Due diligence professionals have been deploying discreet referencing to understand the background and experience of their clients’ business partners and senior hires for decades. But despite businesses’ widespread use of this valuable research technique, we regularly encounter clients who have preconceptions about the practice and how they can use it as part of the due diligence process. Here are a few of the most common concerns we encounter:
1. It’s the last resort
Many buyers of due diligence have been conditioned to believe that commissioning discreet references or “human source intelligence” is only desirable when dealing with a particularly complex situation and after all other avenues have been exhausted. This arguably turns the benefits of discreet referencing on their head: source inquiries are really useful for taking a wide-ranging view of a person’s background and situation and can help to identify a range of potential issues at an early stage. They are much less likely to deliver success when looking for one specific piece of information that is known by a very small number of people. At Hopehead, we recommend deploying discreet referencing early in any relationship to understand the lay of the land. Then, if more detailed inquiries are needed about a specific issue later on, the information gathered in this initial exercise can be used to target the right people to talk to.
2. It’s too expensive
A big reason why due diligence buyers hang back from commissioning discreet references is a perception that it will be an expensive process. There is certainly cost associated with commissioning in-depth and reliable human source inquiries; however, referencing can be as focused or wide-ranging as you choose. Unlike more commoditised parts of the due diligence industry, referencing can be tailored very closely to client requirements – sometimes one good quality interview can provide all the insight required for a modest fee.
3. Discreet = Dodgy
Public controversy in recent years about journalistic practices including phone hacking and “blagging” have elevated a perception that commissioning discreet references equates to underhand or dishonest practice. This is a serious misconception: the whole rationale of discreet referencing is to obtain an objective and accurate picture of a person or situation and respectable providers of human intelligence will never seek to undermine this process through subterfuge or deception. Good quality source inquiries are always conducted on the basis of information “freely sought and freely given”, without financial inducements or tricks. To do otherwise would be a disservice to the client.
4. It violates GDPR
Data Protection is often cited as a reason not to divulge information about individuals and it follows naturally that assumptions are made about the giving or receiving of references. The essential first step in any project which involves the handling of personal data is to establish that you, the processor (and controller) have a legitimate interest in gathering data. Research as a prelude to forming a contract or partnership with an individual is a legitimate basis for gathering (and processing) information generally. Furthermore, and importantly, confidential references are specifically covered by the regulations. They are exempted from data subject access requests. This means that there is no obligation on the part of the giver or the receiver of a confidential reference to surrender that commentary to the subject of the interview even if they request the processor or controller to surrender the personal data that they hold. So, confidential references are actually safeguarded by GDPR.
5. It doesn’t “prove” anything
The last – and perhaps the biggest – wrap against discreet referencing is that the opinions of people who know an individual or situation can’t “prove” anything. This is, of course, true. Opinions aren’t facts. But buyers of due diligence should really consider whether the assessment of risk in a given situation is ultimately based on facts – or on a combination of secondary information about the past (news reports, partial litigation filings, association with other high risk individuals) combined with prognostication about the future. While facts are vital to the successful prosecution of a law suit, the assessment of risk is conducted according to a different standard. By this standard, the experience of people who really understand a person or a situation can be of far greater value than the limited information obtainable in the public domain.
Commenti