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Due Diligence

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What is human due diligence?

In a nonprofit organization, as in many for-profit businesses, the people in the organization are its primary asset. Most commonly, human due diligence is an in-depth analysis of the management team, staff, structure, issues, and managerial capacity of a potential partner. In hostile takeovers in the corporate world, the acquiring firm may even go so far as to do a secret assessment of talent of a potential acquisition using investigative reporting tactics, business intelligence methods, and research into the leadership of a potential target.

Most aspects of human due diligence are not as quantifiable as financial due diligence. This does not make them less significant. In fact, in many ways they can be more significant and critical to the success of the merger than the financials. During merger negotiations and integration, attention and energy must be devoted to the real people issues. Human due diligence will help focus your attention on what will become the core of an integration plan.

Elements that are reviewed in human due diligence for nonprofits can include:

Employment Relations Issues and Practices: Does the potential partner have solid HR policies, procedures, and employment relationship practices?

Motivation of Workforce: Is the workforce of the partner generally satisfied, engaged, and connected to each other and the mission of the agency?

Appropriate Rewards Systems: Are the rewards system in the potential partner equitable, internally and externally? Are rewards tied to performance? Are people accountable for the work that they do?

Respect: Do management and staff respect each other? Is there respect for the board by the staff, and for the staff by the board? Are the clients spoken of and treated with respect?

Managerial Competence: How competent is the management team of the potential partner? Should some, or all, of the existing team serve on the management team of the new organization?

Internal Training and Development Functions: What are the existing internal training and staff development resources and functions within each partner? How has this been dealt with, or not dealt with? What will be the training needs in the new organization, both immediately post-merger and over the long-run?

Feedback and Learning Mechanisms: This is beyond performance appraisal. What mechanisms exist for staff to get feedback on their performance and on the effectiveness of programs and resources? Is learning a core value within the organization?

Alignment Internally: Is the staff internally aligned and connected to each other? How much resistance will be encountered during integration?

Connection to a Community: What is the level of connection to the local community in terms of reputation? What is said about the partner? What is the reputation?

Connection to Mission: Do the individuals in the organization, staff, management, and board feel connected to the mission?

Skill Sets: What skills, educational backgrounds, competencies are brought by staff? How replaceable or irreplaceable are the skills of the potential partner?

Organizational Capacity: Is the organization geared for growth? Do they have the resources, capacity, and flexibility to survive a major organizational transition?

Succession Planning: The existence of a succession plan is a good indicator of how well the organization thinks about the future. Has there been any thinking about succession planning on the senior staff or board level?