Adverse media in the modern age
It used to be that you would wait for the morning newspaper or tune in to the daily evening broadcast to get an update on local and global events. However, these days of limited access to media content are long gone, with technology bringing about a 24/7 news cycle. This, along with social media, has given the public access to news around the world in real-time, with media being available and consumed in more ways than ever before.
While this shift has made the public more informed, there are consequences that have had a substantial impact on the investment landscape. Any negative information can now be circulated globally with just a single click. As a result, the media holds enormous power when it comes to shaping public perception and reputation.
In the financial world, reputation is everything. When making deals, investors need to try to gauge a person’s character, as this can be an indication of their trustworthiness. This involves going beyond the scope of a traditional background check and screening for adverse media information during the pre-investment due diligence process. Given that adverse media checks can reveal insights that might not have been gained otherwise, their inclusion as part of a background check provides fund managers and allocators with the complete picture of a potential business partner or investment.
What is an adverse media screening?
An adverse media screening is the section of a background check that highlights unfavorable news that could appear in several different news sources, including news publications and other digital media sources. These sources can be traditional news sources like newspapers, both print and online formats, televised news broadcasts, news radio, or other unstructured online sources like websites and social media networks.
When defining what is considered negative media, common examples are articles related to legal cases, involvement in financial fraud, claims of misconduct, other financial crimes, as well as association with negative events.
An adverse media screening is the section of a background check that highlights unfavorable news that could appear in several different news sources, including news publications and other digital media sources.
The importance of performing an adverse media screening during a background check
One’s reputation can make or break a business deal. As such, investors need to understand whether an individual or company associated with a potential investment has an upstanding reputation. Media coverage can be indicative of a good or bad reputation, and thus, performing adverse media searches during a background check is another way to identify any red flags before signing on the dotted line.
When wrongdoings come to light, adverse media can reveal negative experiences with organizations or people. Additionally, even being associated with individuals that have been portrayed negatively by the media puts investors at risk of reputational damage. With this comes financial risk given that investors don’t want to do business with someone that has a poor reputation.
For instance, if an adverse media article alleges that a company executive has committed a financial crime, it could indicate this individual should not be entrusted in the future with an investor’s capital. Even being associated with an individual that has been accused of a financial crime in the past could prevent others from wanting to do business with you. Having all of the facts allows investors to properly assess the risks of conducting business with such an individual.
If that wasn’t enough, based on a sample of 3,000 background checks from 2021, Intelligo found that the adverse media flag was one of the most prominent flags that appeared, accounting for nearly 20% of the flags and 44% of the reports.
Adverse media and legal cases
What’s more, adverse media coverage provides another layer to a background check by revealing unfavorable information that may not appear in other sections, namely the legal section.
In the case of misconduct, accusations that were made against an individual or organization may never have been brought to trial. As a result, this information wouldn’t be found in the legal section of a background check, although findings of this nature do warrant further consideration.
Furthermore, take the case of an individual that buys a house through an LLC rather than purchasing it with their own name. If there is a foreclosure on the property, and the media covers it, an adverse media screening may reveal information that otherwise could have gone undetected by a traditional background check.
Adverse media and allocators
While traditional background checks might not include a negative media screening, many allocators are starting to implement them as a way to more accurately capture risk. Adverse media screenings can provide valuable insights on a number of specific risk factors allocators consider when assessing a potential investment, including:
- Sanctions Lists– Media that mentions the subject of a background check in connection with sanctions lists could bring criminal activity to light before the official lists are updated.
- Assets– If adverse media is found suggesting an individual has a substantial amount of financial debt, it could speak volumes about their financial credibility. As a result, news stories that suggest a subject has significant personal debt warrant further consideration by allocators.
- Political Contributions– Political contributions made by executive management are often seen as a reflection of the company for which they work. If this comes up in an adverse media screening, it is important that allocators are aware of this information as it could offer a unique perspective to learn more about a subject’s political affiliations.
- Politically Exposed Persons (PEPs)– When evaluating the potential risk involved with an investment, allocators must check if there is adverse media or negative news mentioning a manager as a PEP. PEPs pose a high risk to an organization, and thus, any web articles that bring this critical information to light before names appear on government lists provide valuable insights.
Evaluating negative news in the age of fake news
Conducting a screening for negative media has only been complicated by the surge of fake news. Fake news is any news article that is intentionally false and designed to misconstrue real facts, events, or statements. Additionally, fake news can appear as “clickbait” that is written for financial gain or as propaganda that is designed to deceive the reader.
