Getting HUMINT Right in Reputational Due Diligence

One of the main challenges in pre-transaction due diligence is obtaining an accurate picture of a target company’s reputation. Generally, risk consultancies will produce an assessment based on OSINT (open-source intelligence) techniques in-house, making use of an array of databases and platforms to run adverse media checks, identify court records and regulatory filings that will form an overview of potential risk areas.  

A more thorough—and more expensive—level of checks involves undertaking discreet source enquiries based on HUMINT (human intelligence). For reputational due diligence assessments, this can include conversations with company employees (current and former), competitors, regulators, public officials, and journalists.

Neither a purely OSINT nor purely HUMINT approach is sufficient to provide the intelligence required for effective reputational due diligence. A more effective approach is to combine the two to ensure the necessary insights are captured:

 OSINT → HUMINT Model 

·      An analysis of company filings points to excessive churn at senior management level.

·      In interviews, two former employees refer to difficult working relationships with a specific company director.

HUMINT → OSINT Model

·      Source enquiries with a local journalist reveal a growing negative perception of a company and its management within the local community.

·      Further research identifies significant local opposition in the form of planning objections to the company’s plans to extend their facilities in the area.

While OSINT collection has benefitted from successive technical revolutions (internet, big data, AI) that have brought costs down, HUMINT continues to be a somewhat mysterious yet premium product. Even less has been said about what makes good HUMINT and what strategies and trade-offs consultants must address to produce an end product that genuinely aids decision-making.

 At the very least consultants must address these five fundamental issues when embarking on HUMINT collection:

1. Choice of respondents.

Consultants will aim to access individuals in close proximity to the target and in its wider network. In doing so, they encounter various trade-offs. Former employees are generally easier to access and may speak more candidly but are further removed from current operations. Conversely, current employees are harder to access but can provide more up-to-date insights. Regulators may be reluctant to discuss specific companies but are often willing to talk about sector-wide issues that could affect the target. Some may be prepared to speak off the record if they feel confident their anonymity will be guaranteed.

2. Preparation.

Consultants must have a handle on an interviewee’s current status and, where possible, connect questions to specific experiences or events—e.g., “What did people in your team say about the director’s decision to do X?” is more likely to produce a more valuable response than “What did you think about the director’s decision-making skills?” Where possible, questions should be specific rather than general. Forming detailed questions requires preparation and understanding of the subject, even if those assumptions are quickly discarded during the interview.

3. Quality of interviews.

Consultants should prepare a topic list to help maintain focus, but should also be flexible enough to recognise when an interviewee is discussing a new area that may be highly relevant to the objective—e.g., “When I was there, the director’s reputation was solid, but I have heard at Company X this was not the case…” Consultants must also recognise when an interviewee is erring off topic and gently correct course. This prevents the entrance of unstructured “chat” outside of the relevance of the study.

4. Location.

Understandably, many interviewees prefer telephone conversations over in-person meetings. For the consultant, this avoids the cost of travelling to meet a source but can also slow down rapport building. A skilled interviewer will seek to build rapport through showing genuine interest in the interviewee’s opinions and reflections as well as acknowledging their version of events.

5. Finishing interviews.

Giving the interviewee ‘the final word’ and a chance to summarise their position can also be a moment where an interviewee feels empowered to phrase previous contributions in more frank terms and may introduce a previously undisclosed, but vital piece of information. It is vital that the interview draws to a close with the respondent feeling positive about the interaction.

In sum, clients paying for a premium HUMINT product expect consultants to deliver fully actionable insights and not just capture network chatter. This requires more openness from risk consultancies on the methods and strategies they use, as well as a wider discussion within the industry on how to improve standards.