Writing a weekly blog and being one’s own editor can involve making some interesting choices at times. This week I decided to use a term in my headline that’s actually one that many of my colleagues try to avoid.
But, the term “soft stuff” (and its derivations “soft skills” and “the soft side”) does in fact nicely convey the stark contrast between the work that we do compared with that of others, including many folks with whom we often collaborate.
There’s no shortage of words I could’ve used to make my point, but I settled on the Soft/Hard contrast here, for reasons I hope will be appreciated.
The “Normal” Uses of Due Diligence
Actually, my choice to go “soft” was mostly related to its contrast with the other phrase in the headline, “due diligence”.
And thanks to Google, we can quickly type in “due diligence meaning” and get this:
- Reasonable steps taken by a person in order to satisfy a legal requirement, especially in buying or selling something.
- A comprehensive appraisal of a business undertaken by a prospective buyer, especially to establish its assets and liabilities
Those definitions seem clearly aligned with what most people would agree are “hard stuff”, or quantifiable, legal matters that all businesses need to consider, especially when looking at a company’s ownership transition.
What About “Emotional & Interpersonal Due Diligence”?
As the FFI faculty member, I reach out to all the students in the course to arrange a Zoom meeting early on, to get to know them and where they are in their journey.
The course is about Family Governance, and everyone in the class comes to it from different angles, so it’s truly a privilege to learn about their personal experiences.
During my intro call with Ron he shared a term that he’s been using to make his point about the importance of the work he does with families.
He told me he calls it “Emotional and Interpersonal Due Diligence”.
“Wow”, I replied. “I’m gonna have to write a blog about that”.
The Most Important Due Diligence?
Ron’s a psychologist, so he can pull off this kind of lingo better than most, but even guys like me who come from a business background can see how this can actually be the most important part of any due diligence process.
In fact, it deserves to be highlighted, especially in cases of family business succession, precisely because there’s likely to be less of the “regular” due diligence going on because the “transaction” is probably more of a “family transition”.
I’m having an A-Ha moment as I write this, so bear with me as I flesh this out.
Transactions Require Regular and Thorough Due Diligence
Transitions Require Emotional & Interpersonal Due Diligence
That thought wasn’t in my head when I started writing this, which is why I blog every week, for moments of clarity like this.
Some Important Work Needs to Be Done
If you are going to sell your business to someone, the buyer should/must/will conduct some form of due diligence before completing the transaction.
So when the business is going to go from one generation of a family to another, would it not make sense for some similar form of work to happen, to make sure that everything is going to work out as planned?
Is the Shoe on the Other Foot?
What makes this trickier is the fact that every outside buyer would insist on due diligence and it will happen or else there’s no deal, BUT, in a family business situation, the “buyer” is often in a position of feeling like they are getting a favour, so the seller typically calls the shots.
And that’s precisely where (and why) things so often go wrong.
When there’s a group of related acquirers, who are beholden to the one who’s divesting, not enough attention is given to the cohesion and interpersonal relationships of the group of new owners.
What If It Doesn’t Work Out?
If the leading generation (seller) is in charge of the deal, they don’t want due diligence to screw up their deal.
They need to be made to fully aware that a failed deal will come back to haunt them, and only some “soft side due diligence” can clear that up in advance.