Why is hiring so important under for compliance? It is because hiring is important to any company’s health and reputation. At this point, until the US Supreme Court tells us that a corporation is the same as a human being, with both obligations and rights; a company is only as strong as its employees. Like most areas of compliance good hiring practices for those employees who will do business in compliance with anti-corruption laws such as the FCPA are simply good business practice. I have seen one industry estimate, it costs an average of roughly $4,000 to replace a single employee, and one survey of 2,500 companies found that a single bad hire can cost more than $25,000 in lost productivity, lower morale and the like. For one of the energy services company where I worked this estimate went as high as $400,000 to hire and fully train a new employee. I would add that those costs could go up significantly if a bad hire violates the FCPA.

As far back as 2004, in Opinion Release 04-02, the Department of Justice (DOJ) realized this was an important part of an overall compliance program when it approved a proposed compliance program that had the following requirement:

Clearly articulated procedures which ensure that discretionary authority is not delegated to persons who the company knows have a propensity to engage in illegal or improper activities.

One tool which that is often overlooked in the hiring process is the reference check. Many practitioners feel that a reference is not of value because prospective candidates will only list references that they believe will provide glowing recommendations of character. This leads to a pro forma reference check. However, in an article in Harvard Business Review (HBR), entitled “Gilt Groupe’s CEO on Building a Team of A Players”, author Kevin Ryan explodes this misconception by detailing how he views the entire hiring process and specifically checking references. I would add that it could be a valuable and useful tool for you and your compliance program.

In the hiring of personnel, Ryan details the three steps his company takes: (1) Resume review; (2) In-Person interview; and (3) Reference checks. Ryan believes that resumes are good for establishing “basic qualifications for the job, but not for much else.” He believes that the primary problem with in-person interviews is that they are skewed in favor of “persons who are well spoken [or] present well.” For Ryan, the key check is through references and he says, “References are really the only way to learn these things?”

Ryan recognizes that many people believe that reference checks are not of great value because companies cannot or will not give out much more information than confirming dates of employment. However, he also believes that “the way around it is to dig up people who will speak candidly.” He also recognizes that if you only speak to the references listed on a resume or other application, you may not receive the most robust appraisal. Ryan responds that the answer is to put in the work to check out references properly. Ryan believes this is one of the key strengths of search firms and that companies should emulate this practice when it comes to reference checks.

He notes that anyone who has worked in an industry for any significant length of time will have made many connections. Invariably some of these connections will be acquainted with you or those in your current, and former, company. Ryan gave the following example: A longtime friend who was employed at another company called and said that he had been asked by his hiring partner to find out “the real story” on a hiring candidate by asking Ryan his candid opinion of the candidate. Ryan’s response was “Don’t hire him.” Lest you think that such refreshing honesty no longer exists when informal employment references are provided, you are mistaken. In my past corporate position, I was charged with performing compliance due diligence on senior executives and I spent time doing what Ryan suggested, calling acquaintances that I knew and asking such direct questions. More than 75% of the time, I got direct responses.

Ryan believes that you must invest your company in the hiring process to get the right people for your company. The same is true in compliance. You do not want people with a propensity for engaging in corrupt acts working for, or leading, your company. Moreover, failure to prevent such hires can be evidence of an not effective compliance program and lack of appropriate commitment to compliance at your company.

The hiring of someone who will perform business activities in compliance with anti-corruption laws such as the FCPA will continue to be as much art as science because the hiring of quality employees for senior management positions is similarly situated. But that does not mean a company cannot work to not hire those persons who might have a propensity to engage in bribery and corruption if the situation presented itself. The hiring process is just one more tool that can be utilized to build an effective and operationalized compliance program.

Three Key Takeaways

  1. The hiring process can be seen as the first step in operationalizing your compliance program.
  2. The DOJ spoke to hiring as part of a best practices compliance program as far back as 2004.
  3. Reference checks are an underutilized part of the hiring process and a key internal HR control.

 

This month’s series is sponsored by Advanced Compliance Solutions and its new service offering the “Compliance Alliance” which is a three-step program that will provide you and your team a background into compliance and the FCPA so you can consider how your product or service fits into the needs of a compliance officer. It includes a FCPA and compliance boot camp, sponsorship of a one-month podcast series, and in-person training. Each section builds on the other and provides your customer service and sales teams with the knowledge they need to have intelligent conversations with compliance officers and decision makers. When the program is complete, your teams will be armed with the knowledge they need to sell and service every new client. Interested parties should contact Tom Fox.