With the advancement of technology, it’s easier than ever for fake news to be distributed all over the world. Fake news can also be spread rapidly on social media given that articles can be shared with just a single click.
Given the proliferation of fake news, the abundance of falsified articles means conducting effective media screenings requires high attention to detail. As it can be challenging for analysts to make sense of all the media available and distinguish between legitimate and fake news, findings from manual negative news screenings could be less accurate. Manual negative news checks can also take longer to run given the plethora of media available in the public domain.
Best practices for conducting an adverse media screening
Multiple steps need to be taken to establish an effective adverse media screening process:
1. Executive screening– In order to provide the complete picture of the risks involved, investors need to conduct an adverse media check on the entire managerial team. This ensures that no stone is left unturned.
2. Determine the relevance of the negative media– What is the context of the negative news? When a piece of negative media is found, it needs to be evaluated in accordance with the firm’s specific investment priorities to determine if this information is relevant. This involves considering how the information obtained in an article relates to a firm’s concerns about a potential investment. Investors need to evaluate the relevance of a story to understand its impact on an investment decision.
3. Categorize the different types of media– Different types of media correlate to different levels of risk. With this in mind, reviews of this section of a background check need to consider the source of the news. For instance, a New York Times article has more weight than blog posts or internet forums.
4. Remove false positives– Today, there’s no shortage of fake news, and thus, an effective negative news screening tool must filter out any false positives. Firms should also consider a particular solution’s accuracy levels. A solution that is capable of distinguishing between the subject of a background check and an individual with a similar name will reduce false positives.
5. Keep a record– A record of all adverse media coverage should be kept to provide investors with the full picture before closing on a potential investment. It is also important to make a note of false positives for future reference.
AI-powered negative news screenings upgrade background checks
In the past, traditional methods for conducting adverse media screenings involved manual Google searches. However, given the current media landscape, this type of screening that relies on search engines is ineffective for several reasons.
First and foremost, these manual media screenings require an analyst review of the findings to confirm that the individual in the articles is in fact the subject of the background check. This is an incredibly time-consuming process.
In addition, when it comes to manual searches for adverse media, human limitations can impact the depth of coverage as analysts are only able to cover so many news articles. What’s more, based on psychological studies, decision-making skills have been found to be limited by deeply-rooted biases, namely confirmation bias. This type of bias causes people to validate incoming information that supports their pre-existing beliefs. Repeatedly being exposed to false information makes you more likely to believe it, despite its lack of credibility. This can result in analysts failing to identify fake news.
Despite these challenges, advanced technologies like Artificial Intelligence (AI), machine learning (ML), and natural language processing (NLP) have revolutionized the way background check service providers perform adverse media searches.
HOW WE CONDUCT MEDIA SCREENINGS AT INTELLIGO:
Digging a bit deeper into the process here at Intelligo, AI-powered searches through each of the various news sources can be broken down into three categories.
Generic– This type of search uses just the subject’s name and is used as a starting point for the adverse media screening.
Subject-specific– Based on identifiers that have been obtained about the subject, AI performs more specific searches to retrieve data very likely to be related to the individual. This can include cities of residence, current and previous employments, spouse names, etc.
Adverse– AI scans for a combination of the subject’s name and various adverse strings of language.
After all of the possible media has been collected, AI uses algorithms that are designed to pull data and determine if the information is relevant and if the articles are in fact about the subject. Then, using machine learning, the text will be analyzed based on the severity of the adverse words in the article.
AI can analyze massive amounts of news sources, even those that are written in other languages. Another benefit of automating the process is that adverse media checks can be conducted much faster than industry standards.
Ongoing adverse media monitoring
News moves quickly and is constantly changing, but manual searches aren’t able to account for ongoing developments. This could lead to gaps in risk management as new adverse media can be published at any point. In this case, more and more firms are turning to adverse media monitoring solutions to overcome the dynamic nature of news.
Through the use of technology, ongoing monitoring services alert investors the moment any negative news comes to light. Ongoing monitoring enables investors to continuously manage any risks related to adverse media, and take immediate action.
The bottom line
Given the tremendous power the media holds in shaping a reputation, all of the various risks from media sources need to be accounted for during a due diligence background check. As a result, firms must implement adverse media screenings in their enhanced due diligence process. However, given the sheer volume of fake news and the fast-changing nature of modern media, conducting an effective adverse media check can’t be done with Google searches alone. With this in mind, technology-powered negative news screening tools offer unparalleled accuracy and speed, enabling investors to make informed decisions exactly when they need to.