In today's intricate and
evolving tribal business landscape, marked by numerous opportunities for growth
and collaboration, the judicious selection of business partners assumes
paramount importance for Indian tribes. As custodians of their cultural
heritage, economic well-being, and sovereignty, Indian tribes are compelled to
navigate potential risks that may arise from those seeking to exploit their
unique status. In light of this, the following due diligence steps can be a useful
guide when evaluating prospective business partners.
1. Establish
Clear Objectives and Develop Checklist: Before exploring the due
diligence process, Indian tribes and tribally owned businesses should clearly
define their objectives for the business relationship. These objectives should
align with the Tribe's cultural values, economic goals, and long-term vision.
Establishing a well-defined purpose for the business partnership ensures that
all subsequent due diligence efforts are focused on and aligned with the
Tribe's priorities. In addition, develop a comprehensive checklist tailored to
the Tribe's specific needs and priorities. This checklist acts as a roadmap to
ensure that all relevant aspects are thoroughly assessed during the due
diligence process.
2. Start
with a Non-Disclosure Agreement. Many Indian tribes initiate
the due diligence process by entering into a Non-Disclosure Agreement (NDA)
with prospective business partners. This strategic step serves as the gateway
to accessing critical and confidential information from the partner's
operations. The NDA also acts as a
shield, assuring the prospective partner that the Tribe is committed to
maintaining the confidentiality of the information shared. This encourages the partner to provide
comprehensive insights without reservation, allowing the Tribe to make
well-informed decisions and identify potential risks effectively.
3. Gather
Basic Information: Collecting basic information about the
prospective business partner forms the foundation of due diligence. For
example, most Secretary of State websites contain an online database where
businesses are registered. Tribal staff can search for the prospective
partner's name to find information about their legal status, ownership
structure, registered address, and key personnel. If the proposed partner is a
publicly traded company, their annual reports and financial statements can be
accessed from the U.S. Securities and Exchange Commission (SEC). Obtaining such data helps establish a
preliminary understanding of the partner's background and operations.
4. Research
Background and History: Take a deep dive into the prospective
partner's history to gain insights into their evolution, founding date, and
significant milestones. It would be prudent to visit the potential partner's
own website and social media profiles to gain insights into their products,
services, company history, and recent developments. Investigate any legal
disputes, bankruptcies, regulatory violations, or negative media coverage that
might impact the Tribe's reputation by association. Attending industry-specific
trade shows and conferences where the partner may be exhibiting or presenting
can also offer valuable insights into their products, services, and
interactions within the industry.
5. Financial
Analysis: Request and analyze the partner's financial statements,
including balance sheets, income statements, and cash flow reports. Scrutinize
financial ratios such as liquidity, solvency, and profitability to assess the
partner's financial health and ability to contribute to the partnership's
success. It may be prudent to engage financial experts, such as accountants,
financial analysts, or consultants, who specialize in conducting thorough
financial analyses.
6. Legal
and Regulatory Compliance: Verify that the partner is registered and
in good standing with relevant government authorities. Evaluate their
compliance with federal, state, and tribal regulations, as well as
industry-specific licensing requirements. Review contracts, agreements, and
legal documents to uncover any potential legal risks or liabilities. If the potential partner is related to a
gaming activity, it may be wise to search online records at the National Indian
Gaming Commission and state gaming regulatory agencies for any notices of
violation.
7. Management
and Leadership: Research the background and experience of the
partner's key management personnel. Assess their track record, qualifications,
and alignment with the Tribe's values. Understanding the leadership team's
capabilities and cultural sensitivity is crucial for a harmonious partnership.
Explore business journals, newspapers, and magazines for articles or features
related to the partner's management and leadership.
8. Operational
Due Diligence: Gain a comprehensive understanding of the
partner's operational processes, supply chain, and production capabilities.
Evaluate the quality and consistency of their products or services. Identify
any operational risks that might have an impact on the Tribe's interests,
including potential disruptions or ethical concerns.
9. Customer
and Supplier Relationships: Assess the partner's customer base,
client relationships, and overall customer satisfaction. Understand their
supplier relationships, including potential dependencies or vulnerabilities
that could affect the partnership's stability. Check with relevant industry
associations and local chambers of commerce to see if the partner is a member.
These organizations may provide additional information about the partner's
reputation and involvement in the industry. Also, Indian tribes can request
references from the partner's existing clients, customers, and suppliers.
Research testimonials, online reviews, and other sources to gauge the partner's
reputation and track record within the industry.
10. Intellectual
Property (IP) and Innovation: If necessary to the business
relationship, identify and evaluate the partner's intellectual property assets,
including patents, trademarks, and copyrights. Understand their approach to
innovation, research and development, and their willingness to respect and
protect tribal intellectual property rights. Tribal staff can conduct online
searches through the U.S. Patent and Trademark Office (USPTO).
11. Cybersecurity
and Data Privacy: Evaluate the partner's cybersecurity measures,
data protection policies, and privacy practices. Ensure they have robust
protocols in place to safeguard sensitive information, including any tribal
data that may be shared during the partnership. Publicly traded companies often
include information about their cybersecurity initiatives, risks, and incidents
in their annual reports and financial statements. These documents can be
accessed from the U.S. Securities and Exchange Commission (SEC) website.
12. Financial
Stability and Funding Sources: Investigate the partner's
financial stability and sources of funding. Ensure they have a solid financial
foundation and the ability to contribute resources and capital to the
partnership. If the partner is a limited liability company, one source could be
the partner's operating agreement. This organizational document can contain
useful information on capital contributions and ownership interests.
13. Legal
and Financial Advisors: Engage legal and financial experts with
expertise in tribal matters to guide the due diligence process and provide
insights. Their specialized knowledge can help identify potential risks and
ensure the Tribe's interests are protected. Additionally, the Tribe's legal
team can research public records and filings, such as court records and
bankruptcy filings, to uncover any potential legal or financial challenges
faced by the partner.
14 Visit
the Partner's Facilities: Whenever feasible, conduct on-site visits
to the partner's facilities. This firsthand experience provides a deeper
understanding of their operations, working environment, and commitment to
quality. An on-site visit also allows Indian tribes to verify the accuracy of
the information provided by the partner. It ensures that the partner's claims,
capabilities, and representations align with reality and are not mere
exaggerations on paper.
15. Cultural
Alignment: Assess the partner's alignment with the Tribe's cultural
values, traditions, and ways of doing business. A partner who respects and
understands the Tribe's cultural heritage is more likely to contribute
positively to the partnership's success.
16. Continual
Monitoring. Lastly,
it is important to recognize that due diligence is an ongoing process.
Regularly monitor the partner's performance, adherence to contractual terms,
and alignment with the Tribe's values and objectives throughout the
partnership's duration.
Conducting due diligence is a
comprehensive endeavor that safeguards the Tribe's interests, values, and
cultural heritage. By following these steps, tribal governments and
tribally-owned businesses can make informed decisions, forge meaningful
partnerships, and contribute to the sustainable economic growth and well-being
of their communities. Finally, customizing the due diligence process to align
with tribal values and aspirations is essential to building lasting and
successful partnerships.
For further
discussions on crafting a due diligence plan tailored to your tribe or tribally
owned business, please feel free to reach out to Sacramento partner Patrick
R. Bergin.