Times are particularly litigious and reputation can rise or fall with a new scandal or questionable behaviors by key executives. The global economy has opened up a world of opportunity: new talent, supply chains, customers, locations, acquisitions, and resources. In the advent of all this, navigating between opportunity and risk has become more perilous and the need to conduct executive background checks on executives and business partners is crucial in protecting your company’s reputation and reducing your Board’s fiduciary exposure.
Background Checks and Executives
Hiring the right executive is extremely important to a company and numerous factors are considered, among them previously held positions, reputation of companies worked for, and education. With the rise in corporate scandals most businesses acknowledge the need for some type of background check.
Many companies, however, are not aware of why it is critical to conduct executive due diligence, relying instead on professional references, industry reputation, and on new executive hires having disclosed all pertinent information. Some even believe that the current or prior company the executive worked for has already performed the necessary background check, especially if it is a well-known or branded company. While they may default to a routine background check as a matter of course. A simple background check cannot find most of the issues you need to identify to protect your companies and employees.
While some of this information may be verified through a routine background check, these standard background checks miss many things that would be uncovered in an executive due diligence investigation.
Due diligence investigations, unlike routine background checks, are designed to detect hidden and undisclosed information not readily available in standard background checks. About 20% of executives do not check out well, and 10% of executives have serious issues that would preclude them from further hiring consideration.
Recently, Moderna hired a new CFO Jorge Gomez, who worked for only a single day, before Moderna’s Board of Directors became aware that his previous company, Dentsply Sirona, was undergoing an internal audit into possible security reporting violations that had been reported to their Board of Directors by previous and current Dentsply employees two months prior. This investigation includes potential inappropriate actions by current and former Dentsply executives. Moderna maintains that they “are confident that Moderna conducted all appropriate due diligence on this matter prior to the hiring of Mr. Gomez, based on available information,” yet an executive due diligence investigation should have uncovered this. Moderna is out $700,000 in severance pay to the 1-day CFO, the cost in onboarding, and have taken damage to their reputation.
While it is not public knowledge what type of employment background checks Moderna employed, some companies rely on routine background checks at the executive level believing that they have conducted an executive due diligence investigation. These are usually low-grade employment background checks conducted by Consumer Reporting Agencies, not investigative firms.
Unlike these routine background checks, executive due diligence investigations evaluate relationships to foreign officials, criminal history, financial and legal issues, civil litigation issues, relationships with other companies and entities, reputation issues, shell company involvement, evidence of fraud, signs of money laundering, financial impropriety, conflicts of interest, drug, alcohol and human trafficking, signs of money laundering, financial impropriety, conflicts of interest, anti-competitive behaviors and numerous other serious issues.
These executive background checks are part of a company’s first line of defense in protecting themselves and the Board of Directors from serious legal issues down the line, reputational damage, and even jailtime if something is uncovered later. Foreign Corrupt Practices Act (FCPA) investigations and fines have increased over the last few years and the U.S. continues to partner with numerous international agencies to examine acts of corporate malfeasance throughout the world. Executive due diligence on all executive hires and partners is a key step in a company protecting fiduciary exposure. Executives are not cleared of responsibility if someone within their organization is involved in a business acquisition or partnership in violation of the FCPA, at home or abroad, even when they are unaware of it.
What can be socially, and sometimes legally, acceptable in one location, may in fact, be a legal issue in another. Due diligence investigations help prevent you from forming a partnership with bad actors and from hiring or acquiring them.
The Cost of Neglect: How Skipping Due Diligence Background Checks can Hurt Your Business
Neglecting to conduct due diligence background checks on executives and business partners can come at a high cost for your business. Without proper vetting, you run the risk of hiring individuals who may have a history of criminal activity, financial improprieties, or other red flags that could ultimately harm your company’s reputation and bottom line. One way to avoid these risks is to conduct thorough executive background checks that include a criminal background check and a credit report review.
A criminal background check can help uncover any criminal history an executive or business partner may have, including arrests, convictions, and even pending charges. This information can be critical in assessing the person’s character and potential risk to your business. If you skip this step and bring on someone with a criminal history, it could lead to potential legal issues, damage to your reputation, and loss of business.
Similarly, reviewing an individual’s credit report can provide valuable insight into their financial history, including any previous bankruptcies, foreclosures, or liens. This information can give you a sense of the individual’s financial responsibility and stability, which can be particularly important for positions of high authority within your company. Skipping a credit report review could put your business at risk of fraud or other financial improprieties that could ultimately harm your bottom line.
Neglecting to conduct due diligence background checks can result in serious consequences for your business. It is important to conduct thorough executive background checks that include a criminal background check and a credit report review. By taking the time to properly vet your executives and business partners, you can avoid potential legal issues, protect your reputation, and safeguard your bottom line.
Picking the Wrong Partner
Executive due diligence should be conducted when forming new business partnerships. Even a company’s Board of Directors can be fooled by bad actors at executive levels, as occurred with the high-profile Theranos case in the situation where both the CEO, Elizabeth Holmes, and COO, Sunny Balwani, misrepresented to their board and shareholders for years and were accused of defrauding investors and customers. Holmes was found guilty of fraud earlier this year. The Theranos Board of Directors was not the only ones taken in by Holmes. The Boards of Walgreens and Safeway also were. They entered into partnerships with her, without performing an executive due diligence background check. Walgreens invested and lost around $140 million. The partnership with Safeway cost the supermarket chain $400 million.
