Transformative power of due diligence

In a rapidly changing and interconnected world, due diligence has become a vital framework for promoting accountability, managing risks and ensuring ethical practices. Whether addressing workplace safety, cybersecurity, corporate governance or human rights abuses in supply chains, due diligence embodies a commitment to responsible action. However, its effectiveness often depends on the clarity of legal frameworks, the strength of enforcement mechanisms and the willingness of organizations to prioritize transparency. This article explores the importance of due diligence in various sectors, drawing from global principles and highlighting its significance for Nepal.

Workplace safety

Workplace safety is a foundational aspect of due diligence, as demonstrated by a tragic incident in Greater Sudbury, Canada, in 2015. The City of Greater Sudbury delegated construction responsibilities to Interpaving Limited but faced legal scrutiny under the Ontario Occupational Health and Safety Act (OHSA). The courts assessed whether the city exercised due diligence through adequate control, delegation, compliance checks and monitoring.

The Ontario Superior Court ultimately ruled in favor of the city, emphasizing its proactive measures such as vetting contractors, ensuring safety certifications and conducting inspections. This case underscores the importance of clear legal frameworks and robust oversight in managing workplace risks.

For Nepal, these lessons resonate deeply. Many road construction projects in Nepal remain unfinished, leading to immense public frustration and, at times, fatalities. In Kathmandu and other cities, roads are frequently left in disrepair due to poor coordination among agencies. Roads may be dug up repeatedly for different purposes—water pipelines, electricity cables or telecommunications—without any alignment of timelines or objectives. Even national pride projects suffer from significant delays and cost overruns due to weak enforcement of accountability. Strengthening project oversight, enhancing inter-agency coordination, and establishing clear accountability mechanisms are essential to improve infrastructure development in Nepal.

Addressing vulnerabilities

The rise of digitization has made cybersecurity a critical area where due diligence is often lacking. High-profile cases such as British Airways and Marriott Hotels highlight the consequences of failing to secure sensitive data. British Airways faced a £183m fine under GDPR after a cyberattack exposed customer information, while Marriott incurred £100m in penalties for not identifying vulnerabilities in an acquired system.

For Nepal, the challenges are equally pressing. The country began its digital journey with the adoption of computers in 1971 and the internet in 1998. Article 51(g) of Nepal’s Constitution emphasizes the importance of IT for national development. However, recent cyberattacks have revealed vulnerabilities in Nepal’s digital infrastructure. A 2023 cyber attack disabled 1,500 government websites, disrupting public services and international flights. Earlier breaches exposed sensitive police data and halted passport application services for thousands of citizens.

Nepal’s Electronic Transactions Act, 2006, provides a legal framework for addressing cybercrime, but enforcement is hindered by limited resources and expertise. Strengthening digital infrastructure, fostering international cooperation, and enacting comprehensive due diligence laws specific to cybersecurity are critical for safeguarding Nepal’s digital future.

Combating modern slavery

Modern slavery is an uncomfortable reality embedded in global supply chains. According to the International Labour Organization, nearly 50m people worldwide are victims of modern slavery, including forced labor and forced marriages. Of these, 17.3m work under coercion in private businesses, with nearly 4m subjected to state-imposed labor. Alarmingly, more than 3.3m victims are children.

Global frameworks such as the UN Guiding Principles on Business and Human Rights, the French Duty of Vigilance Law, and the EU’s Corporate Sustainability Due Diligence Directive require companies to identify, prevent and address human rights abuses in their operations and supply chains. These laws emphasize transparency, stakeholder engagement and regular reporting as pillars of effective due diligence.

For Nepal, where informal labor is widespread, addressing modern slavery requires strong labor laws, ethical trade agreements and public awareness campaigns. Businesses must adopt rigorous supply chain audits and ethical sourcing practices. Raising consumer awareness about ethical consumption can also play a significant role in combating modern slavery.

Corporate governance

The BarChris Construction case of the 1960s remains a landmark example of due diligence failures in corporate governance. BarChris misrepresented its financial health during a securities registration, leading to investor losses and exposing systemic lapses. Inside directors knowingly falsified data, outside directors failed to verify claims, underwriters conducted cursory reviews and accountants overlooked discrepancies.

The court’s findings highlighted the need for adversarial due diligence, requiring all stakeholders to independently verify information and challenge assumptions. These lessons are highly relevant to Nepal where governance structures in many sectors remain underdeveloped. Strengthening regulatory bodies, promoting professional training, and incentivizing compliance through tax benefits or penalties can improve governance and enhance investor confidence.

Global and local

The importance of due diligence is enshrined in several international frameworks. The UN Guiding Principles on Business and Human Rights provide a global standard for preventing and addressing human rights abuses linked to business activity. The French Duty of Vigilance Law mandates large companies to develop vigilance plans to address risks in their supply chains, including environmental and social impacts. Similarly, the EU’s Corporate Sustainability Due Diligence Directive aims to make human rights and environmental due diligence mandatory for companies operating within the EU.

For Nepal, aligning with these global standards can enhance its economic competitiveness and ensure ethical practices across industries. Legal reforms that incorporate international best practices, combined with local capacity-building initiatives, can create a robust framework for accountability.

Themes and challenges

Across sectors, due diligence emerges as a universal principle requiring proactive engagement, comprehensive documentation, and independent verification. However, systemic challenges—from resource disparities to fragmented enforcement—often hinder its application. In Nepal, these challenges are particularly evident in infrastructure development, digital security, labor practices, and corporate governance.

Addressing these issues requires a multifaceted approach. Legal reforms must clarify accountability standards, while public-private partnerships can facilitate resource sharing and innovation. Capacity-building initiatives such as training programs for professionals and support for small businesses can empower organizations to meet due diligence requirements effectively.

A sustainable future

The transformative power of due diligence lies in its ability to create a culture of accountability and transparency. Negligence not only invites legal and financial repercussions but also erodes trust—a vital asset in any society or economy. For Nepal, embracing due diligence as a core principle can drive sustainable growth, resilience and global integration.

Whether ensuring the timely completion of roads and bridges, safeguarding sensitive data, eradicating modern slavery or promoting ethical corporate practices, due diligence offers a pathway to a more secure and equitable future. By aligning local practices with global standards and fostering collaboration among stakeholders, Nepal can harness the full potential of due diligence to build a prosperous and inclusive society.