Identifying difficult and dangerous people you might otherwise hire or back
The nature and scale of the issue – and how to address it using classical approaches and Neotas
Over the years, the Catalysis team has observed that the two most frequent issues we need to help our investor clients identify and deal with are:
1. At company level, misalignment between strategic ambitions and the capability of teams and organisations to deliver on them. That can be addressed by calibrating the level and pace of cumulative challenges on the one hand, and through team and organisational development on the other.
2. At individual level, the appointment of solid executives - but into the wrong roles – where they then underperform. That can be handled through robust role specification, clear-minded assessment, and focused decision-making.
However, that doesn’t change the fact that investors can still find themselves confronted by more obvious kinds of risks around individuals whom we would categorise as ‘Difficult’ and ‘Dangerous’. What those labels do not refer to is people with harmless eccentricities or just a general lack of balance in their personalities and skills. Indeed, people who are rounded to the point of blandness rarely make good leaders of growth companies – some kind of ‘edge’ seems helpful to fighting through the 101 issues that senior executives face.
So, when we mention ‘Difficult’, we are thinking of individuals whose personalities spill over into behaviours which can require unusual level of governance, or significant efforts by investors to get comfortable with them – but aren’t necessarily harmful to overall team and company performance. Examples we have encountered include:
A founder who created multiple names/identities because of their fears about the government in their country of origin
A CEO who falsified sections of their CV to have a more interesting back story to sell self-development books – and to appear more impressive to potential business partners
A Sales director who left lots of explicit nude pictures of himself and friends in unsecured social media accounts.
A Sales director candidate - for a firm seeking to be more reputable than its competitors - whose social media accounts were full of foul and idiotic language.
A founder identified as having committed a sustained assault on their former spouse, albeit with some mitigating circumstances.
Another founder with prima donna tendencies who kept firing their advisers and took an unusual number of Chair candidates before they found one to collaborate with.
A business unit MD candidate who had a special ability to rub certain categories of people up the wrong way.
A founder CEO who wouldn’t let an investor visit his main offices even after several months of discussions.
By contrast, those we think of as ‘Dangerous’ are those whose moral or personality dysfunctions cause damage to clients, staff, investors – as well as themselves. Examples of this type include:
A CEO who could blame everyone except himself for chronic performance issues
A flashy CEO who demoralised his staff, in part by promoting those who would sleep with him and fire those whom he broke up with
A ‘tough guy’ MD who treated anyone female or ‘intellectual’ with contempt.
A COO who needed to be fired for racist and misogynistic abuse of staff
A CEO whose first wife divorced him for losing their house in secret property speculation – and then boasted of quickly making up an ambitious acquisition strategy (which went wrong) because he thought it would impress his then bosses.
A CEO who threatened client staff thinking of cancelling their service contracts by threatening to talk badly of them to their bosses whom he knew socially.
A founder with a string of previous failures whose main landlord and initial supporter described him as having questionable ethics.
A founder CEO who boasted about having defrauded his (government) client and threatened exiting staff with violence if they exposed his various nasty tricks.
A serially-backed entrepreneur who left behind him value destruction, forced exits – and a long string of lawsuits to muzzle all those involved.
A founder who rewarded salespeople for dirty tricks against clients by sharing cocaine.
It is obvious that investors would want to be aware of ‘Difficult’ people so that they can be managed properly. One would imagine spotting the ‘Dangerous’ group would be even more welcome since they consume lots of investor and Chair time, generate stress and reputational risk for all involved, and end up costing a lot of money. Curiously, some of those Dangerous people were backed despite the relevant facts being known pre-deal, perhaps on the optimistic assumption that they could be controlled.
But, in any case, knowing the facts is helpful most of the time. That raises two questions:
How prevalent are difficult and dangerous cases?
Catalysis data suggests that about 10% of the projects we work on involving assessing teams or individuals will produce something of concern. Of those, just over half could be categorised ‘dangerous’ as defined above. Those proportions mean that – on average – other issues are more likely to affect performance. However, they are frequent enough that robust methods are worth deploying to identify problem individuals.
How can problems best be identified?
Our experience is that there are no silver bullets which can identify everything. However, a toolkit of approaches can pick up most things. Proper referencing (not the kind where candidates choose their own referees) can be powerful. Skilled interviewing can spot curious personality and behavioural patterns. Discussions with middle managers can be very revealing. Background research can catch out people who invent CVs or confidently claim that ‘My record speaks for itself’ (but then Company House data shows have never grown a business!).
One solution Catalysis has come to use ever more frequently is Neotas which provides a tech-enabled background check service.
We like it because:
Ever more of people’s lives leave fingerprints in the digital world – but searching that manually can be time-consuming but still incomplete. Neotas handles that efficiently and gets to places mere mortals cannot do without advanced IT skills.
Across the 100 or so exercises where we have used Neotas, just over a third have been rated ‘green’, providing reassurance that we and our clients can focus on skills, goals and strategy rather than personal risk. About 10% have been rated ‘red’, i.e. potential trouble (although some have been difficult not dangerous people).
The remainder, inevitably, are amber where either there are discrepancies between different types of information (e.g. LinkedIn vs Company House) or various forms of unfortunate content. Of the amber category, about a third require some kind of follow-up conversation to resolve matters, some of which point towards difficult or dangerous conclusions.
Putting these points together, we observe that using Neotas allows us to cover potential risks more thoroughly at lower cost to our clients. As a result, about half of all the Difficult and Dangerous cases we have in our files have involved some input from Neotas. It also means that the Catalysis team gets to use more its time to focus on exploring other issues and ‘joining up the dots’ from different sources of insight.
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