Platt Perspective on Business and Technology

Due diligence as a virtuous cycle

Posted in strategy and planning by Timothy Platt on April 15, 2012

I recently posted a piece: The Power of Leadership by Example, Continued in which I noted how organizations – in that case banks, can move into a position or significant risk and loss from their leadership leading by bad example. I have also been posting to a series: Considering a Cost-Benefits Analysis of Economic Regulatory Rules in which I have approached some of the same basic issues that feed into that story but from the perspective of entire industries and the economy, and not just from that of the individual business in them (see Macroeconomics and Business, postings 64, 66 and 69 for parts 1-3 with more to come.)

I am going to look at this here too, but from an operational and business process perspective and from the vantage of due diligence and risk remediation. Putting that in orienting perspective, the bad example leadership of my Power of Leadership posting as cited above, was bad precisely because it set an example in which effective due diligence processes could not be followed through upon – because the rewards were set too high for sidestepping them and the penalties were too severe for following them. And in a fundamental sense, my Macroeconomics and Business series as sited above discusses the consequences of this type of decision making behavior when wide-spread.

• When due diligence systems are set up or run as virtuous cycles, they can be self-reinforcing and reliably sustainable long-term.
• When they are not, and for either their operational processes or in how they are followed, they will fail and generally where they would have been most necessary to have effectively in place.

My goal in this posting is to discuss and expand upon these bullet pointed observations and as they connect to the individual organization and to the larger scales of the industry, the overall marketplace and the economy.

Considering the individual business as a starting point here:

• Leadership should be directed towards finding and achieving the greater good for the organization being led, and when the prerogatives of leadership are turned to short term self-aggrandizement and the personal benefit of those in positions of authority this marks a failure to lead.
• With time, this type of self-centered focus will always lead to increased risk and loss for the organization itself, its employees and customers and for the marketplace as a whole.
• And failing a return to more effective business-oriented leadership the market will correct for this by squeezing this business out for not meeting its needs and for not being competitive. And both customers and employees will move on – for the employees involved, starting with the very best who would find it easiest to find new positions with other businesses including the competition.
• So the types of leadership failure that I write of here are self-correcting – but at tremendous cost to the business or organization if those leaders do not make fundamental changes in their own practices first – or get replaced by others who will.
• And in a fundamental sense this is about taking a longer term and due diligence-oriented perspective, thinking and acting in terms of risks and benefits in the face of the uncertainties always faced.

My Macroeconomics and Business series looks at this from the macro level and in terms of regulatory law – mandated due diligence standards and approaches and how they arise and how they become challenged and watered down. Ultimately, that is also all about due diligence and the consequences of its failure.

• Well-crafted due diligence processes, built into and informing the strategic decision making that leads an organization can carry short term costs.
• But the long term benefits from this outweigh those costs and businesses that plan and execute for the long term do better in the long term.
• This can be viewed at taking an ethical, and even a moral position in leadership but it can just as realistically and accurately be viewed as taking a long term, strategically sound fiscal approach to managing and sustaining the business too. The two, long term do coincide.
• And when these issues play out at the larger scales of industries and marketplaces, decisions as to how to lead and on what time frames, and to whose benefit determine overall economic strength and vitality too.
• In a fundamental sense, this can all be seen as being about due diligence – and about developing and following effective, consistent due diligence processes that are crafted to demonstrably sustain value and whether within individual businesses or across entire industries.

I am certain to add further threads to this developing discussion, and in both future individual postings and in organized series. Meanwhile, you can find this and related postings at Business Strategy and Operations – 2 (and also see Business Strategy and Operations.) And see Macroeconomics and Business.

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