When you hire a new executive or C-suite employee, enter into a new business partnership, or even become a party in a large transaction, you put your company’s reputation at risk. You have already conducted legal and financial due diligence, but what are you doing to protect your hard-won business from criminals and fraudsters that will damage your business from the inside? This is the human intelligence side that needs to be carefully checked as most issues cannot be found during routine background checks.  Background checks find fewer than 1% of serious issues, compared to 20% of serious issues found in due diligence investigations. This risk may potentially lead to a situation that leaves your company skirting laws or on the edge of bankruptcy. Because of this, it is vital that your company leadership fully understands what kind of risk you’re facing and what you could potentially do to mitigate or reduce that risk.

Reputation risk management is about looking at potential outcomes. Say, for example, that your leading CFO candidate was named in an SEC investigation.  If the investigation had to do with potential wrongdoings s/he was directly involved in, your reputation could be hurt simply by hiring this individual. Beyond that, there’s the risk that s/he could continue to disregard SEC regulations or take other actions that lead to your company being investigated.

However, if s/he incurred serious penalties due to a violation of federal regulations or through other activities, it would be difficult to explain to your board, shareholders or regulators why you did not find this information in advance of hiring the CFO.

A situation like this occurred recently at Moderna, widely known recently for its effective Covid vaccines. In mid-2022 Moderna hired a CFO and had to fire him only one day later due to accounting irregularities at his prior employer, at a cost of $700,000 for his salary alone, plus a stock price drop, and serious PR issue, not to mention the cost of having to replace a senior executive. This type of reputation damage was entirely preventable.

The risk here is that the person may continue what they were doing at your company or others may feel that you’re bringing on someone who is a liability. This can lead to a number of outcomes that could damage your company and its reputation. At Infortal, we find the information you need to know in order to make a well informed decision to protect your company.

our company’s reputation is essential for attracting customers, potential new employee hires, business partners, vendors, marketing opportunities, and more. With a positive reputation, your business will have better opportunities to grow and expand. With a negative reputation, however, you may find new opportunities are few and far between. A negative reputation may also cause your customer base to shrink and force you to scale back your plans. Even nonprofits and government organizations that aren’t focused on profits can still be damaged by a negative reputation. Losing the general public’s trust can be very damaging to these organizations for many years. Think of a non-profit that has experienced a sexual harassment scandal, embezzlement or fraud by its leadership; would you donate money to them without knowing whether action was taken to remedy the situation? 

When you hire a new executive or enter into a new partnership with another business, you’re joining your reputation to theirs. This is why doing your due diligence and learning about their past is so important. You don’t want to be associated with someone who has a criminal past or is known for producing poor-quality products or damaged services. Doing so can give you a reputation for chasing profits by working with companies known for cheating their customers. Hiring an executive who has charges of harassment can give you a reputation for hiring the wrong people, which will make it harder to retain and hire quality employees and promote having a great corporate culture.