Hidden in Plain Sight – Protecting Your Organization from Leadership Risk

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Executives who maintain leadership positions must have the passion and creativity to be inspirational and the experience to make exceptional decisions.

They must also have a reputation beyond reproach.

Even the slightest error or omission in their work history, if uncovered after their hire, may be seized upon by citizen journalists who can use social media to spread the dirt around the world in moments.

As Warren Buffet has said, “It takes 20 years to build a reputation and five minutes to ruin it.”

Yet many organizations don’t properly screen their C-level personnel! Perhaps they’re unaware that if information is revealed – for example, the CEO didn’t actually attend the university he or she claims to have graduated from – the results may critically damage the organization and its brand in seconds.

It happened to a major tech company, and it can happen to you.

With “reputation” becoming an increasingly significant economic force and necessary differentiator to attract customers and clients, HireRight surveyed 140 HR senior HR leaders in companies with more than 5,000 employees to investigate whether they are aware of the risks of failing to carry out appropriate leadership through vetting or screening.

Almost all the HR professionals surveyed indicated that they are confident that their processes for checking their leaders are adequate, yet:

  • In 37 percent of organizations, graduates undergo more checks and tests than the CEO.
  • 54 percent of companies fail to carry out basic background checks before hiring new members to their Board of Directors.
  • Only 34 percent of companies always use a third party to verify the professional background of new CEO’s.

According to Kroll’s 2015 Global Fraud Survey, “the biggest fraud threat to companies comes from within. Of those companies that experienced fraud where the perpetrator was known, four in five (81%) suffered at the hands of at least one insider.”

Positions such as an organization’s legal counsel, accountant, or IT manager, may all have access to sensitive company resources or data that, in the wrong hands and distributed using today’s powerful social media, could quickly bring a company to its knees.

It may be prudent to ensure that, prior to his or her posting, such integral and well-connected individuals have been properly screened.

But many organizations go on gut instinct and assume the best: Based on the HireRight survey, it is presumed by 49 percent of businesses responding that someone applying for a leadership position will be more trustworthy and their application and interview will be entirely accurate.

But people at all levels are equally capable of lies or embellishment; the HireRight survey shows a leadership lie has been exposed by screening in one in three of the largest responding organizations.

So, background checks for senior positions may be a very reasonable consideration for companies of all sizes.

It may not only be prudent to run an executive intelligence screening on new C-level execs joining an organization but to also conduct a thorough background check on an existing employee who is being promoted to a senior position.

While a background check may have been run at the time of the employee’s hire, situations may have arisen in the interim that will be revealed in a subsequent check.

When a new member is elected to a company’s Board of Directors, a background check may also prove invaluable.

HireRight’s survey revealed that companies are very unlikely to carry out complete leadership screening when promoting current employees to the board – 29 percent ensure all of the details on their résumé are accurate.

For such a powerful position, a background check may prove invaluable.

The same practice may be considered when a merger or acquisition is consummated.

It was found in the HireRight survey that in 49 percent of organizations, senior leaders that join as a result of a merger or acquisition are not screened beforehand.

Thirty-four percent of HR directors know of a potential scandal that could affect their organization as a result, leaving the company open to reputational risk.

An extensive resume does not necessarily indicate a candidate for a top position does not pose a threat.

Yet checks are often not carried out on leaders when 49 percent of HR directors admit that their management team assumes people applying for senior positions have not lied on their résumé or application.

Twenty-six percent 26 percent rely instead on “gut instinct.”

Ironically, employees that pose far less of a risk to a company are scrutinized more-thoroughly than upper management personnel.

We found that CEOs go through fewer tests and interviews than recent graduates in as many as 37 percent of the companies surveyed.

Certainly staff should be required to prove that they are the right fit for an organization, but it should be at least as important for leaders to be are assessed more thoroughly.

The cumulative effect of such negligence is that high-profile people become “invisible” to background check best practices in many organizations (29 percent).

While there is clearly more to be done to ensure that the largest businesses are hiring and promoting the finest leaders, there are steps that can be taken to help mitigate your own organization’s risk.

Investigate:

Have your background check and recruitment policy and processes examined from top to bottom. Find out if you have an auditable, transparent and measurable system in place.

Update:

Ensure your policy is assessed regularly to keep it up-to-date in light of the constantly changing business environment and domestic and international laws and regulations.

Question:

Placing any person within your organization requires great confidence, trust and belief in their ability and intentions, but it is your leaders who are your business and everything it stands for. Look around your boardroom and ask, who exactly are these people? If you are not certain, find out. Have they all undergone the same level of rigorous screening? If not, preventable damage could be caused to your business – to its reputation, its operations, its culture and its success.

Quality of leadership is what powers organizations to endure and prosper. These are the people shaping your business now and for the future.

For a more thorough look into Executive Intelligence, download HireRight’s free eBook.

Protect your Organization from Leadership Risk
Protect your Organization from Leadership Risk [eBook]

With reputation becoming an increasingly significant economic force and necessary differentiator to attract customers and clients, HireRight spoke to 140 HR leaders to investigate whether they are aware of the risks of failing to carry out appropriate leadership (vetting or screening).

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Lewis Lustman

Lewis Lustman is a content marketer who enjoys developing materials that engage, inform, challenge, and hopefully entertain my audience. Lewis is a formal journalist for Los Angeles Magazine and the Los Angeles Times, and has worked for a number of leading advertising, marketing, technology, and PR firms over the years. Interested in a topic that he hasn't yet tackled? Drop him a line in the comments section!

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The HireRight Blog is provided for informational purposes only. It is not intended to be comprehensive, and is not a substitute for and should not be construed as legal advice. HireRight does not warrant any statements in the HireRight Blog. Any statutes or laws cited herein should be read in their entirety. You should direct to your own experienced legal counsel questions involving your organization’s compliance with or interpretation or application of laws or regulations and any additional legal requirements that may apply.