We Interview An Executive Interim Manager about Due Diligence

Why do you think Executive Interim Managers are used so frequently for Due Diligence projects?

Mergers and acquisitions can be times of great opportunity but they are also a time when HR Directors find themselves caught short without the skills readily available in their team to deliver the first step of conducting Due Diligence on the potential target.

Often It’s also highly confidential and the due diligence work involves going offsite or maybe even to another town or country.

For HRDs it’s often a case of continue as normal but we also want you to bolt this massively important project onto your existing goals!  They generally don’t have the permanent resource to cope with the workload.

What’s your starting point when you head into a Due Diligence project?

Most acquisition projects have code names so the first step is to find out what it is.  You look pretty silly when other people are talking about Neptune and you think it’s some new Disney film!

There are certain well-established protocols that are followed when heading into this type of project.  The Terms of Reference are usually agreed between both companies and these will determine what information you have access to, what you can and cannot take away with you and what the strict boundaries are.  These are always highly confidential processes so you need to be sure to adhere to the rules.  Make sure you know exactly what the parameters are; who is aware of the project and who the other members of the Due Diligence team are.  Who you may or may not speak with.

Then find out exactly what your objectives are and what can be summarised, detailed or copied.   Check security arrangements and what other resources, facilities and technology will be made available.

Get all of this in place because once you start on the Due Diligence itself you need to be able to fully focus on it, with no distractions.

Do you work individually or as part of a team?

 Definitely as part of a team.  Although each member of the team has their own objectives there are areas that cross over.  So, for example in HR it could be that shares or pensions are managed by another department so there needs to be liaison between team members to make sure nothing falls through the gaps.

For those who haven’t been involved in a Due Diligence project, could you outline the main pieces of information you would expect to collate as part of the process?

You could expect any of these following areas to be collated.  Sometimes there are more areas than this, sometimes less.  It depends on the HRD’s requirements and the level of detail for each employee will often be determined before starting.

Usually, the starting point is to pull together an accurate and detailed Org. Structure showing all job titles, current incumbents and any vacancies. It’s a basic that can get overlooked in the early stages but at the start of the project you need to get a good handle on who the people are that may be involved in any acquisition.  The last thing you want is to miss off a person or a whole department!

It’s also important at this stage to identify who is an employee and who is a contractor/casual/outsource provider.  This helps decide who the acquiring company may have liabilities and responsibilities towards.

How detailed do you have to be?

This is generally established in your objectives and can vary depending on the size of the company to be acquired and the information made available but as a minimum detailed information is usually required for key people.  Once key personnel (generally managers, senior specialist and directors) are identified as much background information about them as can be gathered is pulled together.  This would include a summary of their skills and experience along with any biographical data or employment history.

Then, and ideally by person, we would start compiling and detailing their employment terms using their contractual agreements as a starting point.

Mostly, so as to give a good indication of trends and any recent unusual changes in a person’s terms, these details are tracked back over a period of three financial years.

Examples of the type of information recorded for each of the past three years would be;

  • Basic salary information

  • Superannuation payments

  • All cash and non-cash benefits

  • All bonus payment

  • Incentive payments

  • One-off payments

  • Notice periods

  • Holiday entitlements (including any accrued holiday)

  • Long-service leave

  • Non-compete clauses

  • Details of any Golden Goodbyes or other special arrangements that might come into effect if an acquisition occurs and detailed or noted against each recipients name

Then we’d also be looking at data concerning such as;

  • Profit sharing and/or share schemes

  • Deferred compensation agreements

  • Incentive and/or bonus schemes agreements

  • Relocation arrangements

  • Any other one-off arrangements

  • Pension arrangements

  • Retirements plans

  • Worker’s Compensation Claim

And as if there is no end to the stream of data we’d collate copies of all documentation relating to commitments made as a result of policy implementation such as loans, clawbacks, tuition fees, guarantees etc.

Some of this data would be entered on spreadsheets, some used as documents to refer to.

From an Employee Relations perspective, we’d also look at any agreements relating to any Union, Enterprise or Modern Awards Agreements including any disputes covering past 3 years, current and anticipated.

Plus, of course, access to employment policies and procedures.

Do you look at anything to do with people who may be affected or only just employees?

It isn’t limited to just employees as HR departments may have entered into agreements that roll on for a number of years.  So I’d want to access any agreements with external HR consultants or providers, including any outsource providers such as payroll, recruitment or training agencies, EAPs etc.

And what happens after all this information is gathered together?

 Basically, it’s used, along with the results from the other areas covered by the Due Diligence, to make an assessment if the acquisition is a good business proposition for the acquiring company.  How and where that assessment is made is covered by the Terms of Reference, previously agreed by both companies.  It’s all very tightly controlled and only those with authorisation have access to the data.

It sounds very labour intensive, is it stressful?

 Yes, it is labour intensive and it can be very stressful, particularly if information isn’t there or is hard to decipher.  You need really good spreadsheeting skills and need to be able to handle large quantities or data, sometime complex.  It’s also very important, I think, to have a good handle on remuneration and benefits as that’s a big focus, particularly if you are the only HR person on the team.

And if there are three top attributes you think a good Due Diligence EIM requires, what would they be?

For me top would have to be attention to detail, then next the ability to deal in an orderly way with complexity and finally, a calm disposition!