Good (and Bad) Background Checks

More organizations use background checks to investigate criminal histories and to make hiring and firing decisions. It's up to CSOs to make sure this powerful but flawed weapon doesn't backfire.

August 01, 2004 — CSO — In less than three years, James R. Gorman went from being a newbie investment manager to the lord of $100 million in client accounts for The Vanguard Group, one of the nation's largest and most respected mutual fund companies. When Gorman's Pennsylvania insurance license came up for renewal, though, the company doing a routine background check found a problem. James R. Gorman had pleaded guilty to loan and credit card fraud. He was a convicted felon.

So Vanguard did what any financial services company would do: It fired him.

According to Gorman's version of events, a representative from human resources called him into a meeting one day and told him what Vanguard had learned. He insisted that he had never been arrested, much less convicted of any crime. But Vanguard forced him to leave the building immediately, without returning to his office to gather his belongings.

There was just one problem: They got the wrong guy.

The James R. Gorman who worked for Vanguard had a different Social Security number, date of birth and address than the James R. Gorman whose conviction record had been unearthed by Business Information Group (which did the investigation on behalf of the Aegon Financial Services Group, the company handling the licensing process).

It was up to Gorman, the victim, to set the record straight. Eleven days passed before he was able to return to work. But a year later, he still felt that his career had stalled because of the accusation.

So Gorman did what many Americans would do: He sued.

In a lawsuit filed in the Court of Common Pleas in Philadelphia (from which the preceding story was drawn), Gorman accused the three companies of libel and slander, charging that they had failed to exercise due diligence by not checking identifying details on the background report. The companies denied his charges, but a year later, settled with Gorman out of court for an undisclosed sum. (Stefan Keller, president of Business Information Group, says the company's error rate is extremely low and that mistakes sometimes stem from errors in source materials, such as court documents. Vanguard and Aegon declined to comment.)

Companies that don't adequately screen employees leave themselves open to huge risks, and the results can range from embarrassing to tragic. In spring, James J. Minder resigned from his chairman position at Smith & Wesson when the gun manufacturer learned that he had spent time in prison for armed robbery. And in New Jersey, a 43-year-old former nurse named Charles Cullen confessed to killing more than 30 patients by lethal injection at medical facilities across the country. There's intense pressure on companies to defend themselves against these kinds of mistakesand subsequent lawsuits for negligent hiringby doing background checks.