Then came Leeson. What on earth, some City old-timers blustered, was a manual workers son who hadnt even gone to university or been a scholarship boy at a decent school doing at a firm like Barings? The truth, it turned out, was that technology, employment legislation, Big Bang, globalisation, increasingly sophisticated financial instruments like the trade in derivatives and, above all, the skills shortage, were distorting the traditional shape of recruitment. Firms were having to look far outside the familiar territory of Healds book. If only the Barings people had known someone whod been at school with Leeson, there would have been warning signals, sighed one City figure.
Despite the fact that knowing what a person was like 20 years ago is hardly an infallible guide to how they will behave now, most City head-hunters echo the words of Andrew McNeilis, director of resources at the recruiters, Robert Walters. Its all very well to pull something down, he says about the decline of the old-boy network. But what do you put in its place?
That has become all the more difficult because over the past 10 years various pieces of employment legislation have inhibited recruiters from asking pressing questions. References, in particular, are now regarded as almost valueless. You cant safely say anything, says McNeilis, other than the fact that a person was employed for a stated length of time, in a certain job and at a certain salary.
At the same time, a steady flow of news about appointments that have gone expensively wrong underline the importance of making good hiring decisions like the case of Peter Young, the former Morgan Grenfell trader, whose activities may have cost Deutsche Bank as much as 400 million.
Many other cases have never made the headlines, precisely because of the legal pitfalls of saying the wrong things to the wrong people such as journalists. This ill wind however has blown good to a whole new sub-section of the recruitment industry. Outsourced pre-employment screening (PES) and pre-assignment vetting of internal candidates is booming. Even temporary appointments are becoming subject to such scrutiny and not just those in sensitive areas.
The reason why these processes are being outsourced is not just because HR departments lack the specialised expertise involved in picking their way around a minefield of employment legislation not to mention some of the pure detective work of finding skeletons in cupboards. Its easier for an external provider to strike a balance between two conflicting areas of recruitment control and speed, argues McNeilis, as HR departments are often under pressure to fill a vacancy quickly and in the face of competition from other talent hunters.
Nevertheless he concedes that there are a lot of things HR could do at a preliminary stage before calling on a pre-employment screening provider. There are four key issues.
Can the candidate do the job, do they have the right attitude and will they fit the culture? The fourth one is, Would I want to spend 14 hours a day with them? This last question, which is linked to gut feeling and personal chemistry almost takes one back to the old-economy days of Healds networks. But it is a fair point. Sir Antony Jay (of Yes Minister fame) once described how, when he became a manager at the BBC, he was determined to be entirely rational in his recruitment decisions. However, he still refused to hire a man who was ideal for a vacancy in every way, except that Jay had taken an instant personal dislike to him.
Shortcomings of the interview
In fact, many of the factors outlined by McNeilis are linked to very traditional employment tools, such as psychometric testing and face-to-face interviewing. Theres no substitute for seeing the whites of someones eyes and observing their body language when they deal with an awkward question, he says. However, John Nicholson of the business psychologists, Nicholson McBride, is doubtful about interviewing generally. He believes that business simulations are a better way of evaluating what candidates are capable of and how well they perform under pressure crucial in the context of the City.
The trouble is also that employers are not very good at interviewing, according to Jeremy Phipps, director of special accounts at Control Risks. The latter, which made its name by providing advice to employers in dangerous parts of the world, now has a growing and global presence in PES.
Partly, its the fault of publishers, says Phipps. Books that tell their readers how to deal with tough interview questions enable them to forestall precisely those designed to get at the truth. In fact Nicholson recommends recruiters read some of these themselves. But its also a cultural issue. Fibbing is not new but anecdotal evidence suggests that standards of honesty and loyalty are declining.
According to Phipps, 27% of candidates are economical with the truth about their qualifications or their work and startlingly no less than one in three males under 40 has a criminal record of some sort. Drugs, on the other hand, is not as serious a City problem as is widely speculated; a mere one in seven City workers is on drugs, according to Control Risks.
Recruiters and PES providers confirm these findings and say that the sheer weight and complexity of work in financial services mean that people realise that they have to keep their wits about them if they are to earn the bonuses which originally attract them.
Raised expectations
However, huge bonuses themselves can eventually be a trigger for fraud, as in the case of Leeson. Someone might get a big bonus one year, and then, through no fault of their own, very little the following year, says Phipps. In the meantime they will have acquired the lifestyle and financial commitments of high earners. Thats when temptation appears.
Alex Plavsic, fraud investigation partner at KPMG, confirms Phippss view that the most serious threat to City firms comes from insiders, who generally manage to justify their activities in some way, like the fact that they should have had money they didnt get paid. The first step when youre investigating someone is often to dismantle that feeling of entitlement of which theyve persuaded themselves, he says.
