Thought leadership series: hiring risks in Asia

Our meeting of HR champions at the Landmark Mandarin Oriental saw Ivan Chu, Chief Executive, Cathay Pacific Airways (left) highlight key challenges faced by HR in the ever-changing hiring market and Erik Schmit, EVP & MD APAC, First Advantage (right) share his team’s latest research on background screening trends across APAC.

The blockbuster movie Catch Me If You Can depicted the main character, played by Leonardo DiCaprio, managing to con his way to riches by misrepresenting himself to employers and falsifying his identity before finally being arrested—but not before defrauding Pan American Airways of close to USD 3 million. Great movie material, but the fact is that it was based on the true story of Frank Abagnale, who in 1963 started defrauding and deceived his way through multiple jobs.

Erik Schmit, EVP & MD APAC, First Advantage commented, “This case happened long before accurate and comprehensive applicant screening was available, but now in the Internet-of-Everything era, getting a thorough breakdown of just who you are employing is significantly easier. Leaving things to chance is neither necessary nor prudent, especially when your organisation’s reputation is at risk. Just one high-profile bad hire can cause incalculable damage.”

APAC hiring risks abound

A recent survey conducted by First Advantage revealed the extent of the problem, with 23% of candidates admitting to having embellished the truth on their CVs. Based on applicants screened across APAC by the organisation, over 17% were found to have major discrepancies in their backgrounds. The situation in Hong Kong is the worst in APAC, with one in five CVs found to have discrepancies.

Premium talent for a premium service

Ivan Chu, Chief Executive, Cathay Pacific Airways is certainly no stranger when it comes to recruitment and screening employees. With over 36,000 staff on the payroll globally, recruitment at Cathay is an ongoing process with 200 to 400 positions that need filling at any time. The hiring and screening processes throw up numerous challenges for HR in respect of verifying staff integrity.” Chu explained, Cathay is selling a premium service and as such we need to onboard premium talent as well. When recruiting premium talent, you have to choose a stance: do you focus on tactical recruitment or people development? They often conflict, such as the tactical approach for new hires is generally short-term, whereas people development—to up skill from within—is a long-game. Each comes with their pros and cons and this is often a balancing act for HR—common with both though is the need for screening.

When recruiting premium talent, you have to choose a stance: do you focus on tactical recruitment or people development? They often conflict.

—Ivan Chu, Chief Executive, Cathay Pacific Airways

Screening critical in people development

Ivan Chu, Chief Executive, Cathay Pacific Airways

Chu stressed the importance of HR picking the right candidates for the right roles. He commented, “If you are looking into people development then you need to pick the right candidate to build up. To train up someone internally from frontline to management might cost in excess of HKD 1 million—and that is not even mentioning time as a factor."

He added, “Picking the right candidate is a crucial role for HR and this is where screening comes into play. Just because someone has already been in a firm for many years, certainly does not mean you should ignore rescreening them, especially if you are going to be investing a lot into that one person.” Rescreening long term employees, though it may not seem useful, can occasionally unearth something previously unknown that could become an issue, especially if someone progresses into an exposed and visible position within an organisation.

Screening in tactical recruitment

When bringing new talent into the organisation, leaving things to the ‘gut instinct’ of one or two senior executives is subjective and inadvisable. At Cathay, Chu noted, “The argument for screening fresh applicants is perhaps a lot simpler—you have little or no background on a candidate so screening is a must in order to catch potential problems early on in the recruitment process.”

Getting an HR seat in the boardroom

Chu highlighted the need in any organisation to get the C-suite properly aligned with HR. He said, “It is important for HR to have a seat in the boardroom, after all, they are responsible for one of the organisations biggest assets. Ideally, HR’s role in the boardroom should be just as important as the CFO, COO and CMO. The most productive companies use their HR department as strategic partners—after all, they are most in touch with people throughout the organisation, interacting with them on a daily basis.”

In reality, getting HR a seat at the board can be a challenge—convincing other board members that HR is being truly strategic with policy and resource allocation—but the payout can be great. How best to go about it? Chu advised HR to lead by example. He explained, “Keep excelling at what you do, your acts will demonstrate to both the C-suite and your subordinates what is important, and that your knowledge is invaluable. Without a CHRO in the boardroom, the C-suite is excluding its key assets from their seat at the table.”

Growing international screening challenges

Around the world, employers rely on background screening to help verify information provided in job applications. Screening may be conducted internally by HR, or increasingly carried out by third parties specialised in background screening. By and large, most countries adopt similar background screening strategies as a means of validating application information to help them obtain and retain honest and competent employees. Employers in certain countries such as the US also have a legal duty to exercise due diligence in hiring. Failure to do so may lead to the organisation being sued for negligence where they hired someone who they knowingly—or in the exercise of reasonable care should have known—was dangerous, unfit or unqualified for the particular job and it was foreseeable that someone could be harmed.

Ideally, HR’s role in the boardroom should be just as important as the CFO, COO and CMO.

