Background Checks Ascend to the C-Suite

When a company keen on hiring a new CFO asked an outside firm to conduct a background check on its leading candidate, the investigation produced some extra interview questions that proved valuable.

The global, New York-based business investigations and consulting firm Corporate Resolutions conducted the check, which revealed that the candidate not disclosed a recent personal bankruptcy filing. When the hiring company asked the client about the bankruptcy filing, the candidate admitted that he was let go from running a company two years earlier and was having trouble finding work. The hiring company opted to find a new CFO candidate based on this disclosure and some other information.

Companies remain reluctant to perform background checks on C-level employees and candidates -- at their own risk, says Corporate Resolutions president and founder Ken Springer. This is of interest to finance executives from a risk-management perspective -- and also a personal perspective: "CFOs, in fact, are especially good candidates; statistics show that issues and problems more often than not, include these individuals," says Springer, a former FBI agent. He recently participated in an e-mail Q&A, which I'll post in two parts:

Eric Krell: Why are corporations reluctant to conduct background checks of the upper echelon of management?

Ken Springer: Corporations should not be reluctant to conduct background checks, and if they are, then they have blinders on. Comprehensive background investigations minimize financial and reputational risk and have become a necessary and important component of due diligence.

EK: What are the issues or offenses most frequently uncovered in CEO background checks?

KS: Our honed research strategies are designed to identify information that not only confirms an individual's background but also any inconsistencies, controversies, or potential conflicts of interest. Some of the our findings typically include: lawsuits involving former employers, lenders, investors, or partners, non-disclosed business interests, criminal records, adverse regulatory history, resume fraud, controversial media attention, indications of financial stress, and patterns of management turnover.

EK: Are other executive candidates, such as CFOs, appropriate subjects for background checks?

KS: Yes, in addition to executive candidates, we frequently conduct background checks on board members, joint venture partners, senior management, and fund managers. CFOs, in fact, are especially good candidates; statistics show that issues and problems more often than not, include these individuals. Furthermore, corporations should keep in mind the risk that could be associated with other subjects. A chief marketing director, for instance is viewed as the "face" of the company. If an incident arises and perhaps goes unnoticed, it in turn affects the company's branding. Similarly, an IT person has complete access to a corporation's daily functions. Possession and control of these tools is a huge risk, and that's why these individuals must be considered probable candidates for background checks, in addition to executive members.