He stresses that internal vetting prior to a move or a promotion is becoming just as important as pre-employment screening. That can be a very delicate matter because when you have been working with someone over a period of time an investigation may be seen by both parties as a breach of the trust relationship. However Phipps says that there are some generic warning signs that employers ought to bear in mind for any appointment relating to procurement or carrying the responsibility for approving significant contracts.
The first sign is often people regularly working what appear to be unnecessarily long hours. Fraud is seldom simple and often requires time-consuming access to records. Refusal to take holidays is another sign scams are often discovered when someone else is doing the job.
It has been noted that consistently turning down promotion for no good reason can mean that someone is deriving hidden and illegal sources of income from their current job kickbacks from suppliers is the most common example and then there are the people patently living beyond their known means, such as the flaming Ferraris, the group of young traders who tried to rig the Swedish stock market in 1999.
However, the matter has to be approached very circumspectly because the Data Protection Act means that in the case of both internal and external investigation the person concerned has to give their permission for this to be done. Phipps and other PES providers are already expressing their concern that the Human Rights Act could create catch-22 situations, whereby barring someone from a job because they refuse to accept investigation could be a breach of their human rights to privacy.
Plavsic says that 75% of frauds are committed by insiders who know the system. According to Phipps they include temps, for whom there also ought to be vetting procedures. Forget about men with shotguns emptying the safe. There is evidence that crime syndicates are infiltrating companies with temps who gather information about weaknesses in their system or about employees who may be vulnerable to blackmail.
Predisposition for dishonesty
Admittedly, these checking procedures are expensive but Philip Wharton, a former police chief inspector who went on to become global head of HR at Mercury Asset Management (formerly owned by Warburgs), is convinced that they are cost-effective. Warburgs used graphology as well as more orthodox tests in both internal and external recruitment. Its one part of the jigsaw and we found it to be remarkably accurate in drawing attention to personal characteristics which were not evident from their CV including a predisposition for dishonesty, he says. Warburgs also tested for drugs and alcohol, though he confirms a widely held view that the intensity of the work itself has made this problem less acute than it used to be. For Wharton, the big issues now are the ones raised by diversity.
Recruiting globally from people with a wide range of cultures and attitudes to ethical issues is a much greater challenge for City firms than the disappearance of the old-boy network, Wharton says. In his experience the best approach is to make it absolutely clear from the outset what the firms values are and to see that these are consistently adhered to. The kind of business you take on is crucial. If the firm takes on work which is not ethically transparent or which turns a blind eye to dodgy practices in order not to jeopardise bonuses, then its not surprising that a culture of dishonesty starts to appear.
Creating a culture in which people feel comfortable brings benefits in another area that worries City firms retention. Nowhere is the talent hunt redder in tooth and claw than in finance and banking and nowhere is the argument that your assets walk out of the building at night more cogent than in the City. One of the ways of getting people to stay is to enable them to increase their employability by making training and development a highly visible part of the culture. But what happens when someone in whom a company has invested thousands of pounds cashes in on their employability to join a competitor a very frequent occurrence?
Thats a risk employers have to take. They can try to recover the cost of training if they can arrive at a genuine estimate of how much they have lost, says Matt Dean of the lawyers, Simmons & Simmons. In practice its very difficult. He also holds out very little hope of protecting intellectual property when people leave. Putting an embargo on the transfer of knowledge to another employer can be seen as a restraint of trade.
Edinburgh-based Dorothy Lowry, head of human resources for the corporate banking division of the Bank of Scotland, says these problems are by no means confined to London. Edinburgh is a compact city where networking is a way of life but the bank is having to get more professional in vetting staff and is turning to outsourced suppliers to check references, verify CVs and delve into credit records. Given the war for talent, the issue is to strike a balance between speed of response in making a job offer and maintaining the proper checks. One solution, she says, is to pitch the offer within 24 hours by fax or email, but to make it subject to verification of the information the applicant has supplied. However she and her colleagues are among those who are concerned about the implications of the Human Rights Act, both internally and in recruitment procedures.
A few discreet telephone calls...
So how widely have these new and more systematic post-Leeson recruitment and promotion procedures been applied? David Bateson, head of Kettlefish, the head-hunting arm of the recruiters, Bernard Hodes, thinks City firms still have a long way to go in this respect. Partly this is because they are worried that if they become too rigorous in checking people out, the superstars and rainmakers will head for competitors in more permissive climes. On the positive side, there is still a lot to be said for the fact that the City is a network where a few discreet telephone calls can be very informative, though there are obvious limitations with candidates from abroad who are applying by email in rapidly growing numbers.
As for internal appointments, one PES provider suggests a time-honoured procedure not widely used in the secular world: the Vaticans use of a devils advocate whose job it is to dig up all the dirt on candidates for sainthood before their status can be confirmed. It does not, of course, create any saints but it does keep out egregious sinners.
Further reading
Networks by Tim Heald, Hodder & Stoughton (1983)