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Reference checks for better hiring
Published on Sunday, 06 Jun 2010

Corporations are becoming increasingly guarded in their reference letters for departing employees, adhering only to the bare facts of an individual’s employment details, but offering little input on actual work performance, according to human resources (HR) professionals.

 “The majority of reference letters provide concrete factual information such as the employment period, title and reason for departure, but they do not give comment on an individual’s performance, partly due to the risk of litigation,” says Barry Wong, general manager in Greater China of First Advantage, a United States-based company which specialises in employment background screening services.

Ricky Wong, director of human resources at the InterContinental Hotel Hong Kong, says the trend shows a growing number of companies are prudent about what they say on paper. “A reference letter used to be more comprehensive, and companies were generally more willing to discuss a candidate, but they have, over time, become quite cautious about commenting on individual performance.”

Consequently, the majority of companies now see reference letters only as a formality, albeit a mandatory one, and will often follow up on the validity of the letter by seeking authentication from the company in question.

Multinationals also do not generally place much weight on reference letters because they themselves do not have a practice of providing the letters, Barry Wong adds.

The InterContinental Hotel’s procedure of sending a reference check form to a prospective candidate’s former employer after obtaining consent from the applicant following an interview is common practice among companies.

Wilson Hon, executive vice-president of human resources at CSL, says it is rare for employers to provide extensive comment on individuals unless the referee happens to be someone you know. “The best way for a prospective employer to obtain a fuller reference, particularly when hiring for a more senior role, is through industry contacts and peers,” he says.

This is why InterContinental uses its existing resources to help scout for new and appropriate talent. Its incentive referral programme rewards staff who have referred peers with a cash bonus on completion of the individual’s probation period.

For professional services, such as accounting firm Grant Thornton, the purpose of a reference letter is taken for granted, and contributes little to the decision-making process. “I would be quite surprised if a candidate failed to give any names of references. To us, the reference letter serves more for the purpose of negative assurance,” says Andrew Lam, the firm’s staff partner.

Carman Yu, recruitment manager for Dairy Farm, which requires most applicants to provide a minimum of three reference letters from previous employers, says the letters are important because they indicate the integrity of the candidate. “We look at the letters as proof of employment record,” she says.

In the event that fuller references are available, human resources managers warn companies to proceed with caution, taking into account the context in which the letter was written, and its appropriateness for the job at hand.

“A reference letter does, to some extent, help to make the hiring decision, in the sense that it can tell you whether the candidate has been dismissed, disciplined or has a criminal record. But potential employers also need to be open-minded, use their own judgment, and not interpret the letter too literally,” Hon says.

The most obvious limit to a reference letter is the fact that it can rarely be used to make a straightforward comparison for another job, given that every company, management and role is different. Hon cites the example of a typist applying for a receptionist’s position. Due to the different skills involved, a bad typist would not necessarily make a poor receptionist. “Human resources departments need to train their business line managers to interpret these letters in order to avoid misunderstandings,” he says.

HR professionals agree that the most effective recruitment tool ultimately is the interview process. “Good references and the CV can demonstrate a person’s technical strength, but it is hard to pretend to be someone you are not in an interview,” Lam says, noting that most of the firm’s positions require two rounds of interviews.

However, irrespective of whether companies choose to outsource or conduct their own reference checks in-house, all corporations should set up their own background screening policy in order to be equipped to make the best hiring decision.

The policy should contain the types of checks that need to be done, the specific categories of employees that require checking, and clear guidelines and steps on how to proceed with the checking, according to Barry Wong.

“The policy needs to be a unified approach. In order for it to work, it requires the [support] of senior managers and HR professionals who are willing to follow it absolutely,” he adds.

 

Catching cheats

A growing number of companies, in particular in the banking and insurance sectors, are outsourcing their reference checks to employment screening agencies in an effort to achieve economies of scale and improve hiring.

“Globalisation is making the hiring environment ever more complex. For example, a Hong Kong candidate these days could have worked and lived in three to four different countries, compared with five to 10 years ago when local applicants were largely Hong Kong based. Companies are dealing with candidate checks in multiple jurisdictions,” says Barry Wong, general manager of First Advantage, one of the largest providers of employment background screening services in Asia.

This level of complication has fuelled the acquisitions and organic growth of the business. In Hong Kong since 2000, First Advantage now has operations in 15 locations across the region.

A trend that first emerged in the United States due to the country’s propensity for litigation, pre-employment screening services have taken off, underscored by the trend for employers increasingly to view checks as a way of reducing risk.

First Advantage primarily offers three types of checks: employment, education and public records, with the latter examining an individual’s civil litigation record for former and existing cases. It also covers records of bankruptcy, credit and crime in addition to compliance with financial regulations, particularly if the individual is a financial services professional.

The company also carries out reference checks using a pre-set list of questions crafted by the prospective employer. “The questions are designed to put information into metrics so our clients can assess a range of candidates and compare them on an even platform,” Wong says.

“Given the competitive war for talent, companies want to be able to make the right decision the first time, and avoid the cost of a bad hire. If a hiring manager has five candidates to consider, the information from the checks can help him make a better decision.”

In First Advantage’s experience, there is roughly a 15 to 20 per cent discrepancy in candidate claims, with the bulk of cases related to employment problems. Specifically, there is the duration of employment, with individuals extending an employment period to minimise the gap between jobs in order to look better, and title inflation. More serious cases have, on occasion, resulted in false reference letters and fictitious university degrees.

 


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