Hire in haste, repent in receivership
In a place as ordered and orderly as Germany, the concept of background checks on employees or verifying resumes strikes many as not only unnecessary but almost, well, embarrassingly like a police state. The system is weighted heavily in favor of the employee, and very strict privacy protection limits publicly available information to a bare minimum. A job seeker brings along a skeletal c.v., buttressed by statements from each previous employer – if that employer was a German firm! A tax card, listing all previous employment and dates of unemployment, is kept by the Finanz Amt (the national tax authority), but the full card is not available to employers. Only the last workplace is listed on the card, which must be presented to each new employer to verify the deductions one may claim. Nor is a prospective employer allowed to contact the immediately previous employer, although cursory checks may be made with other earlier employers.
The information available formally to the prospective employer is severely limited, although more can be had in a confidential conversation if sufficient trust is established. Executive search and recruitment agencies theoretically perform in-depth checks, and the unusually prudent will bring in agencies such as LUBRINCO. The sad truth is that most checks, if they are done at all, are internal, and with a lack of oversight from a harassed and overburdened HR staff, you are at best likely to have a cursory check, and at worst an invitation to disaster.
And so it proved for a start-up operation that staffed its top positions in Germany (and elsewhere) from a distance, across national boundaries, relying on an executive search firm with a stellar reputation in the headquarters’ country, but with no real follow-up or oversight by company staff. Nine months and a roller coaster ride of in-house turf battles and misread signals, the financial and operational havoc the young, dynamic, General Manager had caused began to surface, slowly but surely, in the wake of his sudden departure.
ÆGIS, November 2001 13 A poorly-designed, poorly implemented, and poorly audited financial control system had allowed the new GM to pass bills directly to headquarters for payment, with no cross-check by the local financial cost center, while sending other day-to-day expenses through the normal channel. The result? No one at headquarters was fully aware of what was being contracted for or spent at his facility.
Based on after-the-fact reviews of the services contracted, and conversations with employees who were directed by the GM – often accompanied by a temperamental outburst – to use certain companies and services even when others would have been more cost effective, it appears certain that there had been graft and kickbacks. It had been carried out cleverly enough, however, that proof would be almost impossible to produce unless the firms involved cooperated, which is a highly unlikely scenario.
The atmosphere at his facility became ever more depressed, with de- motivated employees, strange directives, long absences by the GM, and inquiries by the CEO into rumors of sexual harassment and other issues. It seems likely that someone at headquarters tipped the GM off that he was about to be fired, because he resigned the day before the comptroller was due for a visit to his facility. He left behind a mountain of debt and iron-clad contracts for services that the company could not use or did not need, at prices that were well beyond fair market value. He had spent large sums of company money on frivolous extras that were of no benefit, while neglecting basic maintenance and operational expenditures.
How did it happen? As the UK-based company geared up its operations in Germany, it was in a hurry. It relied on names it knew in the headquarters country to carry out work through their local offices, and wanted results fast.
Several candidates applied via the web, including the GM. The resume he submitted seemed almost too good to be true, with the exact skills and experience that the company was seeking. An initial interview with the executive search consultant was quickly followed by interviews with the headquarters principals and the contract was agreed. The company “assumed,” given the executive search firm’s reputation, that all the required checks had been done. In fact, none of them had been done, not even the most basic. The c.v., without even the accompanying documentation that is standard in Germany, was accepted at face value.
The GM was a charming and very well-spoken young executive who said he had worked in Europe, the Mideast, and the US. He wore the right suits, knew all the right names, claimed connections in the industry, and overwhelmed with his confidence and savvy. He listed employers such as GE, a large German mail order firm, and at least one start-up funded by one of the Fortune 500. The dates flowed seamlessly from one employer to the other. The explanations for leaving one firm and going to another made perfect sense. No one asked the questions we at LUBRINCO (who happen to be particularly strong in Central and Western Europe) are paid to ask. Questions like: “Where are the references?” “Does the resume check out?” “Is any of this untrue?”
A few months later, the finger pointing was at fever pitch as the damage assessment rolled in. The executive research firm, embarrassed and shocked at the failure in its system, provided immediate and invaluable assistance by doing some of the checks its already-fired consultant had failed to do. The company’s security and HR departments found that the GM had a long history of such activities, having taken two other small companies to the brink of bankruptcy through contract arrangements and expenditures before he was fired or left. Ultimately, research revealed that the previously unverified resume changed from job application to job application, and that the dates listed did not agree with the official tax records.
Today the company is in bankruptcy proceedings, not entirely due to the activities of the GM, but certainly in part attributable to his behavior, and to the outlook that allowed this incident to happen.
The GM has gone on to another unsuspecting employer, via the Internet, and feels quite safe, sheltered by the German privacy laws and his infinite ability to reinvent himself on demand (The case went to hearing and the company lost. The reason? His lawyer submitted that the company could not prove that the inaccurate e-mailed resumes, with incorrect dates, dates of unemployment omitted, etc. were submitted by the manager. Because they were delivered by e-mail, not in hard copy and not signed by the applicant, there was no proof that he had supplied them!). Current and future employers can only be spared similar problems by doing what they are most reluctant to do (particularly at the executive level), and what we so strongly urge they do: Check out the resume – which should be written and signed – and see if what it claims is true.
You might ask how, when due diligence is exercised so regularly in other areas, did this fall through the cracks? The truth is that while we know through experience that verification on the executive level is critical, many find it merely embarrassing. Even worse, in Germany – and in many other places, too – the exercise of due diligence is habitually simply not done unless mandated by law.
Most people and companies are honest, and hiring a firm like ours to investigate them, much like flood insurance payments when you are not on the water, seems fruitless. It is only when you encounter the rare malicious subject, or are flooded, that you realize what a sound investment you made.