Companies at risk from lax vetting of new bosses

16 October 2014 -

In wake of recent high-profile board departures, research shows that high-level staff are inadequately screened compared to those at the outset of their careers

Jermaine Haughton

Chief executives undergo far fewer interviews and tests of their abilities than graduates, according to new research from recruitment specialists HireRight. The firm argues that the sketchy vetting of top-level hires is putting organisations at risk from potentially damaging decision making.

Titled The Untouchables: Protecting Your Organisation From Leadership Risk, the report found that one in three CEOs does not undergo any form of due diligence whatsoever at appointment stage, and one third of organisations could fall prey to reputational scandals because of inadequate screening processes.

Harvesting the views of 140 HR directors in some of the UK’s largest organisations, the report revealed that almost half (45%) of respondents know of organisations where CEOs go through fewer interviews and tests than graduates. More than one third (37%) admitted that this was the case in their own companies. That is despite almost all businesses officially claiming to have carried out adequate due diligence on new leaders.

The suspension of senior management at Tesco over the overstatement of £250m in profits this year, as well as the misguided leadership of The Co-operative Bank – which forced the mutual into a £1.9 billion black hole before a rescue by American hedge funds – are just two examples of the perils of poor management. Yet, despite the risks posed to company reputations and performance, two-thirds of businesses do not consistently verify the backgrounds of new C-suite members, the report says. In fact, one in three (31%) do not undergo any form of due diligence during their appointment.

Around 24% of the HR leaders who took part in the survey believe that their board members may never, in their entire careers, have had their qualifications, work histories, criminal records or media profiles checked. But the lack of solid background checks means that a reputational scandal could be possible in a third (33%) of organisations. 

HireRight EMEA managing director Steve Girdler warned that recruiters are putting their companies at severe risk by failing to thoroughly select the right candidates to lead their firm. “Leaders are no longer figureheads who only appear at carefully orchestrated press conferences,” he said. “An entire organisation’s reputation can be damaged with a mobile phone image or an inaccurate CV, followed by the click of a mouse.”

But despite that risk, he said, “companies are putting the reputation and success of their entire business at risk by not carrying out suitable levels of due diligence on their board members – who clearly pose a significantly greater threat than graduates. Reputational risk is rising up the boardroom agenda – but not fast enough.”

While 93% of HR leaders said they carry out an adequate amount of due diligence on new board members, almost half (49%) admitted they simply assume candidates applying for senior positions have not lied on their CVs or applications. More worryingly, a quarter (27%) of HR leaders confessed that they have hired people that they otherwise would not have, had those individuals been properly screened.

The research shows that strong screening processes are clearly vital because on the occasions when they have been carried out, background checks have exposed leadership lies in one in every three companies.

Girdler added: “There’s no doubt that preventable mistakes are being made when recruiting senior leaders, risking irreparable damage to company reputation, operations, culture and performance. But there are steps that can be taken to lessen your company’s own risk: look around your boardroom and ask, who exactly are these people? If you are not certain, find out. Have your screening and recruitment policy and processes examined. Ensure you have an auditable, transparent and measurable system in place. Assess it regularly to keep up with the changing business environment and international laws.

“Only then can you be sure the leaders in your own organisation are who they say they are and have not become untouchable.” 

For more on these issues, check out CMI’s ethics report on the perils of robotic management.