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No Stone Unturned

In these days of corporate wrongdoings, pre-hire assessments and background screenings help HR executives make sure they're hiring ethical and honest leaders.

Monday, June 2, 2003
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When preparing to search for executive job candidates at Bristol-Myers Squibb, human resource professionals spend a lot of time defining "the profile" of core competencies they are seeking.

That profile includes experience and functional abilities, "but probably more important," says Jim Ellinghausen, vice president and head of human resources for the worldwide business of the global pharmaceutical and health-care products company, are "the leadership attributes we are really looking for in the person. . . . We believe that the leadership attributes are equally as important as functional knowledge, skills and experience, which are probably easier to screen for."

Finding the right person for a company that prides itself on being a "matrixed organization" in which co-workers are expected to be direct and collaborative and uphold the company's pledge to act with "honor and integrity" is an exacting task.

As part of the process, Bristol-Myers, which has its world headquarters in New York, uses an external firm to assess promising candidates. The assessment looks at the individual's leadership and behavioral make-up as well as how he or she fits within the organization as a whole and the open slot in particular. The system has improved the company's retention rate of new hires, says Ellinghausen, who is based in the company's offices in Lawrenceville, N.J.

In these days of corporate chicanery and con games, shareholders, employees, boards of directors and the public at large are increasingly and outspokenly demanding that companies be led by ethical and honest leaders. The light of day has revealed some of the tawdriness hidden by the sparkling glow and pulsing gyrations of the go-go '90s.

That light needs to shine on corporate leadership if business is to regain some of its radiance. Some human resource executives are responding to this need for transparency in leadership by increasing their use of pre-hire assessments. They want leaders who fit well within the organizational culture, leaders who can grow the business in an ethical manner.

But assessments can only impart so much information. To truly make sure prospective leaders are not bringing unwanted or undeclared baggage with them, HR executives need to insist on extensive background checks before hiring is assured.

Emphasizing Values

"The executive assessment business is the most rapidly growing part of DDI's business," says Bill Byham, chairman and CEO of Development Dimensions International, headquartered in Bridgeville, Pa. "More companies are saying, 'These are the values that made us great. We need to emphasize these values.' . . . and one of those values almost always is integrity."

Many companies publicly lionize integrity and ethical leadership, but some observers wonder if HR executives have the courage to insist their companies do more than pay lip service to that need.

Companies "will screen the hell out of the entry-level people, but at the top, it's still business as usual," says Robert Hogan of Hogan Assessment Systems, which has offices in Tulsa, Okla., and Jacksonville, Fla.

To change the problem, one must first understand it, he says. "The standard approach has been to locate the sources of malfeasance in the environment: to blame it on the culture at Enron -- or in certain dysfunctional dispositions -- to blame it on psychopathy, narcissism, bi-polar disorders, Napoleonic complexes and authoritarian personality disorders. I would like to propose an alternative source of managerial exploitation and brutality -- namely, bad values," he said during a recent conference of the Society for Industrial and Organizational Psychology in Orlando, Fla.

All too often, Hogan says, HR executives "don't step up" to fight for the screenings that are necessary to make sure their company executives have good character.

The problem, of course, is that too many companies treasure financial results more than ethical behavior, says Jim O'Toole, a research professor at the Center for Effective Organizations at the Marshall School of Business at the University of Southern California.

There will always be unethical or dishonest executives sprinkled about the business world, but the problem is exacerbated when a corporate culture tilts toward the quick buck; unwittingly luring such behavior via their incentive and compensation schemes, he says.

Even when an organization does not create incentives that promote unethical behavior, the unforgiving economy makes it increasingly difficult for corporate leaders to retain their principles.

An August 2002 survey of CFOs and finance managers conducted by CFO magazine found that 17 percent of the respondents have been asked to misrepresent financial results. HR leaders have been finding it even harder, according to a survey by the Society for Human Resource Management.

