By Chris Cochran
I was intrigued by a recent statement about due diligence in an opinion piece on the Forbes website by Gale Simons-Poole, Chief Regulatory Relations Officer at BHG Financial: “Due diligence is a journey.”
I suspect many practitioners had an immediate, knowing, and positive reaction to that statement. If you said it on a Zoom call or at a conference session about due diligence, most heads would nod in agreement. If you said it on a street corner at a busy intersection, you might get an occasional head nod, but more often probably a head scratch.
The due diligence as a journey motif jibes well with thinking about due diligence as both an art and a science. I like to use that description to describe the process to clients. They might occasionally wonder why a particular due diligence search was taking longer to complete. While there are many precise, logical actions to take when performing due diligence (whether in the financial, regulatory, or reputational realms), just the facts as stated in a legal filing or other public record don’t always tell the whole story. For example, is there anecdotal information available that opens new doors or provides additional background that wouldn’t be picked up in public records? Are there red behavioral flags that should be discussed? Human beings are storytellers at heart, and telling stories is really the way humans best relate to each other.
The story of Yusuf Abdi Ali is a good example. He’s been accused of war crimes and torture as a participant in Somalia’s civil war in the 1980s. After that war he ended up in Canada and was identified in a 1992 documentary by the Canadian Broadcasting Corporation where it was alleged he tortured, killed and maimed hundreds of people in Somalia. Canada deported him, but somehow he was able to enter the U.S. around 1996 to live and work.
In the U.S., Ali managed to hold jobs as a security officer at Dulles International Airport near Washington, D.C., before driving for Uber and Lyft full-time. A civil lawsuit in U.S. federal court was first filed against him in 2004 for those alleged Somali crimes. Due to various legal rulings regarding torture victims’ ability to sue, it wasn’t until 2019 that he was found liable for torturing and shooting another Somali citizen and ordered to pay a half million dollars in damages. The story doesn’t stop there. U.S. Homeland Security Investigations finally arrested Ali on criminal charges in November 2022.
The astonishing thing is he passed background checks to work for Uber and Lyft well after the civil lawsuit was filed (but before the criminal charges were filed). The company that ran the background checks looked at criminal court records but not civil court records, saying “most employers don’t request background checks that include civil lawsuits between private parties because the information is too subjective to use for a hiring decision.”
My due diligence work has typically been done on behalf of investors or to vet loan application details for a financial institution, and I can assure you those clients would be interested to know about a civil lawsuit involving any kind of human right abuses. I suspect Uber and Lyft would have been, too. Identification of such a lawsuit and subsequent filings would have led to further research in most other due diligence investigations — there was a bigger, more disturbing story there. Uber and Lyft must request thousands of background checks on new drivers each year, but it seems they’re not looking at the whole landscape. Cost could be a factor.
Professor Aiyesha Dey of the Harvard Business School has done some interesting research in similar areas that speaks to the art and storytelling components of due diligence. She looked at personal behavior and character as factors that should be considered when a company is hiring a CEO. Her research shows that personal behavior can indicate which leaders might not be the best fit at a company. Behaviors aren’t facts, but actions taken as a result of those behaviors are. Talk about opportunities for storytelling (truthful ones, of course).
A preferred outcome in due diligence research is always to find nothing amiss, no red flags, and nothing that would harm an individual’s or a company’s reputation. But the subtleties involved in the process mean the analysis and outcomes may not be as clear cut as we think.
An Inquiring Mind 