“Due diligence” is a buzzword in legal circles, and for good reason. Due diligence generally describes the research one performs in order to learn important information about another person, company, or applicant. The failure to perform due diligence can be catastrophic for both companies and individuals alike.

Take the two of us for example. We are both former federal prosecutors who, at the time we were prosecutors, decided to hire a nanny for our then 4 month old son. We located Kathy’s profile on a reputable nanny for hire website offering caregiving services and independent vetting of applicants. Kathy’s online profile looked intriguing: a retired kindergarten teacher from a school in Ohio, coupled with multiple glowing references. We checked her references, paid extra for the online nanny service to conduct a basic criminal background check, and hired Kathy after what we thought was a thorough in-person interview. We placed hidden “nanny cams” strategically around our house. As it turns out, that was not sufficient due diligence.

Months later, when both of us were at work miles away, a contractor visited our home to install a television above our fireplace. The contractor had a unique opportunity to observe our nanny while she was caring for our son. That contractor called us at work later that day and told us that that he too was a father and if this were his child, he would want to know what this nanny was doing. So he told us what he witnessed as he installed our TV. Kathy hadn’t spoken a word to our son the entire time the contractor was inside our home (for multiple hours), she had held our son like a sack of potatoes as she dragged him from room to room, and she had fallen asleep on our couch as he was crying in his bouncy chair. Needless to say, we fired Kathy on the spot. And then we got smarter.

With the benefit of hindsight, we realized that our nanny cameras were easy to spot. And when we checked Kathy’s references, we did not ensure that those references were sufficiently independent. Our follow-up inquiries post-termination revealed that the references we had spoken to were Kathy’s own daughters, posing as her former employers. We also did not bother to ask for confirmation of employment at that kindergarten in Ohio or obtain a drivers abstract. Basically we were desperate parents in need of immediate childcare. Though we took certain steps to vet our nanny applicant, we did not conduct the exacting scrutiny that we demanded in our day jobs as prosecutors. We never made that mistake again and we now share that story far and wide.

The failure to perform due diligence can also have legal consequences for companies. Take U.S.-based public company X, which is expanding its operations abroad. Company X decides to hire a foreign-based commercial intermediary to get its product launched in country Y. Well, if the commercial intermediary is in the business of bribing foreign officials to get that product launched, company X is on the hook and can be held criminally and civilly liable in the U.S. This may be an oversimplified example, but U.S. officials possess expanded jurisdictional reach to police this conduct under the Foreign Corrupt Practices Act.

What should company X have done? You guessed it, better due diligence! Company X had the obligation to research its foreign partners before engaging them. If it ignores that obligation or cuts corners in its diligence, it does so at its own risk.

Bottom line: due diligence matters. And you might be asking, how did our son make out? Well we enrolled him at a popular daycare the very next week (we didn’t have the luxury of skipping work) and we never looked back. Now he’s your typical 16 year old boy who rolls his eyes when he hears the story of how he was once held as a sack of potatoes by his former nanny. But maybe when he becomes a father, he’ll remember that story and do better.

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