governance make absolute business sense. Moreover, it is very important that any definition of due diligence is clear. Charles Francis Bacon, Founder of the Association of Due Diligence Professionals (ADDP), has referred to this in important ways that are quoted below. It is essential to set some parameters around the terms that we want to review and analyse since for due diligence, there is an endless variety of related words in the dictionary that we can apply. For the present purpose, it is not very useful to set out all of the available definitions, nor to suggest all the legal terms that appertain to due diligence. It is more helpful to propose a few meanings that support the premise and the background to the initiative to create a fully professional approach to those who undertake due diligence. For example Charles Bacon has defined traditional due diligence as: ‘…mainly a legal and financial course of action, first designed to avoid litigation and risk, second to determine the value, price and risk of a transaction, and third to confirm various facts, data and representations’. A variation on that definition is to: ‘Assist management to justify the price of a merger, acquisition, alliance or joint venture by verifying, validating and analysing available data.’ (Charles Bacon, CEO, ADDP) Due diligence activities, as with everything, needs a starting point. If there are talks about a possible merger, each party to the transaction must be willing to commence a due diligence activity. However, this is where the definition of the activity of due diligence can become blurred. In a merger situation, there would normally be a significant amount of due diligence prior to any informal or formal conversation. The diligence required is to determine whether there is enough information that can lead to conversations about a possible merger. Thus the starting point for any due diligence activity is never one single step with a single starting point. Consequently, the actions surrounding due diligence must be adaptable within a framework that places the organisation and its owners, employees and advisers in a constant state of data collection and data organisation into a comprehensive due diligence system that can support whatever process is being started. Therefore, a third definition of due diligence can be to: ‘Provide a framework within which organisations can continuously confirm that their actions and transactions are supported by the policies, procedures, and management decision-making methodologies.’ (Charles Bacon, CEO, ADDP) Billions have vanished and now banks, accounting firms, and regulators are being sued to try to satisfy the losses of the investors. Where were these “professionals” when it mattered? All claimed to have done “Due Diligence” yet the failures of their methods speak for themselves. While they may have been good accountants, bankers and regulators but they lacked the proper training in Due Diligence to actually know what questions had to be asked. The Association of Due Diligence Professionals (ADDP) The writer interviewed Charles Bacon to allow more awareness of this very important initiative and has set out below some of the key points. In view of the ongoing need for due diligence that goes beyond a pure transaction based approach, it is significant that ADDP has been founded as a non-profit organization in the USA to; establish formal Credentials Certification for due diligence professionals establish formal professional due diligence standards; creates a platform for what some commentators have described as the toughest enforcement regime in any jurisdiction; and provide forums for professionals to follow the rapidly evolving discipline of Due Diligence. ADDP is the first professional association to recognize due diligence as a unique and separate field, discipline, and industry. They provide the opportunity to earn the equivalent of a Ph.D. in Due Diligence. ADDP, in its early formation, was driven by a recognition of the need for an independent organization to proactively educate and assist with the understanding of Due Diligence to aid management make informed choices and lower risk by using an earlier version of the discipline, originally termed ‘management due diligence’. With a history dating back to 1984, ADDP brings the qualities of traditional Due Diligence together with a vibrant and contemporary understanding of the issues decision makers face. Charles Bacon distinguishes 21st century due diligence from traditional due diligence with the creation of Modern Due Diligence. ADDP was formally launched in 2009 and is the culmination of 27 years of pioneering efforts to establish the formal discipline of Due Diligence adapted to an increasingly complex world. Based on formal methodology perfected from extensive research, and tested in the real world, the guiding principles of the ADDP are pragmatic, practical, and predictable It has been indicated that the ADDP should fill the same role for Due Diligence Professionals that other bodies such as the Association of Certified Anti Money Launderers (ACAMS) has done for money laundering and Association of Certified Fraud Examiners (ACFE) has done for fraud investigations and recovery. Modern Due Diligence is a structured, systematic, consistent, and efficient methodology of gathering information to assist in risk assessment and decision management. In assessing the methodologies employed, The Due Diligence Standards from ADDP are used to assign precise, optimum, and practical procedural ratings to the overall process. It really is a science - so as to insure the right questions are asked. ADDP has Certification Programs bringing the due diligence discipline into the 21st century, to elevate the professionals ability to deliver choice support that is much stronger, dependable, defensible, and with the Due Diligence Index it is possible to rate (score) every part, every function of every organization and thus quantifiable. The ADDP also provide Modern Due Diligence Tools (MDDTs) bring the level of the full Modern Due Diligence science that may be too much for a given project, the ability, with the MDDTs to apply the science to more of everyday choices. ADDP has the infrastructure to support and continuously improve the discipline and ADDP’s Science of Due Diligence™. Local or global, ADDP is: providing education; setting standards; certifying professionals; being an advocate; developing tools and research for the profession of Due Diligence. Through membership of ADDP individuals and organizations can benefit from the training as much as the ongoing communications, writings and newsletters. Membership Information http://duediligenceassociation.org/ Membership has a two-fold benefit. It is about both gaining access to the knowledge base training and certification of the Modern Due Diligence System - but also - ADDP members get access to opportunities, should they come available, for research and consulting assignments as part of a network of ADDP professionals. These opportunities cover a wide range of due diligence requirements in firms ranging from large publicly traded companies to small consultancies. ADDP members can access these private resources to augment the Due Diligence services they provide. Additional information is available at or by email at: http://duediligenceassociation.org/ information@duediligenceassociation.org
DR. LINDA S. SPEDDING is an International Lawyer and Special Advisor to the Association of Due Diligence Professionals. The author would like to thank Burke Files who provided some of the information regarding the ADDP in his article published in the Aegis Journal in the United States in April, 2011.