Deep Background

A Look at the Importance of Proper Background Checks for Executive Search

This article was originally published at Hunt Scanlon Media.

Background checks allow employers to get a more complete picture of a candidate, which in turn may help them hire the most qualified people. Hunt Scanlon Media recently sat down with Mintz Group’s Doug Chisholm to discuss why thorough background checks are so important, how they approach them, and also some commons things that are discovered when looking into a senior executive’s background.

Background checks are an important part of the hiring process. They can help confirm that candidates have the experience and education they claim to have. This includes verification of education, employment history, professional licenses, and certifications. Background checks can help identify candidates with a history of financial irresponsibility or fraudulent activities. This is important when hiring for senior positions that involve financial responsibilities or access to company funds.

“Background checks are essentially like insurance – it’s a relatively small fee to pay to save you from a much bigger problem down the road,” says Doug Chisholm, partner and practice head of transaction diligence Mintz Group, a corporate investigations firm that gathers information before hiring, before transactions, during litigation disputes and after frauds, all over the world. “But if they’re done right, that problem never materializes. And we hope it never does. Unfortunately, some of our clients came to us that way – they got burned by former employees they failed to background, sanctioned by regulators for failing to conduct proper diligence, or stuck with a toxic portfolio company that they used an unreliable, lower-cost investigator to review.

“I’m a baseball fan, so I often think of us as that devastating left-handed pitcher who comes out of the bullpen to face that dangerous left-hand hitter,” Mr. Chisholm said. “We can’t guarantee that a clean background check equals an impeccable employee or investment, but we can cut down the odds greatly in our clients’ favor. And we’re super confident in our ability to search as deep and wide as anyone in the business.”

“We provide our clients, including search firms and investors, with intelligence to help them make more informed decisions,” said Mr. Chisholm. “Typically, our background checks consist of a review of public records and proprietary databases, designed to find issues important to our clients. We’ve found criminal embezzlement cases filed against CFO’s, candidates who sued their last three employers, and series of Venmo transactions that would make Pablo Escobar blush.”

“But we also support human capital and investment decisions in other ways, including conducting reputational inquiries to learn more about a candidate or company, looking into key customer relationships, and helping our clients enter into markets around the world with which they may not be familiar, just to name a few,” Mr. Chisholm said. “We love our job and are happy to talk through an investigative approach to just about any issue a client may have – whether it’s running a standard background check or something much more nuanced and bespoke.”

What Turns Up

Mintz Group finds all sort of things when conducting their background checks. “You may (or may not) be surprised at how many DUI cases we find,” Mr. Chisholm said. “Often times, clients can ultimately get comfortable with these findings, but it can be a different story if there’s more than one or if it’s recent. Sometimes these can lead to candidates turning their life around positively or dedicating themselves to sobriety, so it’s important to ask about it and see how they react. We strongly encourage our clients to ask candidates’ about our findings, as the public record often tells a story, but the candidate may want to add some important context to it.”

“In addition, finding bad behavior on social media is becoming more and more common, as that dataset grows every day,” said Mr. Chisholm. “We use AI-aided tools to help us search social media platforms and the internet as far as possible. Sometimes an isolated, hard-to-find disgusting comment by a then 21 year-old CEO candidate can be a diligence issue our clients ultimately get comfortable with, but what happens if a thorough reporter or nosy competitor finds that same post and makes it public?”

Sometimes the sheer volume of findings (civil lawsuits, regulatory actions, adverse press coverage, etc.) can be daunting right off the bat, but it’s important for us to work our way through the findings and not become judgmental, according to Mr. Chisholm. “Perhaps the candidate was a non-executive director of a company with a rogue employee and got caught up in the aftermath of the employees’ conduct,” he said. “Or yes, maybe trouble seems to find this candidate wherever they go, from company to company. Sometimes we do quickly find something potentially disqualifying, like a recent criminal fraud case, and we’re good with calling the client immediately, as that may save them some diligence costs.”

Search Firm Doing Background Checks

Hunt Scanlon Media also asked Mintz Group if executive search firms do a good enough job at background checks. “When it comes to reputational inquires, hell yeah,” said Mr. Chisholm. “Our executive search firm clients are super talented and they know how to use their expansive networks to answer key questions about a candidate. Many of them would make great investigators. But when it comes to public record-based background checks, our search firms clients almost always call us in to supplement their findings and tell them what their network couldn’t. A CEO candidate had a great reputation in his industry, but we found two domestic violence matters filed against him within the past year that our client didn’t know about. We also often find side companies based out of candidates’ homes, which can perhaps compete for their professional attention. These kinds of things often don’t make their way into professional – or even personal – networks,” he added.

Mintz Group also notes that when M&A deals are involved it is critical to get management diligence right. “Vetting management teams in deals is a specialty of ours,” Mr. Chisholm says.  “Some deals team clients poke fun of us that we’re just focused on killing deals, but in reality, what we often do is provide our clients with intelligence that they can use to create a stronger relationship post-investment. One of the ways we do this is by conducting what we call integrity interviews with management at the outset of our investigation.”

“We ask them to disclose any lawsuits, criminal cases, bankruptcies, controversies, etc., and then we go ahead and search for those things specifically,” said Mr. Chisholm. “Their answers can add another layer of context to our findings. Ops professionals often treat a management team differently depending on how forthcoming and transparent they were during the interview process. This helps us test what the culture of accountability looks like within that management team before our clients make their investment. This information is crucial and helps investors set growth plans or lets an investor know that they may need to make an executive change, which is much better to know before the investment than six months or a year afterwards.”

The Mintz Group is a global investigations firm with more than 280 people and 12 offices worldwide. The company specializes in helping clients vet prospective hires, diligence potential deals and navigate their way through disputes, among other things. The Mintz Group is headquartered in New York City and was established in 1994.

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Executive Editor; Lily Fauver, Senior Editor – Hunt Scanlon Media

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