Principles and Practice of HR Due Diligence

1. HR Due Diligence
Dr. Elijah Ezendu
FIMC, FCCM, FIIAN, FBDI, FAAFM, FSSM, MIMIS, MIAP, MITD, ACIArb, ACIPM,
PhD, DocM, MBA, CWM, CBDA, CMA, MPM, PME, CSOL, CCIP, CMC, CMgr

2. Learning Objectives
At the end of the course, participants should be
able to do the following:
• Know the importance of due diligence
• Know the trend in Due Diligence
• Conduct standard HR Due Diligence
• Identify peculiarities of HR Due Diligence in
Merger and Acquisition

3. “Nine-tenths of tactics are certain and
taught in the books; but, the irrational
tenth is like the kingfisher flashing
across the pool. This is the test of
generals. Success can only be ensured
by instinct sharpened by thought. At
the crisis, it is as natural as a reflex.”
-T. E. Lawrence, The Science of Guerilla Warfare

4. What is Due Diligence?
“Due diligence is a systematic intelligence
performed for ascertaining the condition
of a transaction, process, scheme or firm,
so as to determine worth or verify
fulfillment of definite requirements.”
- Elijah Ezendu, Due Diligence

5. “Due diligence is an investigative process of
collecting and analyzing appropriate,
relevant data before reaching a decision
with a goal of understanding the
advantages, disadvantages and risks
associated with the decision.”
Source: International Business Standards Association

6. Focus of Due Diligence
• Identification of real state of issue
• Reduction of uncertainty
• Identification of unknown risk
• Identification of undisclosed concern
• Ascertainment of true value
• Validation of initial findings
• Confirmation of compliance

7. Due Diligence Study Areas
i. Management
ii. Personnel
iii. Contracts
iv. Proprietary Rights
v. Marketing
vi. Production
vii. Financial Area
viii.Reference Area
- Vadim Kotelnikov

8. Primary Era Scope of Due Diligence
 Finance
 Legal
 Human Resources

9. • Finance
• Legal
• Management
• Business Opportunity
• Intangibles
• Cultural
Secondary Era Scope of Due Diligence

10. Current Scope of Due Diligence
-Elijah Ezendu, Due Diligence

11. Steps in Due Diligence

12. Conducting Diligence Intelligence Analysis

13. Expertise Requirement in Due Diligence
The Prevailing trend in expertise requirement highlights
the use of Lawyers for Legal Due Diligence, Chartered
Accountants and Chartered Financial Analysts for
Finance Due Diligence, Chartered Human Resource
Management Practitioners for Human Resource Due
Diligence, Risk Analysts for Business Risk Due Diligence.
While the Competitive Intelligence Analyst can perform
Regulatory Framework Due Diligence, Business Model
Due Diligence, Market Due Diligence, Intellectual
Property Due Diligence, and Technology Due Diligence.

14. Uses of Business Due Diligence
• Alliance Deals
• Acquisition Deals
• Merger Deals
• Suitability to receive Grant as Non-Profit
Organisation
• Large-Volume Market Exchange with some
Government Agencies
• Large-Volume Market Exchange with some
International Organizations.

15. Common Reasons Why Some Venture Capital
Deals Are Rejected
• Problems in Management
• Problems in Market and Competitive Risks
• Problems in Business Model
• Problems in Financial Projections
Source: David Eyler

16. Standard Deal Process
Finding Deal
Flow
Initial Screening
Due Diligence
Valuation,
Negotiation,
Legal
Monitoring
Exit
Source: Nelson Gray, Due Diligence

17. “While due diligence in other areas is
already standard for M&A´s, many leading
companies are only now recognizing the
significance of a well-founded HR due
diligence. Because: Approximately 60% of
all mergers fail due to the fact that the
human capital was not correctly evaluated
in the previous contemplations!”
Source: Hill International

18. Influence of HR Due Diligence Result
 Snapshot of the internal and external corporate identity and business
circumstances
 Recognition and status of the formal and informal leaders within your
organization
 Personal characterizations to support individual career planning
process
 Recognition and motivation of the key employees as well as the
strategy to keep loyalty
 Action plans and scenarios to support change management any time
 SWOT analysis of both individuals and close-working-groups
 Position and relationship analysis
 Strengths to highlight, weaknesses to improve, opportunities to take
and threats to avoid.
Source: Human Value International

19. As a result of continuous morphing, the demand
for due diligence has increased
astronomically, and the need for competent
HR Due Diligence Practitioners has become
the spotlight in most restructuring deals.

