News & Information

CCH® HR MANAGEMENT — 7/4/06

Organizations may be overreacting when hiring scandal-linked executives

There has been much debate of the appropriateness of Sarbanes-Oxley and other regulatory initiatives to improve corporate governance in the wake of major business scandals. However, in the area of executive recruitment it would seem that corporate America has been more than adequate in policing itself, as executives with even remote ties to scandal ridden businesses have become persona non grata. But, according to Jo Bennett, partner at Battalia Winston International, in many cases the marketplace is overreacting as individuals that had nothing to do with well publicized scandals are being penalized.

"Many organizations refuse to interview candidates who come from 'tainted' companies even though the individual may not have been accused of any misdeed," said Bennett. Although an organization may benefit from this overreaction by not running the risk of being criticized for recruiting a person with any hint of scandal, that same company may also miss out on hiring a talented person that could make a positive difference.

"Organizations are turning down interviews with extremely qualified candidates that can be linked to a 'scandalous' company, regardless of their involvement in any scandal, because it takes too much effort to investigate each person's involvement and it would require a subjective judgment and assumption of risk on the part of the hiring company," said Bennett. "Also, many people believe that 'scandalous' companies have bad cultures that taint all employees."

Balance risk avoidance with talent acquisition. Many organizations attempt to avoid any and all risks that may come with hiring an executive that can be linked to a scandal by just avoiding such candidates altogether. An organization that takes risk avoidance to the extreme could find itself in the midst of very poor hiring decisions. "An organization will suffer in the extreme," said Bennett, "when a company is so risk averse that they cannot make a decision and instead prolong the hiring process."

According to Bennett, businesses can properly balance risk avoidance and talent acquisition with:

• in-depth interviewing;

• referencing; and

• awareness of business news.

"It is always wise to check both the candidate for employment and the candidate's company to see if there are any red flags," said Bennett.

An organization may find it beneficial to include risk avoidance in its hiring policy. Such a policy could include a requirement that referencing be done carefully and thoroughly. "Also, it might be advisable," said Bennett, "to have an unbiased outside party, such as a public accounting firm, review the credentials of a candidate from a company accused of some ethical breach."

Overreacting is not always the case. There are some warning signs HR should be aware of that may indicate that in fact, the hiring committee is not overreacting to the ties a potential employee has to a scandal-plagued organization. When considering hiring someone that can be tied to a scandal, watch for the following warning signs:

• reluctance to allow detailed referencing;

• references that are vague or non-committal;

• a candidate who has received a Wells Notice, which indicates that the SEC is investigating him or her;

• involuntary termination by previous employer; or

• future trial testimony is required of the potential employee.

For additional information on this and other HR topics, consult CCH Human Resources Management or Personnel Practices/Communications.

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