Bad hires cost real money.
By Michael Beygelman
Let’s start off with the unfiltered and sometimes unpopular truth: A bad hire really does cost an organization money. The Swiss-based UBS just realized this truism the hard way. On August 15, the global investment bank announced that a rogue trader had lost as much as $2 billion: “It is possible,” their report said, “that this could lead UBS to report a loss for the third quarter of 2011.”
As unbelievable as the underlying cause of the above story might seem, sadly it is far from being a “black swan.” This term, borrowed from the investment banking world, describes a high-risk/low-probability event that (after it occurs) is viewed as having been a near certainty. Unfortunately, the black swan principle is just as applicable to hiring as it is to investment banking, so HR organizations need to immediately examine their recruiting and screening practices to ensure that no costly bad hires accidentally make it through to a high-risk job like trading.
HR organizations should use this wake-up call to ensure that experts are in charge of their recruiting and screening. Previous examples—like Amaranth Advisors’ Brian Hunter ($6.5 billion loss on gas futures in 2006) and Société Générale’s Jérôme Kerviel, ($5.9 billion loss on the European index futures in 2008)—should have been sufficient, but I guess once you see one black swan, they are suddenly not so uncommon.
Overreacting and not thinking through to a sustainable solution can compound the problem. Nearly immediately after the UBS headlines broke, a new headline emerged to the effect that Swiss regulators want a rule to require banks to early-retire traders once they hit the age of 30. Kweku Adoboli, the alleged perpetrator of the $2 billion UBS loss, is 31. Jérôme Kerviel, Société Générale’s big loser, was also 31, and Goldman Sach’s Fabrice Tourre was also 31 when he allegedly sold the “infamous” Abacus CDO. So now that a fully thorough study has been conducted, amassing a whopping sample size of three, regulators think they have the magical solution of mandatory early retirement.
As HR practitioners know, the world is not this black and white. The reality is that some of these kinds of blunders can be avoided by instituting best practices around recruiting, screening, and talent management. Generally speaking a human being doesn’t get up one morning and say, “today, I think I’m going to become a criminal, or do something against company policy, or something immoral, or unethical, or felonious.” It just doesn’t work like that. The reality is that there are behavior patterns and unarticulated desires of individuals that are part of their psychological makeup, which with proper behavioral assessments and screening techniques can quickly identify them as high risk during recruitment. While this is not a catchall, a second piece of the filter is ongoing performance and talent management.
Unfortunately, a disproportionately large number of organizations still believe that if they just saw more candidates they’d be able to select a better hire, but this is rarely the case. The problem is that organizations largely look at the available candidate pool, and while this pool is an important part of the talent ecosystem, the accessible and relevant talent pool is at least equally, if not more important, and events like the UBS tragedy paint this notion in neon lights. Imagine if proper psychometric evaluations and behavioral assessments were embedded within all recruitment processes and talent management initiatives; their behavior pattern could be analyzed versus a corporate employment risk profile, and a hiring and/or termination decision can be made.
This kind of systematic approach will actually have an overall positive impact on the organization as a whole, because often even one bad employee can bring down the morale of an entire organization, as is the case with UBS. At HereIsTheCity.com, some unnamed sources cite, “when the news broke on the trading floor today, the reaction was not the usual cynical laughter, or expressions of schadenfreude. On the contrary, several of us bemoaned the fact that one of our fellow financial professionals (that’s what they used to call us anyway) would pretty much betray the firm and the trust that was placed in him. It’s no wonder that the public remains angry about how bankers sometimes behave—this guy appears to have let the whole industry down.”
This latest debacle paves the way for HR leaders to substantiate their business case to modernize and enhance their talent acquisition capabilities, and it seriously raises the question of whether or not organizations should even continue to do recruiting directly or whether they should outsource this mission-critical function to an expert. At the end of the day, which HR organization wants to be responsible for the next $2 billion bad hire?
Michael Beygelman is the global practice leader and president, North America RPO, at Adecco Group. He can be reached at email@example.com