More and more Indian companies ramp up background checks on C-suite

Mumbai: An increasing number of large Indian companies, conglomerates and family-owned businesses are discreetly keeping their CEOs, CXOs and key managerial personnel (KMPs) under watch by commissioning ongoing background screening, said top executives at advisory firms, background verification companies, board members and lawyers.

There’s been a near-sixfold jump in demand for such verification with a push from promoters and boards prompted by a stricter focus on corporate governance, greater fraud risk perception, the threat of greater legal liabilities for companies and a tougher regulatory environment. Apart from avoiding any reputational damage, companies also want to make sure executives are doing their jobs to the best of their ability.

Companies are seeking a 360-degree view, said one of the persons cited. This includes regular criminal record checks, regulatory database perusal, examining social media presence and comments, any sexual misconduct and signs that someone is living beyond their means. Screening can also extend to family issues such as property disputes or even marital discord as a factor that could impact a person’s ability to perform, said industry insiders.

“In the last six to 12 months particularly we have seen a surge in demand for ongoing screening of CXOs and key managerial personnel,” said Ajay Trehan, founder and CEO of AuthBridge, one of the largest background verification firms.




The cost of a CXO background screening would be anywhere between Rs 1.5 lakh and Rs 7 lakh and will depend on how deep the investigators have to delve, according to the people cited above.

“Focus is more on senior professionals in sensitive functions such as finance, procurement, M&A, operations, among others, to keep a continuous watch on any litigation, any aberration in the financial domain, hardline political views, inappropriate conduct or language on social media platforms, sexual misconduct that may have a negative impact on the organisation and business,” said Trehan. “It is ongoing to the extent that we keep a watch on a person's social media and internet presence on a real time basis. And if there's anything negative popping up, we will immediately highlight it back to the client.”

These ongoing checks on senior management personnel are aimed at keeping discreet tabs on anything that can impact the reputation, goodwill, or operational capabilities at an organisation, said Anshul Prakash, partner at law firm Khaitan & Co.

Apart from background verification agencies, private detectives could also be engaged while sources could include informants within the company network.

“Even a marital dispute, bad personal investments or a personal property related litigation can impact the larger alignment of the individual to his/her professional capabilities,” said Prakash.

The objective is to assess whether anything in a person’s private life could have an impact on the ability to do their job well. Any action will depend on the nature of the findings and whether the establishment and its stakeholders will be affected, said the people cited above.

Take the case of a senior executive at a mid-sized Indian construction company who was going through a divorce.

“Half the time he was not turning up at the office, his work was getting impacted and the company was clueless about his behaviour,” said a senior lawyer, who didn’t want to be named. “As per the company’s policy, he was required to disclose any litigation that he is a part of but the executive did not do that. So the company commissioned a discreet check on him and once they found out he lost a part of his incentive/bonus for his negligence at work.”

Another top executive at a consumer durables company was named in a first information report (FIR) over a fight at a restaurant. A senior manager at an infrastructure company got his family members to set up a firm that was directly competing with his employer by quoting lower rates, said an official aware of both cases on condition of anonymity. Legal proceedings are ongoing in both these instances.

Are such inquiries an invasion of privacy?

“It is not a violation of privacy as the company is only using the information to process if a CXO level person’s personal behaviour and dealings may impact the reputation, goodwill, operation capabilities of the organisation,” said Prakash.

Companies are putting in place more stringent processes to keep an eye on any untoward behaviour that may hurt an organisation or its stakeholders, said Naina Lal Kidwai, chairperson, Rothschild & Co India.

“There is a focus by boards to bring in more rigour into background checks of senior professionals and making sure that whistleblower channels are open so that anything untoward can be reported to the board–anonymously or otherwise,” she said. “Boards look to ensure that once wrongdoing is detected, often through forensic audit, the employee is given a fair chance to represent facts and then due action is taken.”

Companies may even gather market intelligence on whether a person is a speculator in the stock market or an investor by habit.

Family-owned businesses looking to hire professionals are keen on maintaining their standing.

“As family-run businesses cast their net wider to hire professionals outside their close network and the level of familiarity decreases, companies are increasingly focusing on more stringent checks,” said Maneesha Garg, partner and head, managed services forensic, KPMG India. “Ongoing background checks are done on CXOs and functional heads in critical roles such as finance, treasury, among others.”

Shailesh Haribhakti, chairman of audit and accounting firm Haribhakti & Co. and an independent director at several Indian companies, said: “Risk perception is much higher in today’s world and reputation management is a big thing and hence regular background assessment of senior professionals is becoming crucial.”
Typically, background screening stretches back to two-three previous jobs held, even before promotion to key roles, said Amit Rahane, partner, EY India forensic and integrity services.

“Ongoing checks of social media handles are done for senior people in critical functions,” he said. “As the regulatory environment gets tougher, more rigour is coming into these checks.”