Uncovering Hidden Risks: The Case for Conducting Due Diligence Background Checks on Executives and Partners
Conducting due diligence background checks on executives and partners is essential for uncovering hidden risks that could put your business at risk. Background screening is a critical step in the hiring process, and an executive background check can provide valuable information that will help you make informed decisions about who you bring into your organization. A comprehensive background check can include an examination of an individual’s employment history, education, and criminal record, among other factors.
In addition to uncovering potential criminal records, a background check can help to verify an individual’s work history and education, ensuring that they have the qualifications and experience they claim to have. This can be particularly important for executives and partners, who may be entrusted with high-level decision-making responsibilities within the organization. By conducting a background check, you can gain valuable insights into an individual’s character, ethics, and professionalism, helping you to make informed decisions about who to bring into your organization.
In today’s highly competitive business environment, it is more important than ever to conduct thorough due diligence background checks on executives and partners. By taking the time to conduct a comprehensive background check, you can uncover hidden risks that could put your business at risk and make more informed hiring decisions. Whether you are considering hiring a new executive or entering into a partnership with another company, a background check can help you to protect your business and make better decisions about who to work with.
Opinions by investors, clients, or even the general public can have a heavy impact on a company. Approximately 25% of a company’s market value is directly attributable to its reputation, and 41% of companies that experienced a negative reputation event reported loss of brand value and revenue subsequent to damage to their business reputation. Executive hires and business partners can also have a negative effect on reputation by their actions and behaviors both on and off company time, matters that can be revealed through executive due diligence, but which would be missed in routine background checks.
Executive due diligence should be conducted on every new executive hire and acquisition of business partners, on a routine basis annually or every few years as events and people’s lives change. Standard background checks do not offer sufficient protection, so executive due diligence investigations need to be a standard practice in well managed companies.
Due diligence when comprehensive provides an extra layer of fiduciary protection for the board; this is even more important if any serious issues occur subsequently, and the company needs to show regulators such as the DOJ or SEC that they conducted due diligence to protect the company’s risk exposure.
Protecting Your Investments: The Importance of Conducting Due Diligence Background Checks on Business Partners
Investing in a business partner can be a smart move for your organization, but it can also be risky if you do not conduct the proper due diligence. One key step in protecting your investments is to conduct a thorough executive background check on any potential business partners. This background screening should include a comprehensive background investigation that covers an individual’s employment history, education, and criminal record, as well as any other relevant factors.
By conducting an executive background screening, you can ensure that you are partnering with individuals who have the experience and qualifications they claim to have. It can also help you to verify the authenticity of their credentials and work history. The verification process can uncover any discrepancies in an individual’s resume, which can be an important red flag when considering potential candidates. This can help you avoid the risk of partnering with individuals who may not be a good fit for your organization.
In addition to protecting your investments, conducting due diligence background checks on business partners can also help you to protect your reputation. If you enter into a partnership with an individual who has a history of unethical behavior or criminal activity, it could damage your organization’s reputation and hurt your bottom line. By taking the time to conduct a comprehensive background check on potential business partners, you can avoid these risks and ensure that you are making the best possible decisions for your organization.
What Is An International Background Check?
Background checks are normally conducted on employees to check the truthfulness of the information the candidate or employee is providing to their prospective employer. International background checks are similar to standard background checks except they include one or more components which require checking the person’s background or history in another country. This includes both staff, supervisors, managers and executives.
Background checks are also important to conduct on non-employees such as consultants, vendors and other third party agents who may provide services to your company but are not technically employees.
Unfortunately there are no global databases that can be checked, instead we need to check each country individually. Different processes and waivers or release forms may need to be signed depending up on the country involved.
It is important for companies to check whether the employee has any significant issues in their history such as sanctions violations, criminal convictions, or do not have the qualifications they are claiming which could disqualify the person from employment. International background checks may take between one to three weeks to complete, depending upon the country or countries involved and how the source records are available. In some countries degree records must still be manually checked and this may take longer than one week, in other cases the GDPR personal data privacy regulations may require contacting the correct person responsible for checking the records before that specific information can be verified.
Many people work in different countries for employers, or may be assigned to work in a country and decide to stay there later, or to immigrate to that country permanently. If you only check that person’s background locally, you may miss important indicators about that individual, if they have misrepresented their education, employment history or professional qualifications including professional licenses.
Some college and university degrees awarded in other countries may have a less rigorous degree process than in the USA and most of Europe. Degree fraud is unfortunately very common. They may not have been awarded a degree, or multiple degrees that they have claimed. This happens very frequently; as often as 25% of the time.
In some countries the university will require the person’s class transcripts to verify the degree earned.
Similarly the individual may not have been employed by the companies they have claimed on their resume or CV. The same may also be the case for professional licenses.
It is very important to check for these items: education verification, professional license verification, and employment verification in almost every country in the world. Universities go to great lengths to prevent degree fraud and are typically very supportive in verifying degrees earned.
Criminal convictions in countries where these can be obtained through public records. In EU countries and the United Kingdom criminal records are not available directly from courthouses for employment purposes. Companies that claim they can access these international criminal records on your behalf are misrepresenting what they can legally obtain.
Reference interviews should be considered especially for more senior level staff, managers and executives. These should be interviews involving questions requiring more than a Yes / No answer to be effective.
Conducting an international background check is a basic step in conducting due diligence on prospective hires and business relationships. Deeper levels of background due diligence should always be conducted on executive level hires.
Conducting international background checks must be conducted legally and in compliance with local, state, federal, and international privacy laws including the GDPR. It is important to work with a company that specializes in this type of work to avoid legal consequences for your company.