First Reference company logo

Inside Internal Controls

News and discussion on implementing risk management

machine cogs image

Yahoo finds out the hard way that risk management measures take time now, save time and money later

Hiring even the lowest-level employee can be tricky, and hiring the wrong person is bound to cause trouble. So imagine the potential problems that a board of directors must avoid when hiring a new chief executive officer. What does the company want from a CEO? Does the candidate have the right skills, connections and personality to fit the job and the company? Does the applicant’s education meet the needs of the company?

Surely one of the simplest methods of due diligence is confirming an applicant’s stated credentials, but that is precisely the measure that the hiring committee of Yahoo’s board of directors failed to complete when it hired Scott Thompson to lead the company back to growth.

Everyone exaggerates their accomplishments on their résumé, right? You say, “Executive Assistant,” when you really mean “Assistant to the Executive Assistant.” You say you graduated university with honours, when you mean you were on the honour roll one year in high school. You say you were involved with a hugely successful project that increased profits, improved worker productivity and reduced injuries, when you mean you were accidentally invited to a meeting where the project was discussed. You say you got a university degree that you did not.

I can’t say for sure whether all of those situations have happened, but I know that last one did, and it is big news. In its search for a new chief executive officer, Yahoo found out that no matter how big the company or how high the position, an organization that fails to conduct a thorough background check can find itself in a very difficult situation.

Scott Thompson took on the role of CEO at Yahoo in January, but some time between then and the beginning of May, the company discovered that his résumé didn’t accurately reflect his experience. A number of online sources—including Yahoo itself—indicated that Thompson had degrees in accounting and computer science, but the company found he did not have a degree in computer science, only accounting. Besides the ethical dilemma of how to discipline an employee who falsifies his credentials, there are other issues.

The board of directors questioned his ability to lead the company, to direct strategy and to recommend new board members. Some shareholders used the situation to push their own agendas, asking the board to fire Thompson and install their preferred candidates for CEO and the board.

Upon learning of the discrepancy, Yahoo’s board immediately formed a committee to investigate, and Thompson is no longer with the company. He stepped down voluntarily, in part due to a diagnosis of cancer, but surely the pressure from all sides aided his decision.

I don’t often hear of applicants lying on résumés, so Yahoo’s case serves as a good reminder that no company—and no seniority—is safe when its practices don’t match its policies. Somewhere along the hiring line, someone failed to clarify Thompson’s education history, and Yahoo has to continue waiting to get started rebuilding the company. The company has to replace two now that the director who headed the committee that hired Thompson has stated she won’t stand for re-election.

On the other hand, the board acted quickly once it became aware of the falsehood. It formed an investigation committee, and retained lawyers specialized in internal investigations. Thompson resigned before the investigation was complete, but the board responded well to the situation, by asking questions first and firing later. Indeed, Yahoo didn’t even have to fire Thompson.

That’s probably cold comfort to a company that can’t seem to gather any momentum, but with all its troubles, Yahoo doesn’t need a big employment lawsuit.

So, what is worse: ensuring you have worthwhile policies and procedures and following them—in hiring and all aspects of business—or dealing with the fallout when someone fails to live up to the standards you have set?

Of course, it may be that your policies are out of date or the responsible parties haven’t been trained on the relevant procedures. These aspects of due diligence may be less visible than employee error, but they are equally visible in the light of the law. In such a case, it will be important to avoid punishing employees for something that was not their fault—or not their fault alone.

One powerful and simple control measure is to make a candidate’s employment conditional, for example, on background checking beyond basic references, and to prohibit a candidate from working until the conditions have been met. This will give the employer the time to conduct its due diligence and the leeway not to employ a candidate who turns out not to meet his or her representations.

Have you discovered an employee or candidate who has lied about credentials? What did you do?

Adam Gorley
First Reference Internal Controls and Compliance Editor

Follow me

Adam Gorley

Editor at First Reference
Adam Gorley, B.A. (Phil.), is a researcher, content provider and editor. He contributes regularly to First Reference Talks and Internal Control blogs, HRinfodesk and other First Reference publications. His areas of focus include broad human resources issues, corporate social responsibility, corporate governance and government policies, information technology and labour market trends.Read more
Follow me
Send to Kindle

, , , , , , , , , , , , , , , , , , ,

Comments are currently closed.