Due Diligence Handbook book cover

Due Diligence Handbook

Corporate Governance, Risk Management and Business Planning

This book brings together practical information on legislation, primary sources, codes and best practice guidance in one volume. A practical handbook for business directors who wish to minimise financial, legal and reputational risks. It combines all matters concerning corporate governance with due diligence issues and in doing so provides you with the information and tools you need to help you protect your business when under taking due diligence, particularly when making international acquisitions. The book provides clear guidance and case studies to help all involved understand the complexity of issues and to demonstrate the detailed work that is necessary both to ensure that the benefits of an acquisition can be realised and that there are no unexpected problems, for example through damage to corporate reputation that more that offsets the targeted benefits. As high profile business failures tarnish the reputation of international business it is essential that business responds by having the policies and practices in place in day-to-day operations and in particular, as this book demonstrates, when a major business development such as an acquisition is being implemented.Following the initial era of codes in the UK and regulation in the USA and major debates as regards the best approach to corporate governance in the common law countries, controversy has developed over which approach is really more appropriate for business planning purposes and risk management. Given the trend for many UK companies listed on the US market to de-list in favour of the more British approach to corporate governance and in light of more European corporate scandals this book provides a comparative analysis of the European frameworks for governance. The EU approach and the individual jurisdictions of Germany, Italy, the Netherlands and France, in terms of their practical success or failure (with case studies)is covered. With the debate over an EU Constitution and the political stance of Germany (under the Merkel leadership) during its Presidency to revive the Constitution the book assesses the EU approach generally at a time when the competitiveness of companies and key business sectors must consider the thrusting economies of India and China in particular. The link with competitiveness is an increasingly crucial matter.In connection with due diligence, the book provides an update of the business world in light of the world's economy and links corporate governance, risk management and business planning to reflect such business, political and regulatory trends and changes. In recent years there has been much comment and feedback on the effectiveness of the Sarbanes-Oxley approach to corporate governance and many updates on business ethics and sustainability issues, which this book also covers in the context of due diligence. In addition, since there has been a major shift in business awareness to develop, or be seen to develop, a more enlightened approach to climate change coverage of this area is include in the book in the appropriate context of governance, risk management and business planning, as well as the trends in different parts of the world (USA (and some others v many others!). There are case studies within the book on how business is operating in order to respond to this issue with an international dimension and comparison. The whole debate over being carbon neutral has impacted on the airline industry in particular and has relevance to how industry sectors should balance the interests of the different stakeholders and cope with rather fast attitude changes of the media and public (and the regulators). The importance of energy security has raised key competitiveness issues of major interest and commercial significance. Moreover the angle of fraud in this sector has become more evident. The area of energy security within this book is tied into ethical accounting, fraud, risk etc. and economic crime. These new areas can be set against the background issue of how much of this comes into play with due diligence. How far is this now part of risk management in todays business world.New legislation is covered in terms of developments with the UK Companies Act and Directors? duties with an increasing need to understand reputational concerns and off balance sheet values since the withdrawal of OFR.

Chief Finance Officer; Finance Director; Managing Director; Risk Officer; Compliance Officer; Company lawyers - barristers and solicitors; Financial services lawyers- barristers and solicitors; Competition lawyers - barristers and solicitors; In-house lawyers in plcs; Accountants; Auditors; Company secretaries.


