March/April 2003
Corporate Board Member
Résumé Rogues
by Susan Caminiti

Remember Seymour Schlager? Becton Dickinson, which makes various surgical and health-care devices, hired him in 1998 as its medical director. His résumé listed sterling credentials—but conveniently left out the six years he had spent in prison for trying to smother his wife with a pillow.

In 1998, Sunbeam’s directors fired CEO “Chainsaw Al” Dunlap for fast-and-loose accounting. If the board had taken a more thorough look into his background when it hired him, it would have discovered that in 1976 he was fired from Nitec Paper for similar misbehavior.

High-profile executives who’ve been caught with lies on their résumés are everywhere these days. Bausch & Lomb chairman and CEO Ronald Zarrella, Veritas Software CFO Kenneth Lonchar, and MCG Capital chairman and CEO Bryan Mitchell are just the latest batch of résumé rogues to pad their CVs with fictional degrees. Investigative firms such as IPSA International and Kroll Inc. say the embarrassment of these revelations will force companies—and specifically boards’ search committees—to do a better job of checking the references of those seeking positions in high places. “Somewhere along the line, complacency set in,” says Scott Moritz, a former FBI agent and senior managing director of IPSA. “Directors and CEOs are recruited and recommended by other successful professionals, and they’re given the benefit of the doubt on a lot of things. Someone else’s word is usually good enough.”

Not anymore. Moritz and others say the price of cronyism is proving too steep. After TheStreet.com disclosed that B&L’s Zarrella didn’t have an M.B.A. from New York University, as his bio claimed, the board was put in the awkward position of having to condemn his actions while expressing its “full and enthusiastic support” for his leadership. This is a situation no board wants to face. Says Betsy Blumenthal, managing director of Kroll: “Directors will feel foolish if they don’t do a better job of checking these folks out.”

Most companies conduct some sort of basic background check on the rank and file. The problem is, they often don’t apply those same standards to the top brass or outside board members, for fear of bruising fragile egos. Hiring an investigative firm to vet top executives or directors can be pricey—Moritz says it can run up to $15,000—but that could be money very well spent. There may be other savings too. Moritz says he was once asked by an investment bank to look into the background of one of its executives, who had requested $100 million to finance a proposed deal for the bank. Within hours, Moritz discovered that the executive was about to be indicted on federal money-laundering charges. The deal quickly unraveled.

Vetting a potential hire isn’t neurosurgery. Moritz and other investigators can access a trove of online information, including any past or pending civil or criminal litigation, as well as financial, work, and credit reports. And sometimes a background check can hinge on a single phone call. Barry Honig, president of Honig International, an executive search firm, says a board’s search committee needs to be actively involved in every aspect of top-level recruiting, even unsexy reference-checking: “It’s incumbent upon the board to ask the search firm or human resources to provide a full, written report that verifies a candidate’s educational and work background. That means, in part, calling the university and checking that the degree was actually earned and when. This stuff isn’t hard to check, but you’d be amazed how often that doesn’t happen.”

“In about 80% of the calls I get, the damage has already been done,” says Moritz. “The person on the other end of the phone is saying, ‘I can’t believe I’m calling you. We’re in a crisis.’ I think we’re going to see that change.” With investors disillusioned by fraud at the top of public companies, the pendulum is swinging toward boards’ demanding more aggressive background checks.