I read an article this week by Jeff Berkowitz, founder and CEO of Delve, a competitive intelligence firm. They help companies assess political and reputational risks. He raised an interesting and important question. Should investors add politics and reputation to their life of due diligence? Jeff’s answer to this is yes, and he makes a solid case for it.
As we’ve mentioned before in our articles, Elizabeth Holmes, founder of the now failed Theranos, was a prime example of just how important investment due diligence is. We like to assume most savvy investors are doing the obvious due diligence such as director research. Plus, making sure the financials add up. However, that may no longer be enough.
More Thought To Risks
As more industries face more public judgement and increased regulatory and policy pressures, investors need to give greater thought to potential political and reputational risks. Albeit, your deal may not be as high profile as Holmes and Theranos. But, in this day and age of heightened scrutiny, learning from such tales will pay off.
An example of the consequences of not doing such due diligence is WeWork’s founder Adam Neumann, and his affordable housing venture. His business partner, Marc Andreesen was simultaneously publicly opposing low-income housing in his own wealthy community. Yet he was championing such low-income housing being built elsewhere in other areas. He just didn’t want it on his own turf.
This unfortunate incident showed exactly how incorporating thorough political and reputational due diligence can protect investors not just from possible embarrassment, but from avoidable financial losses.
Areas To Assess In Due Diligence
To ensure you can achieve this, there are three key areas of risk to assess:
- Management and operations of the company you are investing in.
- The company’s policymakers and stakeholders that can impact it.
- You own business practices and any public statements that could raise a red flag in a deal.
Politics and Reputation may not be the first things that come to mind when vetting a company for an investment, but they should be areas to really think about. Any negative press can affect the potential return of your investment. If you need assistance with any due diligence before or after you’ve made an investment, Get in touch with us now on 0207 504 1300.
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