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# Why conduct due diligence

# Why you conduct due diligence {#ariaid-title1}

Release version: Australia  
Updated September 10, 2026  
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## Summary of Why You Conduct Due Diligence

Conducting due diligence on third parties is essential for an effective third-party risk management program.
It involves investigating and assessing risks associated with external parties to make well-informed decisions about engaging with them.
Due diligence focuses on identifying risks related to cybersecurity, data privacy, financial stability, regulatory compliance, and operational resilience.
This process enables organizations to establish appropriate controls and mitigate potential negative impacts from third-party relationships.
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## Key Reasons to Conduct Due Diligence

* **Regulatory Compliance:** Many regulations require due diligence to prevent illegal activities such as money laundering, corruption, and fraud. Performing due diligence helps demonstrate commitment to these legal obligations and risk mitigation.
* **Reputation Protection:** Due diligence uncovers potential negative associations or activities of third parties that could harm your brand's reputation, enabling informed decisions or mitigating actions.
* **Operational Stability:** Assessing the reliability and capability of third parties reduces risks of operational disruptions caused by poor performance or financial instability, thereby protecting supply chains and service delivery.
* **Data and Information Security:** Evaluating third parties' data security measures and privacy practices safeguards sensitive information such as customer data, intellectual property, and trade secrets from breaches or unauthorized disclosure.
* **Financial Risk Mitigation:** Due diligence assesses the financial health and creditworthiness of third parties, helping to avoid engagements that could pose financial risks due to instability or poor payment history.
* **Internal Policy Compliance:** Ensuring third parties meet internal standards related to sustainability, diversity, ethics, and other corporate policies through due diligence helps maintain organizational integrity and values.

## Practical Benefits for ServiceNow Customers

By integrating due diligence into your third-party risk processes, you can confidently manage external relationships and align them with regulatory, operational, and corporate requirements. This reduces risks across cybersecurity, privacy, financial stability, and operational continuity, ultimately protecting your organization's reputation and assets.  
Conducting due diligence on third parties is a crucial component of your comprehensive third-party risk program. You conduct due diligence to become aware of the risks that are associated with a third party so that you can confidently decide how to form your relationship.
Third-party risk management concentrates on evaluating and managing the risks introduced by external parties. This includes assessing factors such as cybersecurity risks, data privacy compliance, financial stability, regulatory
compliance, and operational resilience associated with the engagements. You conduct due diligence (an investigation or examination of business relationship risk), to make informed decisions, establish appropriate controls, and
mitigate the potential negative impact of engaging with third parties.

## Goals of due diligence {#vrm-due-diligence-why__section_zw5_fvt_sxb}

Comply with regulations

:   Companies are often subject to various regulations and legal requirements that mandate conducting due diligence on third parties. These regulations aim to prevent illegal activities, such as money laundering, corruption, fraud, and other
    forms of financial misconduct. By performing due diligence, you demonstrate your commitment to compliance and risk mitigation. See [Regulations that affect third-party risk](https://www.servicenow.com/docs/bnVH0fKeY3VHCbBUp8z9Ow "When implementing your third-party risk management program, you must carefully consider the regulations. Applicable regulations vary depending on your industry, geographic location, jurisdiction, and nature of your operations.").

Protect your reputation
:   Engaging with a third party can directly impact a company's reputation. By conducting due diligence, you can uncover any potential negative associations or activities that could harm your brand image or public perception. This
    enables you to make informed decisions about whether to proceed with the engagement or to take appropriate mitigating actions.

Safeguard against operational disruptions
:   Third parties such as suppliers, service providers, or partners play critical roles in your organization's operations. Poor performance, financial instability, or other issues with third parties can disrupt your operations and
    supply chain, leading to delays, quality issues, or other problems. Due diligence helps assess the reliability and capability of third parties, reducing the risk of operational disruptions.

Protect sensitive information
:   You might share sensitive information with third parties, such as customer data, intellectual property, or trade secrets. Due diligence helps evaluate a third party's data security measures, privacy practices, and overall
    commitment to protecting confidential information. This is crucial for maintaining data integrity and helping to prevent breaches or unauthorized disclosures.

Mitigate financial risks
:   Engaging with financially unstable third parties can pose significant financial risks. Due diligence helps assess the financial health, creditworthiness, and payment history of potential partners or third parties. It enables you to
    evaluate the financial risks associated with a third party and to make informed decisions based on their financial stability and track record.

Comply with internal policies
:   You might have internal policies and standards that dictate the criteria for engaging with third parties. Due diligence helps ensure that potential third parties align with the policies, such as sustainability practices, diversity
    and inclusion requirements, or ethical guidelines.
**Related concepts**   

* [Types of due diligence](https://www.servicenow.com/docs/oVwaW_GBjk8ZTORbiycX8g "In the due diligence process, you typically conduct several types of due diligence to gather relevant information and assess various aspects of the third party. The particular types of due diligence that you conduct vary depending on the nature and criticality of the engagement and the risks involved.")