Due Diligence For Socio-Economic Risk

Investors are now facing the challenge of emerging socio-economic risk exposures, and they are bringing new diligence demands to deals. These risks, arising from an increasingly divided cultural and business environment, have to do with such matters as immigration; economic inequity; and racial, gender and sexual preference policy management. Many of these issues do not surface in responses to standard due diligence questionnaires or disclosure schedules. A recent survey conducted for Barron’s by Sentieo, the financial research firm, found that of 67,500 SEC filings sampled over the most recent eight-year period, only 167 10-K flings included risk disclosures addressing “gender.” Sooner or later, the consequences of this type of oversight are bound to show up on the radar of the plaintiffs’ bar. This article concludes with a five-point guide to conducting a risk analysis that pays requisite attention to socio-economic issues.