Why you conduct due diligence

  • Release version: Zurich
  • Updated March 12, 2026
  • 2 minutes to read
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    Summary of Why you conduct due diligence

    Conducting due diligence on third parties is a vital part of a robust third-party risk management program. It involves investigating and assessing potential risks related to third-party relationships to enable informed decision-making and effective risk mitigation. This process ensures that organizations understand cybersecurity, data privacy, financial stability, regulatory compliance, and operational resilience risks before engaging with external vendors, suppliers, or partners.

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    Key Reasons to Conduct Due Diligence

    • Regulatory Compliance: Due diligence helps organizations comply with legal requirements designed to prevent illegal activities such as money laundering, corruption, and fraud. It demonstrates commitment to regulatory adherence and risk mitigation.
    • Reputation Protection: Identifying potential negative associations or activities linked to third parties protects the company’s brand and public perception, enabling better-informed engagement decisions.
    • Operational Continuity: Evaluating third parties’ reliability and capability helps prevent disruptions in operations or supply chains caused by poor performance or financial instability.
    • Information Security: Assessing third parties’ data security and privacy practices safeguards sensitive information such as customer data, intellectual property, and trade secrets against breaches or unauthorized access.
    • Financial Risk Mitigation: Reviewing financial health, creditworthiness, and payment history of third parties reduces exposure to financial risks from unstable partners.
    • Internal Policy Compliance: Due diligence ensures third parties meet internal standards and criteria, including sustainability, diversity, inclusion, and ethical guidelines.

    What This Enables for ServiceNow Customers

    By incorporating due diligence into your third-party risk management practices, you can confidently select and manage external partners while minimizing legal, operational, reputational, and financial risks. This process supports regulatory compliance, strengthens your risk posture, and protects your organization’s critical assets and reputation.

    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

    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.

    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.