Risky Business

by Karen on February 18, 2011

I’ve been on the buying side and the “we’re for sale” side of corporate purchases.  Through the extensive due diligence efforts witnessed when on the “for sale” side, I was shocked at how little all but one of the 10+ organizations that put us through the due diligence ringer looked at customer, employee and supplier relationships.  A look at only the financials is a picture of right now but certainly doesn’t tell the story of what lies ahead.

When on the buying side, the corporate team assembled was also heavily focused on the financials and sadly light on relationships. Although frustrating, I did gain insight into why so many organizations don’t bother to look at the organization’s relationships.  It is because, as a buyer, and usually the stronger party, it is assumed the relationships are easily fixable, all it needs is a better owner.  Arrogance.

Well, the truth is that sour customer relationships likely translate into frustrated employee relationships and cantankerous supplier relationships.  All of which add up to time and money, and possibly an irreversible downward trend.  Unless, of course, the buying organization is really only purchasing the hard assets:  land, building, equipment, and so on.

I was thrilled to read that the Canadian Institute of Chartered Accountants recently released a discussion paper that identified three often overlooked factors to consider when evaluating the risks of an organization:

1)    Customer dissatisfaction – recommending interviews with current, past and possible customers

2)    Dazzling reviews – warning not to be fooled by third party risk reviews

3)    Supplier relationships – number of suppliers and strength of relationships

*I would add employee relationships.

We have worked with clients that take the health of relationships so seriously that part of their due diligence process included PROVOKE.  We were asked to look into the health of the employee relationships and provide insight into what it would take to keep these people and strengthen their loyalty to the organization.   Clearly the risk of lost talent would jeopardize the future of the organization under consideration.

Caution:  Do you really know what you’re buying if you don’t examine the health of the organization’s relationships?

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