Operational Due Diligence: 7 Essential Aspects You Need to Know

Operational due diligence is crucial for uncovering potential risks and protecting investors from financially devastating outcomes. When it comes to the pre-investment investigative process, company background checks that include these essential aspects will allow stakeholders to rest assured that their investment is in good hands.
By Tali Bartkunsky
September 12, 2022

Knowledge is power

Total transparency about the company with whom you would like to invest is vital to the success of any high-stake opportunity. As a result, when researching a company for a potential investment opportunity, an investor will be particularly attentive to the financial stability of the firm. However, an investor should also consider operational due diligence (ODD) to be just as fundamental when considering a high-risk transaction.

Comprehensive company background checks can reveal potential risks such as a firm’s reputational standing, legal liabilities, regulatory violations, etc. This kind of relevant information must be established upfront to avoid financially devastating outcomes. With well-rounded knowledge about all types of risks that could affect the success of a business deal, investors can make more informed decisions.

Top 7 aspects of a company Operational Due Diligence background check


Legal background

The legal section of a company background check will list all of the lawsuits where the company has been involved as a party. Although there are endless motivations for suing a company, its legal history is important to consider because it can indicate the firm’s integrity.

For example, if a company is named a defendant in numerous lawsuits, it can raise the question of why they have been regularly prosecuted. There could be a perfectly reasonable explanation, or it could be indicative of the firm’s negligence, malpractice, misconduct, or other related causes.

Large corporations can have hundreds, or even thousands, of lawsuits on record. While it may not be feasible to review them all, it’s possible to detect specific patterns that paint a larger picture that should be considered.

Some background check providers will even present significant cases where an investor should focus their attention.

Consequently, it’s critical to understand how and why the company was involved in a legal case and what the repercussions could be if the ultimate decision is to go into business with them.

Examples of common company-related lawsuits can include:

  • Securities fraud
  • Tax fraud
  • Discrimination
  • Harassment
  • Negligence
  • Class action
  • Breach of contract
  • Bankruptcy
  • Wrongful termination

2. Regulatory review

A regulatory review on an ODD process will include violations, transgressions, investigations, or any other significant events that came about as a result of the company’s actions against a governing authority.

An investor should pay close attention to this section, especially if a company is on a sanctions list. Sanctions lists are trustworthy sources that disclose penalties against individuals’ and companies’ disreputable activity. They showcase individuals and entities that have engaged in illegal activities. These lists cover a wide range of fields such as financial, medical, terrorism, human rights violations, etc.

A background check should also include a search for State Owned Enterprises (SOE) as there can be risks given close associations with government officers or PEPs.

Furthermore, a background check can reveal significant SEC disclosures made by the company. This information can indicate various types of risks that an investor should be aware of before making a final investment decision.


3. Assets owned

A research on a company’s assets is another essential part of a company background check. There are various segments in this section that are important for an investor to consider.

Intellectual property, for instance, is typically confirmed on a company background check. Notably, patents and trademarks are verified to validate ownership claims made by the company.

Additionally, if a company purchased any real estate property, it would appear in this section. An investor can review these records to see if there are any outstanding mortgages, foreclosures, or other considerable property-related events that could be viewed as a potential risk.

Moreover, a company’s liabilities in the form of a lien, UCC, or judgment would also be disclosed here. When it comes to any form of debt, this information is imperative for an investor to know.


4. Adverse Media

In today’s society, public opinion is heavily reliant on the media. As such, online articles can give investors an idea of whether or not a company has an upstanding reputation. Therefore, performing an adverse media search during a company Operational Due Diligence is yet another way to identify red flags.

A company’s reputation can provide invaluable insight into the prospect of positive or negative collaboration with them. Investors should consider adverse media articles as an essential part of the pre-investment due diligence process, as the stake of an investment could be compromised if it’s placed in the wrong hands.

Not only that, but adverse media checks can reveal insights that might not have been picked up in another part of the background check. For example, if shady allegations against a company were to make headlines, but the accusations didn’t result in the filing of a lawsuit, that information could slip between the cracks without a proper media check.

Conducting an effective adverse media check cannot be accomplished with Google searches alone. An adverse media check on a company background check can increase transparency and help investors properly evaluate risk.


5. Key people

The reputation and credibility of a firm are not only affected by the organization’s performance; it’s also intrinsically linked to the integrity of its top-level management.

Operational Due Diligence should include thorough background checks on executive members of the company. This could include C-suite executives, board members, senior administrators, etc. A baseline check can reveal if there are high-risk events associated with these individuals that need to be brought to the attention of the investor.


6. Professional licenses

A company background check will confirm any licenses that a firm is required to have in order to operate. For example, an investment adviser must acquire authorization from the Securities and Exchange Commission (SEC). Having the proper permits and approval is significant for investors to know to verify that a company is lawfully conducting business.

Furthermore, a license search can reveal potential regulatory concerns. Certain industry regulators will require a firm to disclose matters such as investigations against the firm, customer controversies, or other adverse incidents or events. By conducting this search, an investor can uncover risks that could have a negative impact on the deal.


7. Additional background information

Moreover, company background checks highlight other important information such as a company’s registration details, credit history, previous name changes, reorganizations, mergers, or acquisitions. It can also include matters such as if the company conducts business under a different name or has alternative names.

These seemingly trivial details have the potential to cause major repercussions if investors are unaware of them. The more investors know about the company, the better equipped they are to make critical investment decisions.

Prioritizing risk management

When it comes to proceeding with a business deal —transparency is key. A reliable and accurate company background check is therefore critical in identifying potential risks that could derail an investment opportunity. With these seven essential aspects, investors can properly evaluate a company’s background and come to a sound decision knowing all of the facts from the start.

The Intelligo solution

Intelligo’s comprehensive company background checks help investors make more informed business decisions by providing an extensive overview. Intelligo’s SaaS background intelligence platform, Clarity, leverages AI to sift through hundreds of thousands of data sources, extract relevant information, and flag any potential areas of risk for further consideration. Seasoned analysts then review and confirm the results, providing investors with assurance that their investment is well placed.

Furthermore, with features that support effective collaboration amongst team members, Clarity is a powerful digital platform for streamlining the due diligence process. Not only is Clarity known for running exceptional, high-quality background checks, but it’s recognized for enhancing an organization’s workflow management. The platform allows for correspondence, actions, and discussions to occur all in one place. This central hub of activity keeps internal processes organized, current, and coordinated—providing investors with an all-in-one service for their due diligence needs.

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