A well-done executive background check will also include reference interviewing. These interviews are conducted with 6 to 8 individuals and typically take from 30 to 40 minutes each. In the hands of a highly trained interviewer, these interviews reveal a number of important pieces of information, including issues of malfeasance in prior roles, or persistent character and behavior patterns.
Investors should perform executive due diligence on the executive and board members of a company they want to invest in. If you are willing to invest your money on a company’s future profitability, the additional investment needed to perform a deep dive executive background check should be included to prevent potential negative ROI. There have been many instances where the investor does not have the stalwart background or wealth they may claim.
The Enron scandal: The founder, CEO, and Chairman were found guilty of corporate abuse and accounting fraud. Other charges against executives included money laundering, securities fraud, wire fraud, mail fraud, money laundering, conspiracy, and insider trading. Enron’s shareholders lost $74 billion during the four years leading up to the company’s bankruptcy. The employees lost billions in pensions.
Stanford Financial Group of Companies – Cost: $8 billion; owner and CEO; involved in major fraud and Ponzi scheme; violated US securities laws.
Fry’s Electronics – Cost: $65.6 million; vice president of merchandising and operations; used vendor fraud and kickbacks in purchasing electronics inventory for store, including a dummy store he set up.
Clients of Bernie Madoff – Cost: billions of dollars; Investment advisor; involved in widespread frauds that squandered the investments of thousands of investors.
Peregrine Financial – Cost: $200 million; CEO; embezzled and reported false income statements.
Tenens Corp., d.b.a. Essex Street Associates – Cost: $61 million; Chief Operating Officer; transferred funds from the trusts of heirs of industrialist Frederick Ayers, whose accounts he was managing, to his own personal accounts, and submitted false financial statements to not raise suspicions.
NYC Laborers Sandhogs Union Local 147 – Cost: $42.6 million; Employee Benefits Manager; embezzled through employee benefits plan, mostly money laundering.
Pacific Seafood Group – Cost: $900 million estimated; vice president of employee leadership and development; embezzlement, wire fraud, filing a false tax return. He used a company credit card and his authority to issue corporate checks to secretly divert company funds to make personal purchases, including: electronics, jewelry, firearms, vacations, and prostitution services
Koss Inc. – Cost: $30 million; vice president of finance; devised plan to commit wire fraud in order to keep up with compulsive shopping disorder.
First Security Bank of Malta – Cost: $3.7 million; vice president of operations, created fraudulent credit cards at bank to cover personal debts.
Dane Cook – Cost: Millions of dollars; business manager and brother, used position as brother and manager to steal through larceny, forgery, and embezzlement.
Woodruff Arts Center – Cost: $1.48 million; accounts receivable employee, created fictitious company with an assigned vendor number, and turned in invoices for it regularly.
Ongoing and routine executive background checks could have caught any number of instances of malfeasance in these cases and saved the company in money, reputation, loss of profitability, and associated costs.