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A multinational company had nearly signed on a CEO when EY’s forensic report found a track record of fraudulent dealings. The potential CEO, then heading an Indian company, was bribing key personnel in client firms to secure orders. The person was rejected for the job and blacklisted.
Forensic audit is becoming increasingly frequent for top leadership searches as stringent corporate governance norms and increasing stakes are prompting Indian and multinational companies to make sure the people they take on board have no blotches on their track record.
Executive search firms said there is a forensic background check for every CEO/CXO position these days, something companies would do only on a case-to-case basis in the past if they felt there was some specific need or red flag to be chased.
While some leading search firms such as Korn Ferry have 360-degree verification process, clients are increasingly demanding independent forensic check by a third-party consultant, like one of the Big Four professional services firms, said Navnit Singh, chairman and managing director of India for Korn/Ferry International.
Experts said companies are looking for impeccable cleanliness in past track record and emphasis is on ethical, transparent and clean operator even more than technical background when it comes to a CEO position.
“Most private equity firms who hire new CXOs tend to be cautious and want to undertake background checks. There are many kinds of checks, but the two main types would be a common background check, where the purpose is to check if there is a corporate governance concern, and second to verify whether there is any behavioural issue with the incoming CXO,” said Mukul Shrivastava, partner, Fraud Investigation Dispute Services, EY India.
R Suresh, founder of boutique search and consulting firm INSIST Executive Search, which specialises in CEO and CXO searches, cites a recent instance of a senior professional being almost finalised for the top job of a cement conglomerate but rejected at the final stage when it was found that he did not disclose his sacking from one of the previous organisations.
“For every senior position these days we are doing a forensic background search. It is much more frequent than it was ever in the past,” said Suresh. There is no place for people with a nebulous past.
“There is huge emphasis on the ethics quotient at the leadership level and companies emphasising reputation and spotless background even more than technical expertise,” he added.
“PEs want very high-quality leader who is an absolutely transparent and clean operator,” said Suresh.
While many companies are looking for lies and past fraud some investigators are also checking if the facts presented by the candidate were embellished or misrepresented.
Take the case of an executive who was all set to get a senior position in the research and development unit of a major Indian automobile company. The executive had claimed that he had developed and run a project that was generating about $200 million in global revenues. However, a scrutiny by a consultant showed that he was merely part of a team that built the project. He was neither part of the development process nor research.
“In addition to the typical background checks, companies and investors increasingly want to independently vet the CXO’s performance, management style and achievements. This plays a critical role in determining whether the specific CXO is the “right fit” for the organisation’s culture, ethics, business plans and expectations,” said Dhruv Phophalia, managing director, consulting firm Alvarez Marsal. “Indians are infamous for blowing up their achievements on their CVs,” added Suresh.
The track record of team equation and behaviour with colleagues is coming under increasing scrutiny in the process of CXO search. Background verification also takes a peek at the person’s people skills and how previous team members perceived him/her as a leader.