The Chronicles of the Scandalous CEO. What Happens When Executive Due Diligence is Overlooked

According to a study conducted by CareerBuilder, 58% of resumes consist of misleading or false information such as incorrect education details and inaccurate job titles and seniority levels. More shockingly, a survey by HireRight found that 85% of resumes contained false statements. If these numbers seem to be so high why have executive resume scandals been so prevalent, and even seem to be increasing, over the past decades?
By Ariella Serman
February 6, 2020

Greatest Internet Scam in History

In October 2018, Pakistani authorities arrested Shoaib Shaikh, the chief financial officer of the software company Axact in what is known as one of the biggest Internet scams on record. Shaikh was sentenced to 20 years in prison for issuing fake online academic degrees to individuals worldwide worth $140 million. Axact has been accused of taking money from over 215,000 people in 197 countries—a third of them from the United States.

This scandal came as a shock to many, considering it was a stark contrast to Shaikh’s presumed benevolent character. Directing a proposal to provide education to millions of Pakistani children and proudly displaying an Axact company flag in his office, Shaikh was thought of as the picture perfect philanthropic patriot. So how was this CFO, and so many other executives’ fraudulent activities so easily overlooked?

CEO Scandals… and the List Goes On

The ever-increasing number of CEO resume scandals seems insurmountable and yet, it seems as though every few weeks the wake of another executive calamity makes its way onto the front page of the newspapers. Take for example David Edmondson, the former CEO of RadioShack who resigned following allegations that he falsified the institution from which he obtained his academic degrees. The supposed school at which Edmondson obtained his degree had no record that the CEO finished his studies there.

Similarly, in 2012 Yahoo CEO Scott Thompson was fired after only a four month term based on false statements about his educational background. Thompson claimed that he held a bachelor’s degree in both accounting and computer science when in fact he only held a bachelor’s in accounting.

In addition to misleading information about educational backgrounds, corporate executives have had their fair share of conveniently ‘hiding’ their job performance backgrounds. One example is Albert Dunlap, the famous former CEO of consumer appliance company, Sunbeam and the best-selling author of “Mean Business.” When applying to Sunbeam, Dunlap omitted two prior job positions he held which ended prematurely due to his performance. He was subsequently fired from Sunbeam and was accused of accounting fraud.

Why Do These Scandals Occur?

If CEOs and executives are the ultimate representatives of their respective corporations and shape the brand of their companies, how can these types of scandals slip through the cracks so easily?

Various explanations can be given for this type of aberration. For example, looking at the Yahoo scandal, John Challenger, CEO of outplacement firm Challenger, stated that

“Yahoo hired him for what he’s done in the past five, ten years… It doesn’t really matter for someone at this point in his career what he did at 22. He may have felt at some point in his career that he needed an extra something—and then he couldn’t get rid of it.” He continues by saying that the anonymity that existed before the advent of social media made it easier for prospective employees to embellish their resumes.

Another explanation that can be attributed to these scandals is the concept of groupthink. Groupthink is when small, cohesive hiring committees engage in flawed decision-making to produce a result quickly in order to show conformity and agreeableness with the group. The best, and most recent example of the catastrophic effects of Groupthink is the demise of Theranos, the disruptive technology company that was set to democratize health care as we know it. Notable investors included Walgreens, Rupert Murdoch, and the DeVos family. All fervently trying to bring the Theranos technology to market, the investors became entangled in an unwanted network of fraud and corruption allegations imposed on the company until Theranos was forced to cease all operations. In this context, executive board committees or chair members could have engaged in groupthink when making CEO hiring decisions in order to conform with group norms.

Don’t Exempt the Exec

While it may seem flagrant now, just because an individual holds a well respected title does not mean that he or she should be exempt from a comprehensive background check and pre hiring screening process. As history clearly proves, even management and top level executives are not blameless and have to be held responsible to the highest degree for their actions.

Research has suggested that the best indicator of one’s future behavior is one’s past behavior. According to a study conducted by the University of Florida, participants’ perceptions of their past behaviour influenced their decision to repeat the behaviour in the future. The more pieces of information that a job search committee can compile about a candidate’s past, the more accurate it will be in assessing the individual. In order to avoid these scandals and prevent negative corporate brand equity, it is worthwhile for companies to go the extra mile and invest the extra resources into conducting exhaustive background checks into not only employees, but especially CEOs.

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