20. Key Focus of HR Due Diligence in
Merger and Acquisition
• Identify human resource management risks
• Ascertain availability of fitting interventions
for mitigating identified human resource
management risks
• Determine employment costs of the
prospective business
• Assess organisational leadership models
• Assess the human resource management
process of the deal

21. Steps of HR Due Diligence in
Merger & Acquisition
1. Comprehensive study of the firm
2. Assessment of M&A risks
3. Negotiation
4. Integration and Implementation

22. Comprehensive Study of the Firm
Focus of study should be identification of probable problem in the following key areas.
• Human Resource Planning and Development
• Organisational Behaviour
• Organisational Infrastructure
• Human Resource Management Processes
• Talent
• Employee Relations
• Work and Employment
• Human Resource Services
• Performance Management & Rewards
• Health, Safety and Environment
• Human Resource Information System
• HR Value Proposition
• Social HR & Traditional HR Integration
• Employer Brand Competitiveness
• Structural Reinforcement /Collapse
• Undulating Engagement/Disengagement
• Cultural Alignment/Paralysis
• Strategic Retention Management

23. The characteristic features of an organisation’s
human capital value, their total contribution to
the corporate value mix, and their competitive
impact in the business environment must be
ascertained through broad assessment of every
facet and layer of existing human capital
therein.

24. Assessment of M&A Risks
• Identify challenges to management in each
key area
• Determine probability of each challenge
• Determine impact of each challenge
• Determine manageability of each challenge
• Develop action plan for handling each
challenge

25. Negotiation
At this stage the parties involved shall seek
common grounds of understanding and
document key points of agreement,
knowing that endorsed agreements shall
be binding on all.

26. Integration and Implementation
• Integration of human resource management policies
and processes, organisational culture and employee
information systems
• Consolidation of employee benefits
• Consolidation of organisational structure
• Consolidation of career path and succession plan
• Consolidation of talent profile
• Establishment and deployment of communication
plan for effective change management

27. Standard HR Due Diligence Checklist
1. National political, social and
cultural framework
2. Strategy, workforce composition
and organisation
3. HR administration and
measurement
4. Legal framework
5. Recruitment
6. Review of key contracts of
employment
7. Training and development
8. Remuneration and pay
administration
9. Benefits
10.Sick leave and sickness pay and
benefits
11. Employee financial participation
12. Performance and quality management
13. Working time
14. Leave and time-off
15. Equality
16. Employee representation and
corporate communication
17. Security and safety
18. Internal rules, discipline and grievance
procedures
19. Termination of contract
20. Retirement and pensions
Source: Burgess and Goodman, IDS International HR Due Diligence Checklist

28. Case Exercise
Lobita Limited and Santomax Limited are on the verge
of a merger deal. Lobita Limited is manufacturer of
confectioneries and has two plants in Lagos in
addition to one in Portharcourt, with a staff strength
of 320. Santomax Limited is a market leader in Food
and Beverages sector, and has 4 plants in Nigeria in
addition to 3 in South Africa, with a staff strength of
1260 workers. How would you handle the HR Due
Diligence in order to ensure post merger talent
retention?

29. Dr Elijah Ezendu is Award-Winning Business Expert & Certified Management Consultant with expertise
in Interim Management, Strategy, Competitive Intelligence, Transformation, Restructuring, Turnaround
Management, Business Development, Marketing, Project & Cost Management, Leadership, HR, CSR, e-
Business & Software Architecture. He had functioned as Founder, Initiative for Sustainable Business
Equity; Chairman of Board, Charisma Broadcast Film Academy; Group Chief Operating Officer, Idova
Group; CEO, Rubiini (UAE); Special Advisor, RTEAN; Director, MMNA Investments; Chair, Int’l Board of
GCC Business Council (UAE); Senior Partner, Shevach Consulting; Chairman (Certification & Training),
Coordinator (Board of Fellows), Lead Assessor & Governing Council Member, Institute of Management
Consultants, Nigeria; Lead Resource, Centre for Competitive Intelligence Development; Lead
Consultant/ Partner, JK Michaels; Turnaround Project Director, Consolidated Business Holdings Limited;
Technical Director, Gestalt; Chief Operating Officer, Rohan Group; Executive Director (Various Roles),
Fortuna, Gambia & Malta; Chief Advisor/ Partner, D & E; Vice Chairman of Board, Refined Shipping;
Director of Programmes & Governing Council Member, Institute of Business Development, Nigeria;
Member of TDD Committee, International Association of Software Architects, USA; Member of Strategic
Planning and Implementation Committee, Chartered Institute of Personnel Management of Nigeria;
Country Manager (Nigeria) & Adjunct Faculty (MBA Programme), Regent Business School, South Africa;
Adjunct Faculty (MBA Programme), Ladoke Akintola University of Technology; Editor-in-Chief, Cost
Management Journal; Council Member, Institute of Internal Auditors of Nigeria; Member, Board of
Directors (Several Organizations). He holds Doctoral Degree in Management, Master of Business
Administration and Fellow of Professional Institutes in North America, UK & Nigeria. He is Innovator of
Corporate Investment Structure Based on Financials and Intangibles, for valuation highlighting
intangible contributions of host communities and ecological environment: A model celebrated globally
as remedy for unmitigated depreciation of ecological capital and developmental deprivation of host
communities. He had served as Examiner to Professional Institutes and Universities. He had been a
member of Guild of Soundtrack Producers of Nigeria. He's an author and extensively featured speaker.

30. Thank You