The dangers of not screening your new hires and existing employees

When you’re expanding your team, it’s tempting to cut corners to speed up the hiring process. For some, the time it takes to carry out background checks means missing it out entirely could be a quick win. But in our experience, this stage presents a valuable moment where you seek verification that the dream candidate is the right one - or find out that you’ve just dodged a bullet.

Despite this being a pivotal moment, many businesses are STILL not implementing screening into their processes - meaning they’re opening themselves up to huge risks they could otherwise have mitigated.

In this blog, we’ll look at those risks and ask the question - for the sake of a few days* waiting, was it worth the consequences?

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The threat of a toxic workplace

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The culture of a business is an incredibly delicate thing. It can take years to build, and a moment to destroy. And once it’s gone, it’s a mammoth task to get back. And get this: it only takes ONE bad hire to tip the balance and change the way your people feel about their workplace.

Your employees expect new hires to have the same set of values as them: to work hard, be respectful, and foster an environment of safety and happiness. If you hire someone who hasn’t had the proper background checks to reveal past problematic behaviour, a history of violence or fraud, and other toxic traits, you are opening up your business to huge problems and betraying the trust of your existing workforce.

Case study: One prominent example of a poor hiring decision leading to a problematic and unsafe workplace is the case of Uber under its former CEO, Travis Kalanick. Under Travis Kalanick's leadership, Uber grew rapidly and became a global leader in the ride-hailing industry. However, its meteoric rise was marred by allegations of a toxic workplace culture, characterised by harassment, sexism, and unethical behaviour.

The key issues:

Toxic Culture: Kalanick's aggressive, "win-at-all-costs" mentality reportedly permeated the company, fostering an environment where unethical behaviour and harassment went unchecked.

Harassment Scandals: In 2017, a former Uber engineer, Susan Fowler, published a blog detailing systemic sexual harassment, discrimination, and a lack of accountability by HR.

Unchecked Behaviour: Kalanick was accused of tolerating and even encouraging inappropriate behaviour, including instances of verbal outbursts, questionable business practices, and fostering a "bro culture."

Unsafe Practices: Employees and drivers reported feeling unsafe due to the absence of clear policies to protect them from harassment or retaliation.

The impact of this was widespread criticism of the company’s internal culture, a drastic drop in morale and an exodus of talent - as well as external backlash including boycotts, public criticism and regulatory scrutiny.

In the end, Kalanick resigned as CEO in June 2017, following pressure from investors and stakeholders. His leadership was deemed incompatible with rebuilding trust and fostering a healthier workplace.

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The consequences of not verifying the details

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The interview process is the opportunity to meet the person behind the CV. This is a pivotal step where a conversation begins and human connections are made. For many, this provides the answers to their questions: will this candidate be a good fit? Could they deal with a situational challenge? Can they communicate effectively?

Such is the power of a personal rapport that can happen during a good interview, many hirers take the candidate on face value - struck by their first impressions, digging into their background details feels unnecessary. However, due diligence can never be underestimated and can prevent red faces down the line and reputational damage.

Case study: Yahoo, struggling to compete with Google and other tech giants, hired Scott Thompson as CEO in January 2012. Thompson was a high-profile hire, previously serving as President of PayPal. However, shortly into his tenure, controversy erupted when it was discovered that his official biography falsely claimed he had a degree in computer science, which he did not possess.

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The Impact

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1. Loss of  credibility: The revelation caused a public uproar, undermining trust in Yahoo's leadership and damaging the company's reputation.
2. Internal turmoil: The hiring debacle led to intense criticism from investors, particularly the activist hedge fund Third Point, which called for accountability and transparency within the company.
3. Short-lived tenure: Thompson resigned just four months into his role, throwing Yahoo into further leadership instability during a critical time when it needed direction.

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Broader Consequences

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Yahoo's failure to properly vet a key hire became emblematic of its broader mismanagement. The incident accelerated the company's decline, as it struggled to rebuild investor and employee confidence. Yahoo's subsequent sale to Verizon in 2017 was viewed as a culmination of years of missteps, including poor hiring decisions like this one.

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The threat of financial misconduct

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Your people make your business, but without the necessary steps in the hiring process, it only takes one person to break it too. One of the most common consequences of not screening employees is financial impropriety which can often take place in roles that have direct involvement with the finances of the business - whether it’s a shop tiller or an accounts manager.

Most countries have a regulatory body in place to ensure that hiring rules are in place for financial institutions. However, for restaurants, shops, bars and other businesses, financial crime can be common - and internal fraud rife.

Yet despite the strict rules in play for banks and other financial institutions, mistakes are made - one of them leading to a world-famous downfall of one of the UK’s oldest banks. 

Case study: Barings Bank, a prestigious British institution with over two centuries of history, collapsed after it suffered losses of £827 million ($1.4 billion). The losses were caused by unauthorised trading activities by Nick Leeson, a derivatives trader based in Singapore. Leeson exploited weaknesses in the bank’s oversight systems, engaging in speculative trading and concealing his losses in an unauthorised account.

Key Issues:

1. History of financial misconduct ignored:
   Prior to joining Barings, Leeson reportedly failed his banking exams and had been implicated in minor financial irregularities at a previous employer. However, these red flags were overlooked due to his apparent competence and charm.
   
   
2. Lack of oversight and controls:
   Barings allowed Leeson to both execute trades and oversee their settlement — a serious breach of basic financial control principles, which enabled him to hide mounting losses.
   
