When a high-ranking official departs from a company, it results in a void within the organization. Frequently, a specific department within the company is left devoid of top-level management. The CEO or board faces the absence of a valued expert who offers guidance and oversees various aspects of the company such as operations, finances, human resources, and technology, among others. The company must refrain from hasty decisions in the quest for a replacement executive. These individuals are not just leaders but also representatives of the company and its image. Their actions have a direct impact on the reputation of the brand, and any history of questionable conduct, criminal records, financial improprieties, or conflicts of interest can harm the brand’s standing. Effective Business Risk Management becomes paramount in ensuring a smooth transition and safeguarding the company’s interests during such periods of executive turnover.
It is essential for any organization or governing body looking to hire a new top-level executive to conduct thorough investigations. In the case of positions at the C-suite level, the due diligence process should extend beyond reviewing their employment background and criminal record. It is important to uncover any potential criminal records from other countries, assess their tendency to engage in legal disputes and identify any undisclosed conflicts of interest. In summary, a comprehensive examination of any candidate on the final list for the role is imperative.
It is crucial to do an in-depth evaluation whenever you are thinking about hiring a new leader to make sure the candidate’s objectives and values match well with yours. Learn the advantages of running a thorough background check on a prospective employee, how it can help your company, and why working with Infortal Worldwide is the best method to protect the reputation of your company.
What Is Executive Due Diligence?
A candidate’s background is thoroughly investigated as part of executive due diligence, going above and beyond the usual inquiries into job history, credit history, and criminal records. High-level executives should pay special attention to this since their behavior and reputation can have a big influence on the success and image of the organization. It’s critical to compile comprehensive background information on the candidate, including any criminal history abroad and links with dubious organizations or statements made in public that could be at odds with the company’s principles, to mitigate any potential dangers. This comprehensive evaluation assists in guaranteeing that the business is choosing the best applicant for the role based on educated judgment.
Thorough research involves more than just basic background checks. It extends to examining all public records, even those from different states and countries, for any given name or aliases. Information about business dealings or legal matters in other countries may not be readily available through a search confined to the United States. It is important to look beyond national borders to obtain a comprehensive understanding of an individual’s background.
Many organizations lack the resources and expertise to thoroughly investigate a person’s background beyond merely asking questions. While verifying facts is relatively straightforward, uncovering more nuanced information such as ties to hate groups, fraudulent activities, or family connections to criminal organizations requires a deeper level of scrutiny. These types of investigations can reveal a candidate’s potential to be a public relations liability or, in extreme cases, a criminal offender.
Infortal conducts thorough executive due diligence by examining public records, global watch lists, both US and international criminal records (if accessible), civil court records, corporate board disputes, financial stress factors, behavioral red flags, and additional sources of information. Ultimately, we furnish our clients with a comprehensive overview of the individual, detailing any criminal past, legal troubles, worrisome online behavior, potential conflicts of interest, and other factors indicating risks that may impact the company.
Why Due Diligence is Important in an Executive Search
The significance of thorough examination in an executive search cannot be overstated. Conducting extensive due diligence on an executive is crucial for several reasons. Failure to do so can expose a company to various risks.
Executives Require More Thorough Background Screenings
Standard background checks are insufficient for high-level positions, as they often fail to uncover crucial information that could impact a company’s hiring decision. Our findings indicate that approximately 20% of executive-level candidates have concerning details in their past that standard checks won’t reveal, including information from other regions and countries.
Making an informed selection can be facilitated by thoroughly investigating a possible recruit, since it can provide a more complete image of them. A more thorough inquiry can provide you with a more comprehensive view of the candidate’s background, helping you to avoid potential traps and ensure a successful hire—even though a simple search may only turn up a small number of problems.
Thorough Executive Due Diligence Offers Insight
While a background check might uncover that a candidate was implicated in a legal case, it may not shed light on the details of the situation. It is the responsibility of the company to delve into the legal records and ascertain the candidate’s level of involvement. Infortal can provide this insight so that companies can determine whether the candidate has a tendency towards legal disputes or if they were merely included with other company executives or individuals. A person who frequently engages in legal battles might strategize to sue your company by orchestrating a sequence of events that portray them as the victim. Various civil litigation disputes could indicate a pattern of litigious behavior, potentially leading to negative consequences and harm to your organization’s reputation in the future.
Moreover, if the executive in question is an investor or is pretending to be one, they could face legal action for breaching contracts and committing fraud. This could happen if other companies pursuing investment opportunities discover that the executive was engaged with undisclosed companies that were not uncovered during legal and financial investigations.
