Unceremonious exits are pretty painful—both for the employee and the employer. An unpleasant scene played out recently at global luggage maker Samsonite International SA when its CEO, Ramesh Tainwala, had to quit after short-seller Blue Orca Capital LLC accused him of falsely claiming that he had a doctorate degree in business administration.
Soon after the release of Blue Orca’s report, which also made allegations of accounting lapses and poor corporate governance, Samsonite stock plunged 21%, erasing $1.3 billion (around ₹8,500 crore) in market capitalization. While Samsonite in its statement said that “the board takes the allegation that has been made about Tainwala’s academic credentials seriously”, it labelled all charges of lapses in accounting and financial disclosures incorrect. Tainwala denied the allegation against him, telling the Wall Street Journal in an email that he never claimed to hold a doctoral degree.
However, experts say Samsonite acted swiftly and appropriately by letting Tainwala go. “Willful misrepresentation of information is a cause for termination. Companies deal with the communication of this differently—some preferring a more discreet approach which provides the impression that the parting is amicable and mutual. In listed companies, at the CXO level, there tends to be more transparency and greater disclosure around the specific circumstances,” says Sachin Rajan, managing director and country manager at Russell Reynolds Associates, a global search and leadership advisory firm.
Colin Mendes, general manager and head of human resources, Voltas Ltd, concurs. Today, one of the key cost components every company scrutinizes is manpower cost, and a humongous portion of it lies at the leadership level, he says.
“Discrepancies at this level not only have huge financial implications but also challenge the values of, and beliefs in, the company. More so, because leaders are the custodians of the code of conduct and the keeper of ethos,” adds Mendes.
So, why would someone take a chance when the stakes are that high? In that sense, the padding act Tainwala has been accused of seems particularly irrational: You do not need a PhD to successfully run a company.
“The problem is rooted in a strong shift on focus towards the optics of the résumé. It is increasingly fashionable, from university onwards, to project one’s achievements aggressively across the spectrum of curricular, extracurricular, volunteer and professional activity. After a while, the line between this projection and actual achievements and contributions starts blurring, bordering on misrepresentation,” says Rajan.
Misrepresenting additional skills, dates of employment, responsibilities or positions tend to be more common than most people think. Education discrepancies typically involve not completing the course/registration, while employment data may have incorrect tenure, inflated designation, fake employment to justify career gaps, incomplete exit formalities, etc., according to executives with hiring responsibilities.
Then there are legacy lies, or embellishments from the past— at the start of a career perhaps—which can be tough to undo, says Rajan. “Candidates underestimate the ability of these early misrepresentations to surface at a later stage. Often, thanks to the internet and digital trails, it is also hard to undo some of these without risking the consequences of this disclosure,” he says.
High to low
Across the board, out of every 100 candidates who are screened by First Advantage, a global background verification company, 10 candidates on an average are found to have discrepancies in either employment- or education-related data. Out of every 100 discrepancy cases, 64 are from the associate level, 19 from middle management, and three from the senior management level, says Vivek Khanna, managing director, India region, First Advantage Corp.
Discrepancies, though few, do exist at senior levels, says Khanna. Russell Reynolds for example would put the number at one to two such instances over the 100 plus CXO search mandates that they run every year, that get flagged for such reasons. While in itself these are not large numbers, the fact that they occur within the CXO population, coupled with the likelihood of a few undetected instances, makes it worrying.
Experts say background screening is critical at the senior executive level because of the extent of responsibilities, the authority and access they have to business-critical information. “Stringent corporate governance norms, transparency and greater accountability to shareholders and investors are also driving companies to make sure that hires come with a clean track record, and they are going the extra mile by seeking the services of third-party screening companies and consulting firms,” says K. Sudarshan, managing partner, India, at EMA Partners International, a global search firm.
Third-party screening is also becoming popular since the process of background verification demands huge rigour involving multiple sources of information and data bases needing to be researched and analysed. “The lack of a centralized repository of information, ill-defined processes and procedures to conduct checks at educational institutes, police stations make the screening process vulnerable to gaps,” says Rajan.
Many companies like Voltas have institutionalized a strong mechanism for industry reference checks, particularly for mid- and senior-level hires. “This includes a 360-degree check, which includes understanding a candidate’s professional competencies, roles, responsibilities, etc., from co-workers, and shadow referencing, which includes understanding candidates background, interaction, feedback, people issues, management style, integrity, among other facets,” adds Mendes.
Senior-level verification reports are detailed and comprehensive. Depending on the level and client needs, verification can include education, employment history, reasons for leaving, additional qualifications, employee opinion, criminal record, financial checks, credit standing, references, business connections, presence in traditional and social media.
Of course, background verification can never be foolproof. But in a Big Data world, it is the only way to ensure that the right hire is at the helm. It is always better to err on the side of caution.