   
3. Inadequate risk management:
   The bank lacked a robust risk management framework, failing to monitor Leeson’s activities effectively. His unauthorised account, used to hide losses, went unchecked until it was too late.
   
   
4. Overconfidence in a single employee:
   Leeson’s initial trading success gave him outsized influence and trust within the organisation, despite his questionable history and lack of formal qualifications.
   
   

Leeson’s unauthorised trades culminated in catastrophic losses, exceeding the bank’s total capital. The bank was declared insolvent in February 1995 and was old to ING for a symbolic £1, marking the end of one of Britain’s oldest and most respected financial institutions.

The case damaged the reputation of the banking industry, highlighting the dangers of poor oversight and reliance on individuals with questionable histories and demonstrating the critical importance of vetting employees for roles involving significant financial responsibility.

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Harm to colleagues and/or customers

As an employer, you have a duty of care over your workforce. This means that they are kept safe from harm during the hours of employment. This responsibility can vary from ensuring the office building poses no risk to workers, to making sure the workplace is safe and secure from outside threat. 

The same goes for your customers too. A business needs to take reasonable steps to ensure the safety, well-being, and fair treatment of its customers while interacting with its products, services, or premises. 

Case Study: As a ridesharing company, Uber relies on independent drivers to provide its services. However, the company has faced significant criticism and legal challenges over its failure to perform adequate background checks on drivers, leading to incidents where passengers were harmed.

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Key Incidents

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1. Sexual Assault Cases:
   Multiple passengers sued Uber, claiming they were assaulted by drivers. Reports revealed that some drivers had prior criminal histories or behavioural issues that were overlooked during the hiring process.
2. High-Profile Lawsuits:
   In 2014, Uber faced a lawsuit in California after a driver with a history of reckless behaviour struck and killed a 6-year-old girl. The family alleged that Uber’s lax screening and lack of oversight contributed to the tragedy.
3. 2018 Class-Action Lawsuit:
   A group of women filed a lawsuit against Uber, accusing the company of failing to protect passengers from sexual assault by drivers. Plaintiffs argued that Uber’s inadequate background checks directly enabled the crimes.

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The consequences for Uber were vast. Financially, Uber paid millions in settlements and faced substantial legal fees. The company also experienced huge reputational damage, resulting in public outcry and mistrust among riders, especially women and vulnerable groups.

Ultimately, these issues forced regulators to impose stricter requirements for background checks in some regions, forcing Uber to adapt its hiring practices, including mandatory fingerprinting in some states in the US.

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The legal liabilities of not screening

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On top of the reputational damage, the threat to the safety of a workplace, an increase in staff turnover and huge risk to the operation of a business, there is also the legal liability of not effectively screening staff.

Negligent hiring can sometimes result in a bad hire causing harm to employees. This could expose the company to a lawsuit if a worker decides to take legal action. Outside parties can take legal action, if the business has breached industry or regulatory rules by not screening.

A high-profile case that highlights the consequences of failing to screen new hires properly is Canfield Scientific vs. Arthur Capone (2016). This case showcases how inadequate background checks can lead to significant legal liabilities and reputational damage.

Case study:  Canfield Scientific, a company specialising in imaging systems for dermatology and medical research, hired Arthur Capone in 2016 for a key role. The company did not conduct a thorough background check on Capone before onboarding him.

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What Went Wrong?

1. Criminal history overlooked:
   After Capone was hired, it was discovered that he had a criminal history, including convictions for fraud and embezzlement, which he had concealed during the hiring process.
   
   
2. Data breach and theft:
   Capone misused his position to gain access to sensitive company information and attempted to steal intellectual property. This breach of trust exposed the company to financial and operational risks.
   
   
3. Legal fallout:
   Canfield faced legal challenges, including lawsuits from affected stakeholders who claimed the company had been negligent in hiring someone with a history of financial misconduct.
   
   

The impact of this was manifold, spanning significant legal costs, reputational damage stemming from questions being raised about Canfield Scientific’s hiring practices and internal controls, and financial losses from the theft of intellectual property and increased cybersecurity expenses.

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So what mitigation measures can we take?

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Firstly, one of the key foundations of a safe work environment is making sure the hiring process is done correctly. This ensures that regulation and compliance is followed, but also means as an employer that you’ve done everything you can to bring in the best talent that is screened, checked and verified.

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Vetting things like past experience, academic qualifications and criminal background is a great start to the employee lifecycle. But there are peripheral checks that many regard as incredibly revealing for certain jobs. Social media checks, global sanctions and adverse media can shine the light on behaviours or histories that might not be revealed in the standard checks.

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Even if the timeframe is tight, space must be given for this essential step of the process. As well as offering 40+ checks across 180 countries, it also offers the Instant Employment Report - a check that reveals the candidate’s work history in seconds. This is a useful screening tool that helps verify that the jobs stated on the CV match up to tax records - as well as prevent any moonlighting risks.

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On top of this, it's important to consider rescreening - the continuous vetting of your current workforce. This ensures that your employees remain qualified, compliant, and suitable for their roles as circumstances change over time. Here are the primary reasons and benefits of rescreening your workforce.

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By investing time in robust screening processes, organisations can protect their resources, reputation, and workforce - and prevent the devastating consequences that could result with an unchecked hire.

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*Thanks to our Instant Employment Report, verifying the work history of your candidate can take seconds. No waiting guaranteed!

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