The Wall Street Journal published an article the other day about why red flags were missed in background checks on a number of high-profile cases in which an employee’s “prior transgression or act of concealment embarrasses a well-known company or university.”
The article highlights a number of recent episodes in which executives at Yahoo, Veritas Software, and the U.S. Department of Homeland Security as well as a number of university administrators and coaches have been fired or forced to resign because they misrepresented their credentials.
The article also discusses Matthew Martoma, who was expelled from Harvard Law School for forging a transcript. Martoma changed his name, received an MBA from Stanford University, and went on to be a hedge fund manager at SAC Capital, then one of the most prestigious hedge funds in the world. He was convicted Thursday for his participation in the most lucrative insider trading case ever.
And it’s not just embarrassing misrepresentations. The Washington Navy Yard shooter, Aaron Alexis, who in September killed 12 people, was arrested on several occasions, but nonetheless held onto his security clearance.
So why did background investigations fail?
1￼There is no one-stop shop
Conducting a background investigation is not as simple as throwing a name into a computer that then spits out the data. For one thing, there are still quite a number of manual processes that need to be completed. But also, there are hundreds of sources of information and hundreds of data points that need to be researched and analyzed. Some firms rely on a single-source database for their background investigations, but the fact of the matter is that there is no single source that captures all the data.
2￼Technology gives false confidence
A lawyer once joked that private investigators are just an expensive Google search. You ask other people, and they think Google has all the answers. It certainly may be able to help lead you to the all the answers, but until Google indexes all the world’s information (which Google has said will take 300 more years), it’s not even close.
3Low-budget background checks
The cost of a proper background investigation is something that most firms are reluctant to pay. The best and most specialized proprietary databases are expensive. What’s more, a significant amount of extremely valuable information, such as court records, is not available online and may require an in-person visit. Most firms aren’t willing to pay the expense of conducting a background check properly, which involves visiting courthouses or personally retrieving records.
4Finding “red flags” takes skill and analysis
Of course, anyone who misrepresents their credentials should be easy to spot by even the most basic of background investigations. But in the case of Martoma, his expulsion, his name change (he changed his name after leaving Harvard), and his reported litigation came up only in a comprehensive background investigation by a skilled investigator digging through mounds of records.
5￼False sense of security
A large Midwestern investment firm recently contacted us about conducting comprehensive background investigations on their senior executives. Their new chief executive officer had just been fired, after five months on the job, when it was discovered that he had been involved in sexual relationships with at least four people in the office. The $15 background check they had done had given them false confidence that he was the right guy for the job, somehow missing the fact that he was a complete loser. Between salary, fees, moving costs, and everything else, the situation cost them about $100,000. It was only when they lost all that money that they decided to do anything about it, though.
￼In closing …
I gave a presentation to a local business owners a few years ago and asked the group if they conducted background checks on new employees. Several raised their hands and said that they “Googled” job candidates, or that they used one of the various online services and paid less than $50. One even said that they hired people from other big firms and relied on the background investigation that would have been done previously.
The fact is that the “Google” background investigation and the “background investigation that the other firm did” are not really background investigations at all. Neither are those $15 online “background checks.”
Which is why they fail.