—Ivan Chu, Chief Executive, Cathay Pacific Airways

The same standard of care applies to employers in Hong Kong who hire individuals currently living, or who have lived, abroad. Hiring overseas candidates then throws up a whole new set of challenges for HR. Information such as criminal records, credential verification and databases may be less accessible in some regions. Special forms, procedures, and consent language may be required to gain access to information—especially where it is covered by data privacy ordinances or differing local laws. Moreover, the cost and turnaround times of eking out such data can be much higher in certain countries when compared to local verifications.

Who cares?

In many organisations the responsibility of bringing and keeping the right talent on board rests firmly with HR. Hiring heads are acutely aware of the importance of facilitating ‘right hires’ but are often stretched in terms of budget, resources and hours in the day to conduct extensive background checks on potential candidates.

Schmit pointed out the critical importance of conducting background checks. In terms of the current hiring landscape he explained, “For hiring managers today, it’s no longer just about the person you hire, but also the validity of those hires. HR has to be more rigorous throughout their candidate vetting processes.”

He added, “One of the most concerning trends we’ve observed is the steady rise in the year-on-year discrepancy rates across APAC—particularly in Hong Kong. The overall discrepancy in 2013 was just under 13%, in 2014 it stood at over 16% and by 2015 it had already exceeded 18%.” (see Figure 1)

The cost of a bad hire can be devastating for a company both financially and in terms of reputational damage.

—Erik Schmit, EVP & MD APAC, First Advantage

Figure 1: Y-o-Y comparison of major CV discrepancy rates by country

Insurance against fraudsters

In creating and maintaining robust screening procedures, HR can reap multiple benefits for their organisation not just in terms of enhancing the organisational culture, but also in terms of huge potential financial savings. Schmit likened background checks to an insurance policy as both represent a relatively small initial investment to help safeguard against huge potential financial losses when things go wrong. He said, “The cost of a bad hire can be devastating for a company both financially and in terms of reputational damage. Companies are realising this and we’ve seen a huge increase in the number of organisations that are now using background screening—over 100% increase in the last year.”

New hires

Awareness about background screening has grown significantly over the last five years across Hong Kong and APAC. It is no longer a procedure just implemented by large MNCs, but has penetrated all sectors and organisations. Employers no longer limit verification to basic candidate screening but are now opting for customised background screening services—specifically tailored to suit the type and level of employee being hired. This process not only saves time by honing in on the most critical checkpoints, but also allows employers to get to know much more about their prospective hires. Schmit gave an example, “At First Advantage we have an executive screening programme specifically for senior leaders. This is tailor-made for C-suite employees and helps employers get to know their leaders on a much deeper level before entrusting them with the responsibility of the whole organisation and talent therein.”

Vendors

There has been a steady rise in awareness and demand for vendor screening, to help protect the company brand by screening anyone associated with the company including contractors and vendors.

Aside on new hires, it is also essential for HR to be looking at existing talent within their organisations. Staff members may have joined at a time when background checks were not carried out or may have significantly changed their status since joining.

Old hands

Schmit explained, “We are seeing a growing number of companies re-screening their existing candidates to check if they may have committed a new offense or violation since their initial background check before they were hired.”

Who’s screening what

The most commonly misrepresented or exaggerated components on job applications are employment, education and database¹ and this is reflected in the number of checks conducted by companies in these areas. In APAC 58% of checks relate to employment, 19% relate to education and 19% relate to database.

What are candidates misrepresenting?

Details about previous employment continues to be the number one item that candidates are misrepresenting in job applications. ‘Employment’ inaccuracies have consistently been indentified in over 41% of CVs since 2013 and in 2015 this figure rose to over 45%. ‘Education’ is the second most misrepresented item on CVs, with around a third of candidates providing misleading information on their academic backgrounds. Things may be improving slightly though on this front—as in 2015 the number of CVs with inaccurate information on ‘education’ fell slightly, to a shade under 28%. The third most prevalent discrepancy identified on CVs relates to ‘database’—and although accounting for a lower number of discrepancies than employment and education, the number of discrepancies pertaining to ‘database’ has consistently risen from just under 15% in 2013 to over 25% in 2015 (see Figure 2 below).

Figure 2: Hong Kong CV discrepancy rates breakdown from 2013 to 2015

According to the 2016 Trends Report from First Advantage, with regard to ‘employment’ the highest discrepancies recorded were for the stated date of employment—with over 8% of candidates misrepresenting it. Close behind this was incorrect ‘job title’ which accounted for over 5% of discrepancies uncovered.

When it comes to ‘education’, applicants are most likely to provide incorrect dates of attendance at their academic institutions—with one in every eight applications showing discrepancies in this regard. Over 6% of candidates are also providing incorrect information about the type of qualifications they attain—sometimes this may manifest itself as discrepancies in degrees or certificates, and sometimes there are no academic records found at all.

Impact of bad hires

The impact of bad hires makes for big news, due to huge financial blow they can bring and damage they cause to an organisations brand and reputation.

Distilled advice from Erik Schmit and Ivan Chu on what HR needs to do effectively screen applicants and reduce hiring risks in Asia

¹ Database refers to searches by name from a collection of databases including various media, online search engines, company registries and address records.