A survey in April revealed that one in four HR professionals (24 percent) felt pressured to compromise their organization's ethics standards, compared to one in 10 (13 percent) in 1997.

In addition, almost half of the surveyed HR professionals (49 percent) say that ethical conduct is not rewarded in business today. The survey results ironically note, however, that eight of 10 responding organizations (79 percent) have written ethics standards.

To help embed ethics at the senior executive level, HR executives must explore a job candidate's views on "the soft side of management," O'Toole says. What is the person's style of leadership? Will he or she treat subordinates with respect? Is his or her management style one of inclusion? What is the person's character? Is there a strong ethical and moral component to his or her beliefs?

"I think what matters is constantly at all levels and at all the various ways -- selection, screening, recruiting, and all that is done -- to be constantly raising these issues and keeping them on the table in all decisions at all levels. . . . In and of themselves, they don't do the trick, but what happens in the final analysis is the constant reinforcement, the constant raising of the question, will keep it in the minds of the people who make the final decision," he says.

Making Better Decisions

Ellinghausen says the assessment process at Bristol-Myers allows the company's selection team to get to know job candidates better, and thus results in better hiring decisions.

About four years ago, the company brought in an external firm, the Philadelphia office of management psychologists RHR International, based in Wood Dale, Ill., to assist in the assessment of executive candidate leadership make-up and organizational fit. The firm also makes sure the job candidate understands the company's culture and helps manage the integration of successful candidates on the job.

Internally, the HR department pulls together a selection team from different parts of the organization, who are given responsibility for covering the key competency and leadership components being sought. In recent years, the company has modified its approach to create a much more disciplined internal assessment of a candidate's leadership attributes, Ellinghausen says.

There are usually no direct questions on integrity and ethics, he says. "That may be a conclusion we may draw but we really aren't asking ethics questions," Ellinghausen says. "We really look for people who are collaborative. They are open and direct communicators and they are transparent. They don't hold all their cards. They work effectively with others. It's something we really hone in on.

"Integrity is essential and if we are not certain of that, we would not hire an executive. Of course, no one says in an interview that they lack ethics or integrity, so we make that assessment by understanding how the executive makes decisions, handles people and reaches judgments."

The external assessment component was added because of the "high failure rate of new hires" of executives compared to the failure rate of internal promotions. "What we saw was a gap, a pretty significant gap, in terms of success rate," he says. "You would expect internal promotions would have a higher success. You know more about your own people, but not to this significance."

Internal promotions over a five-year period, he says, were resulting in a success rate of more than 75 percent while external candidates were below 50 percent at one point. Since using RHR, and revising internal assessments and integration processes, that gap has been almost eliminated, he says.

A 50 percent failure rate for executives brought in from the outside is fairly standard, according to a study by the Corporate Leadership Council in 1997. The common reasoning for that finding, says Byham of DDI, is a candidate will "fail coming in from outside [because] it turned out he didn't have the values [the company leaders] think are important."

Executive assessment procedures vary by organization. At DDI, the process consists of three main aspects. Candidates complete online assessment tests that explore personality insights and attributes. They spend a day at an assessment center in a job simulation, responding to e-mails, voice mails and appointments, and end the day with some type of group presentation on a business issue. The third part is in-depth interviewing.

Using assessments was a new strategy at Spartan Stores in Grand Rapids, Mich., a chain of 116 supermarkets and drug stores in Michigan and Ohio, where the company recently used Korn Ferry to assess candidates during a CEO search.

"I think where it was very helpful," says Mark Eriks, Spartan's vice president of human resources, "was in answering some of the concerns [the executive committee of the board of directors] may have had, questions they may have had, and shed some light on the candidates," Eriks says. "Frankly, it reinforced what we felt. It was very helpful, I think, to the process to have some objective data we could use.

"It's sometimes difficult in an interview to capture some of the more intangible qualities and I think this was really where this was beneficial -- to understand management style and other issues that are hard to pin down for sure in an interview," he says.

