Bad hiring practices can cost millions

Background screening is a crucial tool that can mitigate the risks and costs of hiring bad employees

Bad hiring practices can cost millions

Poor hiring probably cost Zappos “well over $100 million,” said former CEO Tony Hseih in 2010.

Yahoo knows that problem well. In 2012, the company ousted its CEO, Scott Thompson, after only four months in the position when he was found to have padded his resumé with an embellished college degree. The information technology giant faced not only bad press, but its largest outside shareholder, Third Point — with less than six per cent of shares — was able to add three of its nominees to Yahoo’s board when it exposed Thompson’s subterfuge, contrary to what Yahoo wanted.

The above is an example of the pitfalls an organization can encounter when it hires people without proper vetting. Yahoo could have avoided much of fallout from the Thompson scandal had it conducted a thorough background check of him before appointing him CEO — and other organizations should learn from Yahoo’s mistake, says Jim Hickey, managing director for Sterling Backcheck, in their free webinar, “Putting Identity First — Changing the Background Screening Industry,”.

“Background screening is a crucial first step in the hiring process,” says Hickey. “Conducting a background check helps organizations protect themselves from bad hires.”

Hickey says that bad hiring practices can contribute to extra recruiting and hiring expenses along with training and replacement costs to bring in a new employee — in addition to the potential risks of a bad employee in the workplace such as fraud, theft, embezzlement, low productivity, or even employee safety. The organization’s brand and reputation could also be negatively affected, as Yahoo discovered in its CEO scandal.

A criminal-records check generally is the first priority in background screening, with reference interviews and verification of past employment and education as the most common services that follow, says Hickey. After that, it depends on the nature of the employer’s business and the role for which a candidate is being considered — for example, a driver abstracts check for a driving position or credential and licensing verification for someone who requires a license in their field.

Technological developments have changed the way background screening is done, and it’s also added new risks. Hickey names identity fraud as the biggest technology-related risk employers currently face, but on the other hand, identity verification is one of the most exciting new developments in screening — both remote and in-person methods with “the flexibility of any time, anywhere screening.”

This has become even more important during the pandemic, where remote interaction has become the norm and there is an increased need for safe and secure identity verification where and when it’s needed, says Hickey.

As with many practices within an organization, having a defined background check policy in place is the first step to effective screening, says Hickey. He describes key elements such as the purpose of the program and to whom it applies, an outline of the process and timeline for background checks, who is responsible for the program, the types of checks required for each position or category of positions, and the process of withdrawing an offer based on a background check, like ones that should be included in such a policy. It could help reduce the risk of adding a bad employee and the potential costs an organization could suffer because of them.

“Employers should have a complete picture of their candidates, and thorough background checks are critical to forming that picture,” says Hickey.

Catch the “Putting Identity First — Changing the Background Screening Industry” here.

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