Due diligence and non-executive directors' induction
Resource summary
This guide was written by Lucy Grey, Associate at Coffin Mew LLP and is for general information only. Last updated April 2011..
What is the purpose of due diligence?
The principal purpose of due diligence is to obtain as much information as possible about a company to enable a prospective non-executive director to decide whether joining the company is as good an opportunity as it first appears! Due diligence is similar to undertaking an audit allowing the prospective non-executive director to assess the risks posed by involvement in a company, its governance procedures and financial management and its strategic aims and objectives. The exercise may reveal the main areas of input requiring the non-executive director’s attention. Alternatively it may provide some idea of just how much hard work will be required to kick things into shape!
Due diligence should also take into account the wider picture - the market a company operates in and its major competitors and the strengths, weaknesses, opportunities and threats inherent in the operating environment. Depending upon the type of business a company is engaged in and the role that a non-executive director is going to play in its future, it may also be advantageous to examine a company’s marketing initiatives, research and development, sales and production projections.
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