The Case For Intense Background Checks For Hires

Research firm Muddy Waters has adopted a distinctive hiring process which relies on outside researchers to poke holes in candidates’ backstories.

Carson Block is a skeptical man. He has made a name (and a good deal of money) finding fraud. Muddy Waters, where he’s director of research, takes short positions in obscure Chinese companies, then publicly releases huge and meticulous research reports of accounting irregularities.

One of his most famous takedowns was Sino-Forest Corp, which saw its shares plunge 74% after Block’s research report was released, and ended up declaring bankruptcy.

But when it came to hiring, Block didn’t have the same skepticism, by his own admission: He doesn’t offer specifics, but he writes in the New York Times (paywall) about having made several serious mistakes in hiring people who “had impressive pedigrees and had enough cunning and charisma to cover up their dark sides.”

“After incidents where people turned out to be less than truthful with me, it became clear that the conventional internal screening process was not enough to weed out potentially dangerous candidates that wear disguises very well, and have nefarious motives for wanting to work with us,” Block explained to Quartz in an email. He said he was heavily influenced by the book Snakes in Suits: When Psychopaths go to Work, which he said “lays bare the all-too-common problem of charismatic people who are harmful to an organization being hired. Psychopathic personalities can be a very significant risk.”

That means a lot for a firm like Block’s, which has relatively few—less than 10—employees. To avoid such hires, Muddy Waters has adopted a distinctive hiring process which relies on outside researchers to poke holes in candidates’ backstories, much as the firm does with companies’ financial statements. Block describes the rationale behind his approachat Dealbook (paywall):

I have since realized that I’m largely unable to determine the honesty of a job candidate at the same time I’m trying to judge that person’s potential to contribute and fit in. This is not a shortcoming. Testing for chinks in someone’s armor is not only fundamentally different from developing a rapport with someone, it’s antithetical.

To avoid mistakes caused by this disconnect, Block doesn’t just run background checks; he outsources the process of looking for holes in candidates’ accounts of themselves, and he prolongs the hiring process to allow for more diligence. “One can find outside experts to look for signs of deception, hidden agendas, and potential psychological issues that a candidate might have,” Block tells Quartz.

While hiring outside consultants to vet candidates is probably a bit extreme, unless you’re hiring some very expensive people, Block has an important point. People lie on resumes and in interviews very frequently.

Mike Cassidy, the director of Google’s Project Loon internet balloon program, is another advocate of the independent third-party check. Rather than calling the references provided by a candidate, who are likely aware of the coming call, he recommends calling other people who know the candidate, to get a less biased view and to check up on specific claims or a track record.

Another increasingly common technique is asking for a work sample, or conducting a sort of tryout. It’s easy enough to pad the truth on a resume, but much more difficult to fake actually being able to do a job. Work samples have also been found to be one of the most reliable predictors of performance on the job.

There’s still the possibility of fraud, or of the sorts of bad hires Block refers to. But a rigorous hiring process and a healthy dose of skepticism can go a long way towards reducing it.

(Image via Ekaterina_Minaeva/Shutterstock.com)