Background Checking for the C-Suite

March 2007 was not a good month for the Sun-Times Media Group.

As federal prosecutors in Chicago were delivering their opening statements in the fraud trial against former CEO Conrad Black, new Sun-Times CEO Cyrus Freidheim Jr. informed the board of directors of even more distressing news: The Colombian government was looking into his extradition for making payments to paramilitary death squads designated as terrorist organizations.

Freidheim had been CEO of Chiquita Brands International from 2002 to 2004. During that time, as part of a $25 million settlement with the Justice Department, Chiquita admitted to paying upwards of $1.7 million to paramilitary groups in Colombia.

Black was eventually convicted on multiple fraud counts, including that the media mogul had fraudulently used corporate resources and money to secure lucrative non-compete contracts and paid for personal vacations to Bora Bora and a lavish birthday party for his wife. Thankfully for Sun-Times, the Justice Department chose not to prosecute Freidheim for any alleged wrongdoing related to the payouts in Colombia.

Colombia has not since acted on its threat to seek Freidheim’s extradition, and he remains in his role as president and CEO of Sun-Time Media Group and publisher of the Chicago Sun-Times.

Corporate executives’ past offenses are not limited to extravagant parties on the company dime or funding paramilitary terrorist organizations, of course. Other high-profile CEOs have found themselves in hot water because of misdeeds in their pasts, such as former RadioShack chief exec David Edmondson, who was forced to resign after it became apparent that he had misrepresented his academic record on his résumé.

Even reality television has succumbed to fiction, as the Food Network recently fired Robert Irvine, star of Dinner: Impossible, for puffing up his résumé. Irvine represented that he had worked on the wedding cake for Prince Charles and Princess Diana and was employed as a chef in the White House.

Trouble at the top
   As these examples demonstrate, even the most sophisticated employers can falter during the hiring process when it comes to filling high-ranking positions within their organizations. A growing number of Fortune 500 companies have found themselves the subject of scathing front-page headlines for inviting grossly underqualified candidates, and even convicted criminals, to lead their ranks. And it is not just a problem facing large companies. Organizations of all sizes and shapes are inevitably faced with the task of hiring individuals who will wield considerable control over the directions their companies take, both strategically and financially. Beyond their impact within the organization, companies must also consider that executives are often the face their companies present to the outside world.

Despite the high stakes, employers continue to struggle when it comes to protecting themselves from high-profile résumé padders and ethically challenged insiders. Subpar screening of these candidates is usually to blame. Allowing the new CEO to bypass background checking procedures is no longer an acceptable risk—the legal and public relations consequences can be dire.

Even today, employers often sacrifice their background investigation procedures when it comes to high-level candidates with well-known professional track records and close ties to other executives inside the organization. Some organizations perceive it as an unnecessary formality, and many others succumb to the notion that it is uncouth to ask someone of such high stature to disclose past indiscretions.

Yet these employers, now more than ever, must re-evaluate their approach to the executive recruitment process and ramp up their internal screening strategies to better protect against not just legal liability, but also embarrassing press attention and damaged reputations. The higher the profile of the company or candidate, the more intense the spotlight will be when a hiring mistake is exposed, and the more inclined the public will be to further discredit the company and all involved.

While post-hiring exposure of criminal activity, past indiscretions or amoral proclivities may strike more fear in the hearts of HR professionals, egregious cases of résumé puffing are just as potentially damaging.

Inflated or outright false education and academic credentials have become common in today’s competitive job market. High-level candidates have also been inclined to misrepresent their career achievements and contacts, in addition to concealing gaps in employment, pumping up compensation and titles, claiming employment with nonexistent organizations and lying about why they really left their former company.

For these reasons, the vetting and hiring processes for high-ranking positions now require a much higher level of due diligence. This is especially true for organizations subject to the Sarbanes-Oxley Act, which also requires publicly traded corporations to assume greater accountability for new hires. (See sidebar story, “Tip Sheet for Executive Background Checking“)

Separation time
   Without question, the verification process must now be separated from the talent sourcing process. A company can no longer hire based solely on the recommendation of a reputable recruitment firm or even its own CEO. Yet, conducting adequate screening is an increasingly complex task for HR professionals. Not only must HR professionals deal with trying to fill a vacant position as soon as possible, but they must also attempt to verify applicants’ résumés and references to determine if applicants are who they claim to be.