Published: October 2008

Imprint: Cima Publishing

ISBN: 978-0-7506-8621-1


  • ContentsAcknowledgements Preface Author and Contributors Table of International Statutes Table of Statutory Instruments Table of Cases List of Key Abbreviations Chapter 1 Introduction and Traditional Due Diligence Introduction Legal due diligence Financial due diligence Risk and insurance due diligence Beneficiaries of due diligence Transactional and operational concerns – integration value post-merger Other business issues Drivers for ongoing due diligence The interaction with risk management and corporate governanceTransactional and operational assessments References Appendix 1 – Overview of main issues for a due diligence exercise Appendix 2 – Initial steps in transactional due diligence in the UK Appendix 3 – Specimen auction or tender process letter Chapter 2 Due Diligence In Corporate Finance Introduction Due diligence process Anti-money laundering due diligence Financial due diligence Tax Commercial due diligence Prior borrowing arrangements Commercial contracts and other agreements or arrangements Licences and intellectual property rights IT Real estate and business assets Employees, consultants and directors Pension arrangementsInsurance Environment Warranties and indemnities ReferencesAppendix Chapter 3 Money Laundering Introduction History Money laundering offencesMeasures to prevent money laundering Conclusion Chapter 4 Drivers for Due Diligence and Corporate Governance Introduction Business benefits through risk/reward balance Regulatory background and driversThe choice of vehicle, structure and liability in businessThe Limited Liability Partnership Governance and the balance of interests Corporate social responsibility Small business risks, due diligence and risk managementReferences Appendix – Example of initial due diligence list for the purchaseof a regulated financial services business Chapter 5 Key Due Diligence and Corporate Governance Organisational Areas Introduction Litigation Alternatives to litigation The role of tribunals Due diligence and late payment issues for businessBusiness interruption and recovery InsolvencyBusiness continuity and operational risk management Crisis management – a view from the US References Appendix – Glossary Chapter 6 Commercial Due Diligence Case Studies Introduction Case study 1 – The biotechnology industry Case study 2 – The shipping industry Chapter 7 Reputation Risk Management Why does reputation matter? Value of brands and their importance to reputation Reputation and corporate culture Examples of major losses of reputationIntegrated reputation risk management Reputation risk management, the Turnbull Report and the new Combined Code References Chapter 8 Cultural Due Diligence Introduction A managed risk culture Change management Culture clash in mergers and acquisitions: risk mitigation Appendix 1 – Outsourcing and offshoring – the Indian case study Appendix 2 – Bridging the digital divide in India through corporate and socialresponsibility and the reuse of redundant IT equipment Chapter 9 Information Technology and E-Commerce: Issues of Due Diligence, RiskManagement and Corporate Governance Introduction Data handling risksContract risk in e-commerceBusiness interruptionTechnology due diligence: managing legal risk exposureManagement of intellectual property issuesLegal risk issues in Internet commerceProtecting digital assetsManaging liability issuesDesigning a risk management frameworkLegal auditSummary Appendix – Checklist for implementing a corporate digital assetmanagement policyChapter 10 Corporate Governance Issues Corporate governance definitions and drivers The Cadbury Report The Greenbury Report The Hampel Review and the Combined Code London Stock Exchange Listing Rules The Turnbull Report Recent developments Practical corporate governance The role of risk management Systems and methodologies for risk management The Operating and Financial ReviewConclusionReferencesChapter 11 The Sarbanes-Oxley Act of 2002IntroductionBasic goals of actSpecific aspects of the actEnvironmental issues under SOXConclusionChapter 12 International Dimensions and Corporate Governance:the Indian Perspective Introduction History of governance in India Corporate governance in India The legal and regulatory framework regarding corporate governance in India Corporate governance: Indian practice Capital market regulations Committees on corporate governance Other corporate laws of India Conclusion Chapter 13 International Dimensions: Corporate Governance in Hong KongSpecial Administrative Region and the People’s Republic of ChinaBackground to corporate governance in Hong KongDirectors’ Duties Transparency and disclosure Executive pay Shareholders’ protection Corporate governance in the People’s Republic of China (PRC) Chapter 14 International Dimensions: Corporate Governance in Australia Introduction What is good corporate governance?External advice to assist in good governance HIH – A case study of a catastrophic failure in corporate governanceConclusion Chapter 15 Corporate Governance in Japan Introduction The core problems of corporate governance in Japan General meetings of the shareholders The board of directors Important asset committees and corporations with committees Conclusion Chapter 16 Environmental Due Diligence and Risk Management Introduction Transactional tools Environmental auditing and international standards Environmental accounting and managerial decisions: governance issues Environmental insurance: reducing risk and liabilityEthics in international trade, investment and project finance: shared responsibility Environmental liabilityThe environmental balance sheet Trends in transboundary trade and environmental standardsAppendix – Environment, Health and Safety Simple US Company QuestionnaireChapter 17 Charity Considerations: Issues of Transparency and GovernanceIntroductionAccountability and corporate givingFundraising and related developmentsThe Charities BillReporting requirementsProtecting whistleblowersGovernance issuesTrustees duties: governance for non profits in the USA The Tyson ReportConclusionChapter 18 Governance in the Family, the Family Business and Family Trusts Introduction Governance theories and practiceGovernance, the family and long-term wealth preservation The family in business Family trustsConclusionAppendix


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