What Is Management Due Diligence?

In business, due diligence refers to investigating all areas of an organization before agreeing to an important transaction or merger. Management due diligence, also sometimes called management assessment, refers particularly to assessing the management team or teams that will be involved. It is important to ensure that managers do not only possess a promising track record of success, but will also fit well with other members of the new management team in order to successfully lead the changing organization.

Carrying out management due diligence is especially relevant when two or more organizations are about to integrate in some way. This integration can be in the form of a merger, acquisition, or simply a deeper cooperation in terms of managing a supply chain. Whatever the specific circumstance, it first needs to be determined if the managers and their management procedures can blend successfully.

New strategic objectives often are a focus of management due diligence. While a manager might have been very successful in a previous executive role, a major change in an organization's objectives might mean that his or her abilities are no longer as relevant to an executive function and might serve the organization better in a new position. In many cases, mergers necessitate a great number of changes in terms of management titles and job roles and can also involve management downsizing.

Additionally, it is not only the skills and methods of particular managers that are taken into consideration in this type of assessment. The whole of an organization's current management culture and methodology is also analyzed. Different organizations might handle important legal, human resource, production, marketing, and financial matters quite distinctly. In a merger, it is important to understand how management currently works across all departments in both organizations in order to determine if — and how — the two could integrate.

Management due diligence can be a delicate task. Organizations, or the people in them, are often resistant to or suspicious of change, and this is perhaps especially true when changes relate to organizational leadership. People become accustomed to a certain way of doing things and develop loyalties to certain leaders. It is important to weigh the value of making a given change against any disruption or ill-feeling it might cause. The aim of management due diligence is to assess the practicality of harmonizing management and to find ways to connect previously separate organizations under a coherent new management structure.