Whether you know it or not, if your business has ever applied for a commercial loan, you’ve likely been subject to “adverse media screening.” Under this commonly used practice, a prospective borrower is “screened against” various media sources to determine whether the person or entity has been a party to any suspicious, unethical or illegal activities.
Well, two can play at that game. Many companies now use adverse media screening to evaluate key vendors, business partners (such as in joint ventures), or major customers that will demand a substantial amount of time and resources. Vetting such parties can help you uncover issues — such as accusations of fraud or litigation for nonpayment — that could make you think twice about getting involved with them.
4 steps to safe screening
Given the vast amount of data available online, and the potential legal risks in play, conducting adverse media screening requires a careful, methodical approach. Consider taking these four steps:
1. Develop a formal policy. To ensure that adverse media screening meets your needs without triggering legal exposure, draft a formal policy governing its usage. Among other things, the policy should:
- Identify the sources you intend to access,
- Clarify what actions are off-limits, and
- State how you plan to use any negative information discovered.
Ask your attorney to review the policy before rolling it out.
2. Create clear categories. Adverse media screening can cover a broad range of activities. So, create various categories to consistently classify potential red flags. Examples might include civil proceedings, criminal misconduct, environmental violations, regulatory scrutiny and financial crimes. Doing so will help focus your due diligence efforts and make it easier to analyze information sources.
3. Verify everything. To generate traffic, some news outlets do little to verify the accuracy of their stories. Rely only on information providers with high ethical standards and established histories of accurate reporting. This is particularly important when using social media. For any accusation or story, always look for corroboration and verification from multiple reputable sources.
4. Automate the process, if necessary. Rather than relying on employees to manually research and gather information, you can procure software that uses artificial intelligence to scan the internet and analyze massive amounts of data. This may entail a substantial investment, so it’s not something to consider until and unless the volume of adverse media screening you’ll be doing grows to a certain point.
An enhancement, not a replacement
To be clear, adverse media screening is a potential enhancement to the due diligence process that every business should use when scrutinizing vendors, partners and big customers. It shouldn’t replace fundamental steps such as checking credit reports and following up on references.
This blog is brought to you by Cordia Partners (CORDIA), an outsourced accounting and consulting company. For more resources to help businesses operate effectively, subscribe to our blog.