SELECTION MATTERS

Reference Checks are Essential to Making Quality Hires… So Why Not Do Them - and Do Them Right? (Part 1)

It's back-to-school time - so let's start off with a review of what we already know (or might have learned but forgotten over the summer!), with a few blog entries on the need for (and benefits of) a robust reference checking system.

Let's open those spiral notebooks and jot down this great quote from Susan R. Meisinger, SPHR, president and CEO of SHRM:

"Being able to identify unqualified candidates during the recruiting process saves organizations time and money.  Employees provide the competitive edge for a successful business, making it critically important for organizations to be able to recruit the right people.  With new technologies, reference and background checking has become easier to conduct and increasingly more important to organizations who want to get a complete picture of the job candidates they consider hiring."

Seems like a no-brainer, doesn’t it?  Avoiding the dreaded “bad hire” – with all the risks it carries, not just to productivity and bottom-line results, but also to corporate reputation and legal liability – has become more and more crucial, and a solid, robust reference checking system is broadly accepted as a key tool for accomplishing that goal.

But in some companies, the reference check has gone the way of the transistor radio – maybe listened to occasionally, but generally forgotten.  In part, this is because of a mostly baseless fear of litigation has driven companies to restrict the amount and kinds of information that employees can divulge about their former co-workers – and in part it’s because it’s just hard to get a reference on the phone in the first place.  The process as presently done may just seem like a big waste of time, particularly when the need is to get someone into that empty chair as soon as possible.

Maybe we need to refresh our memories about the kinds of major risks that companies can run when reference checks either aren’t done at all, or aren’t taken seriously as part of the selection process.  Here’s a biggie:

Excessive turnover, lost productivity, theft and dishonesty directly impacting the hiring company.

• “It makes sense to adopt a requirement that no individual will be hired unless and until satisfactory references are first obtained.  This may seem like an overly strict policy given sometimes stiff competition for even minimally qualified employees and the need for speed in hiring.  However, to hire someone without the benefit of adequate job references is to risk employing an unfit individual whose poor performance or dangerous propensities could expose your company to theft, accidents, workplace violence, or a negligent hiring lawsuit.” -- Bliss, Wendy, J.D., Legal, Effective References (SHRM, 2001), p. 61 (emphasis added)
• Approximately two million acts of violence occur in US workplaces annually, according to a July 1998 report by the US Department of Justice.  Workplace violence costs American businesses an estimated $36 billion per year.
• Ninety-five percent of US businesses have been victims of fraud by trusted employees, reports American Background Information Services, Inc.  According to the US Chamber of Commerce, employee dishonesty costs businesses 1% to 2% of gross sales.  (Cited by Bliss, op. cit., p.6)

And ironically enough (considering that companies are loathe to give reference information because of possible legal liability), the possibility of negligent hiring lawsuits provides an even more compelling reason for conducting reference checks - but more about that in the next post...

Right Management Reports “Hiring Blunders Drain the Bottom Line”

Our colleagues at Right Management recently did a study of 444 companies, which revealed that replacing a bad hire can cost as much as five times the employee’s annual salary in recruitment, training, severance and lost productivity.  42% of the firms studied said a hiring blunder cost them twice the employee’s annual salary; while 26% said it cost them 3 times annual salary. 11% said it cost 5 times annual salary to correct the blunder. Only 15% reported that a bad hiring decision cost them as little as one times annual salary.

Typically, the higher the position, the more costly the hiring or succession mistake. “A bad senior level hire or promotion can severely damage a company’s external brand, affecting customer trust and loyalty, and resulting in a lost commercial opportunity,” said Mary Marcus of Right Management. Similarly, erosion of shareholder and investor confidence in leadership can also contribute to a decline in stock values.

Bad hires screw up the financial picture all the way down the line.  54% of study participants identified lost customers or market share as a primary result of a bad hire. 51% cited higher training costs, 44% higher recruitment costs and 40% higher severance costs.  Other outcomes of poor hiring decisions are non-monetary but cost organizations nevertheless. Examples are lower employee morale, identified by 68%, and decreased employee productivity, identified by 66%.

“Due to the rising cost of, and negative organizational impact from bad hiring and promotion decisions, more workplaces are turning to formal assessment processes,” added Marcus. “Formal assessment methods provide a broader picture of candidates under consideration, more consistency in management development, and people who are the best fit for the challenges of today and tomorrow."

The field of HR Metrics now gives us the ability to track, measure and monetize our activities and results - potentially transforming HR from a “soft” staff function to a full business partner with line-of-business leaders.

The key to making this work, however, is to actually do it, and then demonstrate positive results where it counts - and to corporate executive management, that means at the bottom line.

Let's get out of the Selection Stone Age

Over at the Electronic Recruiters Exchange Dr. Wendell Williams of ScientificSelection.com has posted an article called "How to Leave the Interviewing Stone Age," making the case for the primacy of behavioral interviewing in the selection process – which has prompted a spirited exchange between him and Lou Adler of The Adler Group, who pushes more for past performance as the best predictor of future performance. 

I’ve chimed in on the discussion myself.  I’d say Adler and Williams are splitting hairs - we need all the information we can get about candidates, and it’s not an either/or proposition.  If you had a method that gave you good information about both past behavior and past performance – information derived not from the candidate, but from the people who have seen the candidate in action - I think you’d be way ahead of the game, wouldn’t you?  Particularly if you could use that information to make your behavioral interviews more effective, and put past performance into the right context.  The hiring process has got too many problems at present for us to quibble about who’s got the magic bullet.