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The increasing interest in assessments, says Joanna Miller, managing director of Korn/Ferry's management assessment practice in New York, may not be driven so much by fear of scandal as by a need to "make the absolute best choice." With so little hiring going on and so much concern about succession planning, there is much less tolerance for taking a risk in hiring, she says.

A Two-Part Solution

But while management assessment tools are very good at determining leadership ability, thinking style, self confidence, awareness of others and other intangibles, they are not the most effective way to flag unethical or dishonest individuals, she says.

Some profiles will highlight an individual's tendency to be easily swayed or pinpoint an aberrant personality, but dishonesty is not likely to show up.

Strength of character, however, plays a key role in keeping an organization honest, says Joe Bonito, vice president of global leadership effectiveness at Pfizer in New York, which uses assessments and screenings in executive hires.

Pfizer, he says, benefits from a chairman with a strong value system as well as a "really strong" CFO who will raise questions.

"Openness and transparency. That's how we expect leaders to behave," he says. "We also have an open-door policy for anyone in the company, both positive and negative, if someone raises an issue, we are expected to take action on that if you are a leader."

Ferreting out the character and past job performance of executive candidates is "where the area of background verification really comes into play," Miller says.

According to Pre-Employ.com, about one in 10 applicants (9.1 percent) lie about their educational history, their employment history (9.4 percent) or about a criminal record (9.6 percent).

Pre-Enron, there often was ambiguity in the acceptance of responsibility for background searches between corporations and retained executive search firms. No longer.

In the past, says Wendy Murphy of Heidrick and Struggles in New York, who specializes in recruiting HR professionals, "there was no sort of set protocol [about background screening] but I won't send somebody in now without all degrees checked and all the histories checked. You can't afford to, or your credibility is shot otherwise. It's critical."

Michael Scheinholtz, director of executive and corporate staffing for Commerce Bank, a regional financial institution headquartered in Mt. Laurel, N.J., says the executive search firms he deals with "have definitely added more front-end processes and controls to make sure when they send you a resume, it's somebody who doesn't have skeletons in the closet, per se. And they have to -- because they are trying to protect their own reputation," he says.

It's important to remember, however, Scheinholtz says, that HR executives bear "the ultimate responsibility" for making sure the candidate they hire has been fully screened.

Of course, that hasn't stopped some companies from suing executive search firms when the candidate's background turns out to be less than as promised. Whenever such news stories pop up, it means increased business for Kroll Inc., a worldwide risk consulting company, says Peter Turecek, a managing director in the New York office.

On average, Turecek says, about 15 percent of the executives he investigates have a "red flag" pop up. "For some clients, it may be an insignificant red flag. For others, it might be something that kills the deal."

HR executives should be especially wary of the old-boy network in hiring, he says. "One of the red flags is always when somebody from your board of directors pushes a candidate and HR doesn't necessarily have the backbone to say, 'Well, you know, we have to have them undergo a background check,' because they don't want to upset senior management and the board, so that old-boy kind of network sometimes hinders a background check."

HR executives should also conduct investigations when promoting from within the same way they would in hiring an external candidate, says Lee Pomeroy whose boutique firm Executive References in New York does in-depth background screenings. "If you are going to make him the CEO or CFO and put him in the limelight, don't you think . . . it would be better to find out [bad news] now, rather than four months after you name him to the job and it comes out in the press?"

O'Toole of USC says HR professionals need to take a stand on the character issue. Even though the final hiring decision is not given to HR executives, it is their responsibility to be "the conscience of the organization. . . . I think a lot of them know that, but they feel they lack the power and I think a lot of them honestly lack the courage to stand up and fight for these things."

 

Too often, he says, an HR professional will fear his or her corporate leaders will "ignore you or they run over you or . . . they fire you [for insisting on ethical corporate behavior]. But, nonetheless, I think if you are committed to doing the right thing, you also have to be willing to pay the price. That's the bottom line on moral and ethical behavior."

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