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Defeat Deceit

Newsletter • volume 6 • number 5

The accounting scandals shaking investor confidence and bringing down once-mighty companies have also brought down some high-profile individuals. To date, the most notorious example is probably Scott Sullivan, WorldCom's former CFO, who is alleged to have improperly accounted for $3.8 billion in operating expenses—an "accounting 101" level of deceit that supposedly went unnoticed by the company's CEO, board, and auditors.

But unethical behavior isn't limited to corporations with billions of dollars at stake. Less mind-boggling but no less disturbing examples of fraud include Sandra Baldwin, who resigned as chairman of the U.S. Olympic Committee after lying about her academic credentials. And George O'Leary, who was ousted after just five days as Notre Dame football coach when it was discovered he'd misrepresented his academic and athletic background.

Large or small, each of these cases is troubling, and makes us wonder how these people got into positions of power and trust in the first place.

We think a big part of the problem is an increasing tolerance of unethical behavior. Consider, for instance, a new poll showing that three-quarters of college seniors believe that the difference between right and wrong is "relative." Or a recent survey reporting that 82 percent of CEOs admit to cheating at golf. These days, it doesn’t seem like much of a leap from cheating on your golf score to finagling a "better score" on a quarterly report.

Then there's the disturbing research showing that more than half of all resumes contain lies and that 23 percent of senior candidates for president, vice-president or board-of-director positions don’t tell the truth.

The sad fact is that we're surrounded by this kind of behavior. And a company's problems begin when unethical people are hired and promoted because interviewers miss key clues in the interview process. Fortunately, the situation for interviewers isn't nearly as dire as it seems to be for investors. Here’s why:

In 20 years of instructing others in job interview techniques, we've learned that there's often a connection between a candidate's behavior in the interview and later behavior on the job. Detecting deceptive candidates early on can make the difference between hiring a co-worker you can trust or one who is going to create problems—or even scandal—in your company. What's called for is due diligence in the selection interview.

Here are some of the techniques we've developed that can help protect you and your company:

Verify credentials. Confirm the educational credentials of any candidate before you make an offer – and perhaps even before you ever schedule the first interview. A simple background check would have saved Sandra Baldwin, George O'Leary and their employers national embarrassment.

Beware of credentials myopia. Unfortunately, the hard fact is that credentials just aren’t a reliable guide to character or to future on-the-job behavior. Some cases in point: Jeff Skilling, former CEO of Enron, has a Harvard MBA. And his CFO, Andrew Fastow, who has repeatedly taken the Fifth Amendment before Congress, earned his MBA at Northwestern's Kellogg School of Management. Meanwhile, Dennis Kozlowski, the deposed CEO of Tyco, earned an MBA at Catholic Rivier College, but apparently was absent the day they studied ethics.

Build rapport. This is obvious, but often overlooked. Candidates tend to confide in interviewers who seem accepting and nonjudgmental. That’s why you're more likely to get an honest response from someone with whom you’ve taken time to establish rapport. This reaffirms our long-held belief that stress interviews and intimidating questions just don't work.

Maintain control. Avoid playing the candidate's game. Instead of using the resume as a prop or conducting a predictable structured interview, draw candidates out with your own agenda of topics. Use a process of discovery where you follow-up with questions driven by both the candidate's answers and your own curiosity. Keep probing until you feel you’ve gotten the whole truth.

Downplay negative disclosures. Try to minimize your response to negative disclosures. If you don't overreact, candidates are more likely to elaborate. You can also encourage them by choosing your words carefully. If a candidate admits to a poorly-handled situation, label it a "mistake," rather than a "bad decision." For example, "We all make mistakes. What caused you to handle the situation the way you did?" Then ask, "What did you learn from that experience?" Beware of answers that reveal a lack of insight or learning.

Be alert for fast answers and "non-answers." Be wary of candidates who answer questions requiring an example without even taking a breath — they may be feeding you prepared answers. Replies that sound too good may be too good to be true. Non-answers should also raise a red flag. Most people are reluctant to lie outright, but are less squeamish when it comes to evasive replies. Watch for candidates whose responses include "non-answer" statements such as, "We've already covered that," or "I answered your question before."

Challenge suspicious stories. If you hear a doubtful story from a candidate, ask yourself three questions: "Does the story make sense?", "Does it feel right?", and "Is it doable?". Look for consistency across three levels of response: thinking, feeling and doing. If you can't answer each question in the affirmative, then ask the candidate to repeat the story in reverse. As you do this, let candidates know you're friendly but serious. Someone with a fabricated tale may omit or change important details when retelling it. Asking good questions, getting the details, and drilling down on answers protects you and warns candidates that you can't be easily duped.

Obtain real-time reference checks. Get the names of relevant third parties and use them in your questions. For example: "If I called your previous manager, Jennifer Lucas, how would she describe your performance? Tell me what she said in your last review—what were her words?" Citing another person by name and asking "what were her words?" makes it more difficult for the candidate to distort the actual response. It's almost a real time reference check.

Ask hard questions. Here's a suggestion from UCLA psychiatrist and author Mark Goulston, who is an expert on corporate governance and ethics. Mark suggests saying to the candidate: "I've never seen a resume that doesn't have some exaggeration in it or attempt to make the candidate look more favorable. Please pick out something on your resume that fits that description." And a good wrap-up question for any experienced candidate is, "What else should you be telling me that might come up in a reference check?"

Question qualifiers. The ironic truth is that claims of honesty often signal just the opposite. When you hear phrases such as "frankly," "really," "honestly," and "to tell you the truth"—it’s probably not.

Spot high-risk candidates. How can you spot a really high-risk candidate—someone who doesn't know or care about the difference between right and wrong? The truth is, you may not always be able to. But keep in mind that such people will lie for no reason and seem to lack normal human qualities such as remorse, empathy, and guilt. They also tend to place their own self-interest above everything else, and are skilled at rationalizing their behavior or blaming others for their mistakes. Jeffrey Skilling's rationale for his lack of knowledge about Enron's books—that he's "not an accountant"—is classic.

Summing up

In spite of the current scandals, we believe that most people are honest and the majority of companies operate ethically. But we also think that deciding whom to trust is more difficult today than it once was.