An Abject Failure in Due Diligence and Judgment

August 10, 2010

There are few shortcuts when it comes to hiring senior-level executive talent. And when firms are not careful, the price they pay can be exorbitant. Consider the true story of a company that paid a big price.

It was a Canadian tech sector darling, a firm that could do no wrong. And then its revenue growth started to soften. While several theories jostled to explain why, in the end, the leadership took the hit, and a search was launched for a high-powered executive to right the ever-so-slightly listing ship. After ‘an exhaustive search’ the firm zoomed in on a charismatic Californian whose sizzling resume seemed to scream ‘I’m the answer to your prayers’. Revenues soared wherever he went, and while the frequency of some of his career moves was a little concerning, the explanations were plausible and this was the high-flying tech sector after all. The big-name U.S. headhunters reassured the company that the candidate’s references were solid. The board needed little reassuring….this was THE guy! The Brinks truck was backed up to the loading dock and the hiring transaction was completed.

On arrival ‘Chip’, as he liked to be called, immediately leapt into action. First up was a revised go-to-market plan, as well as new public relations and advertising firms. Then an opulent new mountain-time zone head office was unveiled through which a dream-team of high-octane sales pros was paraded one by one. Though the blazing cash burn soon had the board visibly perspiring, Chip reassured them that he had been down this road countless times before and everything was under control.

But something wasn’t quite right. Oddly, Chip had no credit cards ‘preferring’ instead to use cash for all of his expenses. Then, an employee accidentally stumbled upon him late one evening cutting and pasting documents while hunched mysteriously over the photocopier. On two occasions Chip went inexplicably AWOL for 2-3 days only to reappear, without explanation, as though nothing had happened. And then crazy rumors started about him having multiple wives. Concerned by the small mountain of red flags, the board chairman/founder hired a private investigator to check out Chip. The findings continue to baffle the chairman to this day. Turns out that Chip possessed at least three Social Security numbers, had been fired from several companies for ‘cause’, and was under SEC investigation for insider trading at his last employer. And as the investigator sorted through Chip’s four marriages, for which none appeared to have ever been dissolved, he stumbled upon a mistress housed in a company subsidized apartment. The more the investigator dug, the more dirt he found. The flustered chairman flew to the U.S., and accompanied by a beefy security guard, confronted Chip with the investigator’s findings, praying that it was all a big misunderstanding. Chip listened calmly, nodding occasionally, and then without saying a word or expressing any emotion, stood up and left the office never to be seen or heard from again. Just like that it was over. Subsequent attempts to untangle the mess sent the firm into a financial tailspin from which it never recovered.

The stench of bad judgments and inept due diligence still wafts across the tech landscape.

--------------------------------------------------------------------------------
About Author

Robert Hebert, PhD is Managing Partner of Executive Search Firm StoneWood Group Inc. He can be reached @ rhebert@stonewoodgroup.com or at 416.365.9494x777