"If it takes twenty years to build a reputation, five minutes is enough to ruin it. If you think about it, you'll do things differently" Warren Buffet
From LAFARGE[1] in 2013 to KIABI[2] in 2024, reputational threats, as protean and long-standing as they are, have a considerable impact on targeted companies, both in terms of their overall reputation - and therefore the conduct of their business - and their financial impact. These reminders continue to demonstrate the importance of carrying out comprehensive due diligence processes when making an investment or bringing a business together. The DGSI (Direction Générale du Renseignement Intérieur) in its November 2024 "FLASH INGERENCE ÉCONOMIQUE DGSI #107", illustrates the diversity of situations that companies are likely to face, and makes it possible, through simple due diligence measures, to guard against certain risks.
Traditionally, due diligence has been carried out to ensure the financial soundness and the main legal and tax elements required for a business combination, but nowadays this is no longer sufficient. In today's digital age and hyper-connected business environment, a plethora of risks need to be covered by this duty of vigilance, in particular reputational and reputability risks. Associating with a partner, investor or supplier whose image is tarnished or whose practices are questionable (Armani and Dior[3]) can have serious financial, legal and ethical consequences. At a time when boycott campaigns (Carrefour[4]), accusations of greenwashing (AirFrance[5]), or revelations of corruption (Thales)[6] spread in a matter of hours on social networks, the robustness of a partnership depends on the trust and integrity perceived by stakeholders. A tainted reputation affects not only the company's value, but also customer loyalty and the stability of partner relations. Integrating the assessment of these risks into the due diligence process is no longer an option, but a necessity to prevent impacts that could become irreversible.
So how do you successfully carry out reputational and reputability due diligence?
Investigate all parties involved in the deal:
Entrepreneurs use storytelling to secure the funds they need to develop their projects. Confidence is important, but verification is necessary. What is their professional background? Is it possible to corroborate their information? What is their academic background? Or do they have different structures that might detract from their personal investment in the project in question? What are the connections between founders, managers and shareholders that could cause a conflict of interest?
These aspects of governance are essential, and basic checks will enable you to get to know your interlocutors and give them your full trust. Finally, by mapping our target's capital holdings, we can identify its financial and strategic links with other entities, and thus potential conflicts of interest, disputes or the use of opaque subsidiaries for questionable practices or affiliations. A lack of transparency or concealment of information in this sphere is often a red flag for cautious investors, anxious to protect their interests within an ethical and compliant framework.
Investigate the individual's good character and reputation:
Is the person a member of business/political circles or networks of influence? Have his or her personal/professional activities or former activities been the subject of controversy or negative mention? Does he or she have an image that could reinforce your activities or, on the contrary, damage them?
You've carefully and patiently built up your brand's image and reputation, and bringing a new person into your ecosystem can expose and impact you, whether positively or negatively. Beyond direct connections, highlighted in the previous point, identifying indirect relationships via networks/circles of influence, often more discreet, can potentially be harmful if they become public. Association with controversial figures can quickly become the focus of media attention and damage your brand. In the same way, the assessment of the person's capacity for influence, particularly via social networks, must be taken into account. A highly visible personality, or one who takes little care in using social networks, is doubly exposed: his or her statements, whether or not they are in line with your values, can strengthen or weaken your company's image. This risk is amplified by the viral nature of social networks. The alignment of values must be studied when integrating a new person into your ecosystem, to avoid negative reactions from civil society and the media. Nowadays, the power of civil society and the means of action at its disposal, notably social networks, contribute greatly to the perception of a brand's image, and therefore to the trust we can place in it as investors/end-customers.
In short, examining a target's reputation and good repute is no longer an option, but a requirement. Damage to reputation can have far-reaching consequences, from loss of customer confidence to a drop in asset value. With the elements detailed above, you have the first keys to fulfilling this duty of vigilance. SEMKEL supports its customers in this process and, of course, carries out more exhaustive checks.
Sources :
[1] Lafarge to pay $778 million to U.S. to aid terrorist organizations in Syria.
[2] Kiabi is the victim of a 100 million euro scam perpetrated by a former employee.
https://www.francetvinfo.fr/economie/fraude/kiabi-l-arnaque-a-100-millions-d-euros_6868343.html
[3] Dior and Armani to be reinvestigated in 2024 over Chinese subcontracting scandal
[4] Has Carrefour stopped doing business in Jordan because of the Israel boycott?
[5] European Commission accuses 20 airlines, including Air France and Ryan Air
[6] Thales under investigation for corruption in Asia