We come across the term Due Diligence in many contexts as part of our everyday lives.

Indeed, Due
Diligence is used in a wide variety of contexts and fields including finance, legal, and commercial
transactions. Often, we are also advised to do our Due Diligence before embarking on a new
venture.

So, what does the term Due Diligence mean and why it is important in HRM or Human Resource
Management processes.

To start with, Due Diligence refers to the practice of identifying, assessing, and deciding on whether
a particular project, a job, or a commercial transaction is worth the effort and whether one would
land in trouble because of it.

Indeed, Due Diligence essentially refers to whether we have gained enough knowledge about a new
venture and has essential information to make an informed choice.

In the HRM context, Due Diligence is very important as without due process of risk identification,
assessment, and decision making, there are chances that a new hire or a new recruit would cause
more harm than good to the company.

For instance, if the HR manager decides to hire somebody, then he or she must first do a thorough
background check on the prospective employee, and then must assess whether that particular hire is
suitable for the position or the role that is being filled.

In other words, there must not be a proper assessment of the suitability of the candidate for the
position to be filled in addition to finding out whether the prospective candidate does not have a
criminal record nor has a past that he or she is concealing.

The Perils of Not Doing Due Diligence

So, what might happen if organizations do not do their Due Diligence when hiring employees? First,
the particular employee might have faked his or her experience and furnished false information on
their resumes.

This would mean that such a candidate would not be suitable for the role and might struggle to get
work done or underperform on the job.

In addition, providing false information or window dressing the resume means that the organization
would be providing him or her more compensation than deserve.
Next, in case due diligence is not done before hiring, it can also lead to potential legal troubles in
case the employee steals confidential information or indulges in IP or Intellectual Property theft and
other misdemeanours.

Indeed, not doing due diligence can have disastrous consequences for organizations for these and
other reasons such as employing people who are plainly not suitable or unfit to join the organization.

Due Diligence is Not Restricted to Organizations Alone

Next, is Due Diligence restricted to the organizations alone? Or, is it that prospective employees too
must do their due diligence before joining organizations.

Indeed, Due Diligence is a process that applies equally to employees as well and in such cases,
prospective hires must ascertain whether the organization is genuine, pays on time, and is not
collecting money with the promise of employment and other such illegal activities.

In our working careers, we were often advised to do our due diligence before joining organizations
and look out for signs during the selection process as to whether we would really fit into the
organization from all angles.

Thus, Due Diligence is something that all parties in the HRM processes must do for conducive and
mutually fruitful and beneficial longer term relationships.

How Firms Do Due Diligence

Having said that, it is also not the case that we would know everything in the Due Diligence process
and more importantly, might be unsure on how to do it.

For instance, most Multinational firms use the services of professional background checkers who
then conduct a thorough check on the prospective employees.

In the United States, background checks are easy because the SSN or the Social Security Number
that each resident takes is a one stop source for all public and sometimes private information about
prospective candidates. Similarly, in the Indian context, the Aadhar number is being used to track
people’s activities.

How Individuals Can Do Due Diligence

In addition, most individuals who do not have the resources or access to professional legal and other
entities who do background checks often rely on word of mouth or other such means to assess
whether they should join the company or not.

For those of you who are interested, the online portal, Glassdoor, often has information on how
organizations treat their employees, the anonymous comments from present and ex employees on
the working conditions, and even space for asking questions on all the doubts that one might have
about such organizations.

Indeed, more often than not, the internet is the best medium for conducting due diligence mainly
because of the variety and range of details that it has on all companies.

Conclusion

Lastly, Due Diligence is a loaded term that can mean a range of options and processes, and hence,
both HR managers and prospective employees should tread carefully when they start their due
diligence.

After all, everyone has something to hide and hence, taking the Due Diligence too far might result in
no new recruitments.

On the other hand, we are not advising companies to hire those with dubious records. Jus that there
should not be too much caution and at the same time, there should not be too much leniency.

Thus, there must be a middle ground where the parameters for the Due Diligence process are met
and at the same time, there are no important details left out.