Due diligence is a review process carried out by an independent, unbiased and objective professional. It is done on behalf of an interested party or a stakeholder(s) for the purpose of assessing the legal and financial risks of an organisation and to provide relevant information that will facilitate decision making.
There are different types of due diligence, depending on the purpose for which the due diligence is carried out (financial, legal, administrative, human resources, asset transfer, mergers & acquisitions, vendor, operations, etc.).
It is important to tailor the due diligence process to the nature of the organisation and to the purpose for which the due diligence is carried out. A due diligence process carried out in the context of a commercial setting (such as in merger & acquisitions or public offering) is very different from the needs of a research infrastructure and will usually not be suitable.
When would a research infrastructure require due diligence?
In the context of research infrastructures, due diligence may be carried out in any of the following circumstances:
- Transition from one legal entity to another, when the assets from the old entity are transferred to the new entity (by way of an asset transfer agreement). For example, transition from a national legal entity owned by participating organisations to a European Research Infrastructure Consortium (ERIC) with member state participation.
- Significant changes in the management of the research infrastructure, for example when a new CEO or a Director General enters into office and wishes to have an objective and professional overview of the legal, financial or project-related risks that she or he are ‘inheriting’.
- A periodic investigation ordered by the General Assembly that wished to receive a ‘clean bill of health’ and reassurance of the long-term sustainability and economic stability of the research infrastructure.
- Any ad-hoc circumstances that require an independent assurance that an organisation's risk management, governance and internal control processes are operating effectively.
How does a research infrastructure due diligence look like?
Depending on the focus of the due diligence process (financial, admin, legal, project-risk related, etc.) the due diligence process would usually include the following components:
(1) Define the goal and purpose of the due diligence process.
(2) Identify the relevant stakeholders on whose behalf the due diligence is carried out.
(3) Appoint a professional independent reviewer with sufficient knowledge and experience of how research infrastructures operate, managed and a good understanding of their legal form and governance.
(4) Establish a team of external professionals (such as a lawyer and a financial auditor but may also involve one or two internal staff members) for the purpose of carrying out the due diligence in lights of (1) above.
(5) Carry out a thorough review of relevant financial and legal documents. The review may also look at processes, procedures and authorities, and use tools such as questionnaires and interviews with relevant staff members or requests for presentations of additional information.
(6) Assess the information collected in light of (1) above.
(7) Draft a due diligence report to be submitted to stakeholders on whose behalf the due diligence is carried out.
Important is that the due diligence is tailored to the needs and purpose identified by the stakeholders, taking into account the nature and structure of the research infrastructure. It is supposed to deal with issues that are fundamentally important to the survival and sustainability of the organisation and to provide members of the General Assembly and senior management with assurance that helps them fulfill their duties to the research infrastructure and its stakeholders. The ultimate goal is to help research infrastructures to succeed.
How can X-officio help?
X-officio is particularly well placed and has the relevant knowledge and experience to carry out research infrastructures due diligence. We will be able to tailor the process to your needs, put in place the relevant team and enable stakeholders to achieve efficiencies in their review of the operational, legal and financial sustainability of the research infrastructure.