Added to all these tasks, HR professionals must navigate murky legal waters to avoid exposing their companies to liability by improper background checks. Against this fear of improperly delving into an applicant’s background is juxtaposed the fear that an employer may not go far enough into determining the character and record of an applicant. HR professionals can avoid this Catch 22 by knowing their rights and the rights of every individual walking into the interview room. At the very least, an HR manager should take steps to verify the following about candidates for executive positions:

• Are they who they say they are?

  
  

• Have they been convicted of a serious crime, or one involving dishonesty?

  
  

• Is their employment history accurate?

  
  

• Are the stated academic and professional qualifications true?

  
  

A more extensive investigation, however, is oftentimes both appropriate and best practice for upper-level positions. This process is designed to uncover offenses ranging from insurance fraud to SEC violations, from a history of substance abuse to litigious behavior. Of course, with these measures comes an increased expenditure of time and money, not to mention questions on how and where to begin this screening process.

The most basic of background checks will cover educational background, employment history and any criminal past, in addition to interviewing independent references. Because HR professionals will rarely have the time and resources to perform adequate investigation, most aspects of the background check are better accomplished by a reputable third-party vendor or investigative firm with extensive experience in screening professional candidates. Although outsourcing the screening process will not immunize an employer from liability, it is a strong protective measure likely to withstand any cost-benefit analysis when it comes to high-profile hiring situations.

Much of the background information obtained by these vendors is culled from public sources—criminal and civil court records, lien and judgment filings, bankruptcy filings, SEC and other regulatory agency records, professional disciplinary records, driving records, military records, credit reports, sex offender repositories, etc. Some vendors even tout global coverage.

In addition to verifying identity and checking criminal records and civil judgments, these vendors can conduct media searches, verify professional licenses, contact educational institutions and conduct personal and professional reference checks. With the candidate’s consent, of course, they can also conduct interviews of spouses, neighbors, friends and former associates and colleagues.

Many employers will choose to perform some aspects of the investigation in-house, especially reference checks. For example, in some cases, HR professionals and executives within the company may be better off calling their own connections within a candidate’s former companies, rather than contacting a prepared list of references. Regardless of who contacts them, the references should represent supervisors, peers, subordinates and personal contacts. Additionally, the questions asked should not only address the key responsibilities of the position, but also the candidate’s fitness for employment with respect to moral character, integrity and reputation.

Reading between the lines
   Because many organizations are now quick to refer all reference-related inquiries to someone in payroll or an automated hot line that provides only the most basic information, a thorough reference check necessitates some professional networking and reading “between the lines.” Obtaining valuable information from references not only involves getting through to the right people, but also encouraging a deeper level of interaction.

While the reference provider may be reluctant to give specific information at first, engaging him or her in conversation will almost surely yield an overall sense or impression of the candidate. As long as the responses elicited consist of true statements that are not misleading, they are unlikely to expose the former employer to liability. The former employer is, however, right to fear the risk of litigation that comes with providing information potentially used as the basis for a candidate’s rejection. There are ways for the employer providing the references to protect itself, which include adhering to a clear policy regarding reference information and obtaining employee authorization.

Along with reference checking, basic Internet searches are also easily conducted in-house. For example, HR professionals should not underestimate the value of information obtained through basic a Google search. Social networking and blogging sites can be equally revealing.

Because a thorough investigation can take time, the company should notify candidates immediately that they will be asked to submit to a background check, and investigation should proceed only with written consent. Also, any part of the background check performed in-house should be thoroughly documented. Careful notes should be taken during reference interviews. This paper trail will go far in protecting the company from liability if the decision is questioned down the road. The employer should also respect confidentiality—only a select group of decision-makers should review and have access to information obtained in a background check. Individuals who assist with gathering or reviewing this information should do so conscientiously and in a manner that will not subject the employer to liability for invasion of privacy or allegations of negligence.

Navigating the murky waters of the background check may not at first glance appear to be an easy task. Armed with knowledge of the laws protecting applicants and the rights employers have in background checking, however, HR professionals can find a way of both complying with the law and protecting their companies from costly public blunders in hiring.

Moreover, employers cannot afford to not undertake the task of learning their rights in background checking an applicant. Time and money are well spent on a background check before a high-level employee is hired. Otherwise, companies will likely have to expend far more time and energy in dealing with the costs and expenses associated with making the wrong choice.