In 2000, the Pew Research Center began studying American's internet access, which at the time hovered around the 50 percent mark. Six years later, the Oxford Dictionary added 'googling' as a verb, revealing just how pervasive internet research using the popular search engine had become. According to Pew's Internet usage surveys, 91 percent of online users leverage search engines - especially Google - to conduct research. Not surprisingly, Google is often used for conducting due diligence research, too. The question is, "When do you need to go beyond Google to achieve meaningful - and effective - due diligence?"
Right Size Your Due Diligence Process
Google does offer some immediate benefits for companies conducting due diligence. As a free resource with global coverage, Google is a natural, easy-to-access place to start your due-diligence and screening efforts. Using Google alone to carry out your due diligence has serious limitations as well. The Pew Research Center's study noted that:
41 percent of users cited that they frequently see conflicting information in search results and find it difficult to identify which information is correct
38 percent of users said the sheer quantity of results returned can be overwhelming
34 percent of users believed that search results overlook or miss critical information
And that's just based on surveys related to general search engine use. When it comes to conducting due-diligence research, the need to work efficiently is hampered by research that requires extra steps to vet findings or to sort out irrelevant results from crucial information. In addition, effective due diligence demands access to reliable sources of archival data, which is often behind paywalls, resulting in gaps in your research or a pay-as-you-go approach that quickly mounts up research costs. Finally, your due diligence efforts need to be auditable, but traditional search engines pose a challenge as sources change frequently and source data can be difficult to verify. The best approach? Assess the risk level for each entity or person to be researched and align your data sources commensurate with the risk.
Determining Which Due-Diligence Resources You Need
While regulatory bodies like the UK's Financial Conduct Authority (FCA) have indicated that googling an entity or person is a logical first step in the due-diligence process, the limitations of Google mean that secondary information resources are needed as well. This is especially true with the advent of "right to be forgotten" legislation. As the FCPA blog noted earlier this summer, the lower chamber of the Russian parliament passed a bill, similar to legislation upheld in 2014 by the EU's highest court, which allows individuals to request that search engine providers like Google remove references to websites that host inaccurate, irrelevant or outdated information about them. If using the open web was considered less reliable before, such legislation is akin to authorizing "amnesia." So, if you are going to limit your reliance on Google to only the lowest risk entity checks, then how do you determine the resources to supplement free search engines? The chart below provides a quick breakdown of the process.
At the risk assessment stage, you need to ask the following questions:
Do the third parties include individuals?
Are the third-party companies public or private?
Are the third parties based in the U.S. or overseas?
Are the third parties in developed or emerging markets?
Are the third parties in one country or multiple countries?
With every 'Yes' response, you need to consider raising the risk level. Then, consider your source options, beyond the open Web, including:
Individual subscription services - Such services proactively maintain their content, improving its reliability. Moreover, they enable you to purchase content as needed to meet specific requirements, such as country company data. Users may find the process frustrating and time-consuming because they not only must learn various interfaces and search in multiple places for information, but they must also spend time consolidating their findings into a single, standardized report.
Aggregated subscription services - Services that pull together all key data via a single service offer greater consistency and efficiency in due-diligence research. Before you make that decision, however, you need to thoroughly evaluate the content depth of each aggregator to determine whether the range of sources is comprehensive enough to suit the variety of risk levels, coverage regions and entity types you routinely examine. Global organizations should also consider the ability of the service to prove local language content and interfaces.
Outsourced risk advisors - Outsourcing due-diligence work offers an immediate benefit in that the research done for you. It certainly allows a more hands-on approach for conducting investigations in particularly high-risk markets, so it is an option that should be considered under certain circumstances. The costs can be substantial for even basic due-diligence research reports. Overall, the costs and time lag of using outside vendors may be prohibitive for high volumes of low-risk due diligence or for time-sensitive, high-risk due diligence.
One thing is certain. You need to look beyond the open Web for truly effective due-diligence research. By aligning a risk-based approach to third-party due diligence with the right technology and sources, you can conduct due diligence with greater confidence that you are mitigating risk now and into the future.