The Cost of Not Checking References
Can you afford to cut this corner?
by Guy J. Hall, VP of Operations, TD Madison and AssociatesThe overall costs of doing business are being carefully scrutinized by businesses more than usual given the current economy. In many cases it is difficult for human resources managers to justify the costs associated with careful in-depth performance-based reference checking as an essential step in the hiring process. However, the question remains, can they afford not to?
Regardless of how up-front hiring expenses associated with bringing on a new employee are calculated, they are a fraction of the actual costs that may be incurred as a result of failing to do something as basic as in-depth reference checking. According to the Employment Management Association, the average cost associated with hiring someone for an exempt position is more than $10,000. That includes everything required to advertise, recruit, interview, evaluate, entertain and entice the best candidate. Additionally, search fees can as much as triple that up-front cost.
Proper reference checking, whether done internally or by a third-party service, represents only a few hundred dollars of the total hiring expense. That relatively small amount of money (as compared to the overall hiring expense) can save employers thousands of dollars up front by helping eliminate unqualified candidates early in the process, and several hundred thousand dollars later by avoiding the consequences of a hiring mistake.
Traditionally, reference checks have indicated flaws in a candidate’s ability to perform previous job responsibilities and critical flaws in management abilities and experiences needed to lead a department or business. During the very first reference call, I asked a former boss what he thought the candidate's main strength on the job had been. He hesitated for a second and said, "Interviewing."
Then he added that the candidate had presented himself well, seemed technically competent and answered all of the questions perfectly. "He had been recommended to us by one of our company's directors," the boss told me. "So we hired him without bothering to check any of his references. It took us about six months to figure out he could only do about a third of the things he claimed he could." During that six-month period, the company had paid out more than $75,000 in salary and benefits. Lost business resulting from his mistakes amounted to more than $250,000. That adds up to a total loss of $325,000.
Incidentally, all three of the candidate's references made the same general comments about his lack of competence on the job. When I called the client to give him a verbal report on what the references said, I could almost hear his chin drop over the phone. This is one of the best and most dramatic examples of why references should always be checked before a hiring decision is made.
Even though this is a fairly common occurrence, there are still companies that either don't check references at all, or don't do it very well. Why? It simply goes back to a very old saying about being penny-wise and pound-foolish.
Careful reference checking can reveal much more than how well a candidate performs particular tasks. It can also reveal subtle differences in candidates' management styles, philosophies, personality traits and interpersonal and communication skills. These nuances can help determine whom among a group of otherwise equally qualified candidates will most likely succeed within any given corporate culture.
While many employers think nothing of flying a top candidate and spouse halfway across the country to be wined, dined and entertained for a weekend, they will balk at the prospect of checking references -- considering them to be either an unnecessary expense or too time consuming. Careful reference checking, however, should be viewed as one of the most cost-effective ways to reduce overall hiring expenses and a way to bring tangible value to the decision-making process. It requires a relatively small investment to produce potentially huge results.
As a retained senior executive search firm, TD Madison & Associates has made this step a vital component of each search conducted and always occurring before an offer is made by the client. In recent years reference checking has become a co-sourcing service we offer to human resources departments over a broad range of industry sectors. In conjunction with reference checking (a minimum of 5) an extensive background investigation is also available to strengthen the knowledge base on the candidate under consideration for a position.