Establishing relationships with other businesses and engaging in partnerships is conducting thorough investigations that is often neglected. This oversight can lead to damaging one’s reputation and potentially creating conflicts of interest, highlighting the need for thorough exploration.
It can occasionally be difficult to recognize conflicts of interest. For example, a senior executive in a pivotal role within your company might simultaneously be associated with a rival business, either as an owner or employee. It can be challenging to discover through routine background checks when people have secret ownership or investment interests in firms that have substantial influence over other businesses. Such individuals may exploit their connections to manipulate information, engage in fraudulent activities, or influence critical business decisions. There is also the risk of double-dipping at another employer or the possibility of planted individuals working to undermine your company’s operations or steal sensitive information. Infortal has encountered these scenarios in actual companies, yet many businesses believe they are immune to such risks.
Many employers tend to overlook verifying candidates’ educational backgrounds, with only 53% of them taking the step to do so. This lapse in diligence creates an opportunity for job seekers to present misleading or fabricated information about their educational attainment, particularly for high-level positions where work experience is extensive.
A hiring committee may mistakenly assume that a candidate with an impressive resume, featuring renowned companies, has authentic educational credentials. However, this assumption can be misguided, as years of experience don’t necessarily guarantee truthfulness. A falsified degree or other dishonest credentials should raise a red flag, as it’s reasonable to question the candidate’s honesty in other aspects. A candidate’s integrity is crucial, and a forged degree can indicate a pattern of deception. Notably, Yahoo faced reputational damage after its CEO, Scott Thompson, was found to have claimed a nonexistent degree, resulting in a stock drop and long-term consequences. Similarly, Marilee Jones Jones, the dean of admissions at MIT, falsely claimed to hold three degrees, damaging her reputation and that of the institution.
David Edmondson, who served as the CEO of Radio Shack, stepped down from his position after it was revealed that he had falsely stated that he held two degrees when he did not actually have any. Based on Infortal’s observations, around 15% of workers tend to provide inaccurate information regarding their educational credentials.
A bad executive hire can have long-lasting, disastrous effects on the company’s finances, reputation, and prospects for success. Making a snap decision might result in hefty legal bills, settlements, and expensive severance packages. In addition, the business can have to pay more to correct the missteps made by the unfit boss, lose the faith of shareholders, and risk regulatory fines. The harm may be severe and protracted, impacting the business’s long-term stability, expansion, and reputation.
The negative impact on your company’s reputation can have far-reaching consequences, including the loss of valuable clients, partners, and government contracts. This can lead to a decline in stock prices, resulting in legal action from investors or their withdrawal from the company. Additionally, the damage can cause other executives and employees to seek employment elsewhere, which can take years to recover from.
The degree of the damage could occasionally be so great that it forces the business to close. The company’s reputation could be severely harmed to learn that the CEO is being investigated for alleged money laundering, bribery, corruption, or even murder in another nation. In a similar vein, a CFO who has a hidden background of financial misbehavior may spend all of the company’s funds without anybody knowing.
One deceitful person in a position of power can easily bring down a company. Recent instances of this include Bernie Madoff’s massive Ponzi scheme worth $64 billion, the CEO Jeffrey Skilling’s fraudulent activities at Enron, and Elizabeth Holmes’ deception with fake blood testing devices at Theranos.
Safeguard Your Company
Ultimately, the key factor is trust. To what extent can reliance be placed on a candidate applying for a high-level role? Safeguarding against risks is crucial for a business, including the potential of hiring someone who may pose liabilities. Entrusting an individual without conducting thorough executive background checks is a gamble that could have severe consequences on the company’s reputation and financial well-being. Infortal strives to minimize this risk through comprehensive investigations into executives and other essential staff members.
It is acknowledged that organizations have a responsibility to safeguard their interests by conducting thorough background checks on potential executives. However, it is estimated that one-fifth of candidates may withhold information about their past, and a small number may not disclose certain details because they do not perceive them as significant or relevant to their employment suitability. Although these candidates may not have intended to deceive, their lack of transparency can prevent companies from making informed hiring decisions and expose them to unforeseen risks.
Infortal brings a wealth of experience, spanning over three decades, in providing comprehensive executive due diligence services. We collaborate closely with our clients to uncover all pertinent information regarding a candidate, enabling informed decision-making and minimizing potential risks to the organization. Our expertise empowers you to make confident hiring decisions, whether for C-suite or board positions while ensuring the utmost protection against liability for your company.
Ready to discover how Infortal can aid your business? Reach out to us now!
