Fudged resumes embarrass big companies

By Lauren Weber

NEW YORK: Just when the stream of scandals about companies misleading investors seems to have ebbed, recent revelations of resume padding point to another area where basic standards of corporate oversight have failed. In the last month, top executives at three companies have been disciplined for fabricating university degrees. The disclosures have exposed the companies to embarrassment and stock plunges, and have punctured their credibility.

The disclosures reveal one more Achilles heel of American business, said Peter Turecek, who heads the consulting services group at corporate investigations firm Kroll Inc. "Resume fraud is not new," he said. "Companies wanting to check it, or having the political will to check it, is something that has to change." He said nearly 25 percent of all background checks he's done have revealed false information.

Companies are complacent, Turecek said. They assume that if a job candidate has been in an industry for 20 years, some other company down the line must have checked out the person's resume. "In reality, that might not have happened," he said.

Then there's the old boys' network. Many executives come to companies through word of mouth, Turecek said. Maybe a director recommends an old friend, or an executive wants to bring in a trusted deputy from a previous job. Human resources departments are reluctant to interfere with those relationships, or risk offending superiors by insisting on a background check.

"That should change as more directors realize that they can be embarrassed as well if something happens to the company," Turecek added.

Price to Pay

He said that many companies skimp on these checks. But "a little bit of money spent now can save a world of headaches" later on, he said, adding that a thorough background check costs about $25,000.

Compared with offenses like securities fraud, money laundering and obstruction of justice -- all crimes U.S. executives have recently been indicted for -- padding a resume may seem like small potatoes. But fudged resumes can still ruin careers, embarrass companies and lead investors to ask: who's minding the store?

Last month, Veritas Software Corp. fired Chief Financial Officer Kenneth Lonchar after discovering he did not have an MBA from Stanford Business School, as he had claimed. Veritas shares fell 19 percent on the day of the announcement.

A few weeks later, eye-care product maker Bausch & Lomb Inc. said its Chief Executive, Ronald Zarrella, did not have a graduate degree in business, as his company biography once claimed. He'll stay with the company, but without his 2002 bonus. Last week, MCG Capital Corp. disclosed founder and CEO Bryan Mitchell's fib that he graduated from Syracuse University. MCG's stock fell 37 percent that day.

Some companies retain headhunters for high-level searches, but even these seasoned firms sometimes miss important facts. Two leading placement firms -- Korn/Ferry International and Spencer Stuart -- failed to uncover evidence that Al Dunlap, a former Sunbeam CEO, had been fired at previous jobs. Dunlap had left those jobs off his resume.

Kevin Connelly, the head of Spencer Stuart's North American operations, acknowledged that human errors do occur. But he said his firm's first step, when asked to do background checks, is to verify academic and professional accomplishments. "We don't present anyone to a client without verifying the credentials," he said.

Lawyers said it is possible that search firms could be held liable for these embarrassments, but only if their contracts explicitly state they will vet the candidates. If search firms "missed a fake credential, I think they would be liable, but only for the damages that are foreseeable, like replacing the person, maybe," said Warren Dennis, a senior partner with New York law firm Proskauer Rose.

Ultimately, Turecek said, client companies are responsible. "The onus is on the companies. The companies should do pre-employment screening or background checking," he said.

Lenient Punishment

Meg Graham, a Bausch & Lomb spokeswoman, said she did not know if a search firm was involved in Zarrella's hiring when he came to the company in 1985, or when he returned in 2001 after a stint at General Motors Corp. She declined to comment on the company's procedures for vetting candidates.

Veritas spokeswoman Marlena Fernandez said Lonchar came to the company after it acquired his former employer, OpenVision, in 1997, rather than as a direct hire. And Bryan Mitchell was a founder of MCG Capital, so his background was not checked, spokeswoman Sherry Edwards said.

Both Bausch & Lomb and MCG were relatively lenient with their errant chiefs, choosing to keep them on but denying them current-year bonuses. MCG's Mitchell also forfeited his 2001 bonus, and stepped down as chairman of the company.

Zarrella now misses out on a bonus that could have topped $1.1 million, but he keeps his $1.1 million salary, along with stock options and other perks. Ethics experts say those sanctions could be adequate, especially combined with the shame and embarrassment those executives are likely suffering.

"Most people are worthy of second and third chances," said Dov Seidman, CEO of LRN, a Los Angeles firm that provides legal and ethics training. "At the same time, you can't ignore ethical missteps."

© Reuters