The upheaval at Yahoo last month took down a CEO, chairman of the board and four directors—and allowed the activist shareholder who started it all to take two seats on Yahoo’s board. All of this was triggered by one error on a CEO’s résumé. Cautionary tales of credentials fraud in business (Radio Shack and Sunbeam CEOs), universities (Kean and MIT) and government (Homeland Security IT Chief and Superior Court Justice) didn’t prevent the next new headline.
At the corporate level, especially large public companies, we know that due diligence processes to vet C-level executives and directors should be well established, driven in part by the relentless scrutiny of shareholders and regulators. And yet Yahoo happened. Why do some companies continue to fall into these traps?
Boards fail to demand full due diligence of each finalist candidate. They know they should and they know what it takes, but search committees can become uncomfortable probing too deeply into the backgrounds of candidates they know from current or prior relationships. If a board tells an investigative services firm not to conduct a background check on a candidate, the firm often won’t do it. It turns into, “I’ve known this person for years, and there’s no need to go back 20 years to check driving records and academic credentials.” Scott Thompson’s résumé was not properly vetted before he was hired at Yahoo. Finger-pointing aside, three words (“computer science degree”) blew up his career and the credibility of the company that hired him. The search firm that Thompson blamed for the error (the search firm denied it) did not go not unscathed.
Some candidates resist self-disclosing full details of their records. They hope a third-party investigation will not be conducted—one that might turn up unpleasant legal proceedings, divorce disputes or classic youthful transgressions. The candidates feel they have earned their credibility in high-profile positions and long-standing careers that led to their candidacy in the first place. A $10,000 background check is small price to pay to avoid a potential catastrophe, but some boards still elect to avoid the cost.
Large search firms’ off-limits agreements reduce the quality of the candidate pool and create alternative paths in the search process. Some of the largest search firms have too many clients and too many intertwined relationships, and, therefore, too many formal and informal off-limits situations that preclude them from going after the full range of top talent in the market. A strong candidate for a role might not be accessible to many of these search firms. Either the best candidate can’t be brought forward or borderline ethical machinations take place during the search process to have the candidate contacted behind-the-scenes and then developed outside of the full purview of the search firm engaged to do the work. Selection processes then become more lax, leading occasionally to bad hiring decisions.
Yahoo disasters are mercifully rare. As always, we hear about the biggest, baddest events and forget that the great majority of executives, companies and boards operate without the drama and damage of Yahoo’s “Week That Was.” At the same time, boards need to lead by example and retain search partners that aren’t too big to succeed while demanding they follow a bulletproof candidate vetting process.
Keith Meyer is vice chairman, head of Global CEO and Board Practice at CTPartners, a global executive search firm.