On May 9th, 2022, Jorge Gomez joined Moderna, the producer of the COVID-19 vaccine, as their new CFO. However, Gomez's tenure was short-lived as he was dismissed just a day later. It came to light that he was under internal investigation by his previous employer, Dentsply Sirona. This incident underscores the importance of Due Diligence Background Checks in the hiring process. Despite Gomez's brief stint at Moderna, the fallout was significant, costing the company $700,000 in severance payments until his association with violations at Dentsply Sirona is clarified, as per a clawback agreement. Moderna further announced that Gomez would forfeit his signing bonus, bonus eligibility, and the right to receive equity awards for new hires, as detailed in a Securities filing.
In the words of Endpoint News, the investigation was launched in March 2022. Moderna stated to them "that it was not aware of Dentsply's inquiry into Gomez up until the time it was officially made public on May 10," the day of Gomez's resignation. Endpoint added that "despite the outcome, Moderna defended its decision to employ Gomez and took swift action to remove him." The spokesperson for Moderna told them:
The May 11th, 2022 announcement, along with the departure of Jorge Gomez from Moderna strongly shows the seriousness to which Moderna regards its corporate governance. We're confident that Moderna performed all due diligence regarding this issue before the appointment of Jorge. Gomez, based on existing information ."
The spokesperson wasn't the sole Moderna employee to stand up for their decision to hire them. Financial Times revealed that Noubar Afeyan Moderna cofounder and chairman of the board, told them that there were legal limitations that prevented the company from knowing about the Dentsply internal investigation before the investigation. Afeyan also said: "Both the process of screening and recruiting and how we responded to the latest revelations was completely in line with the law. There isn't an alternative approach we could have taken in the situation." "The announcement on May 11th, 2022 news release and removal of Jorge Gomez from Moderna strongly illustrates the seriousness Moderna is committed to corporate governance seriously. We're confident that Moderna did all the proper due diligence regarding this issue before hiring Jorge. Gomez, based on existing information."
What can Companies do to Protect Themselves?
The big questions in this case include "How can the business be sure that they "conducted the proper due diligence" before hiring Mr. Gomez?" and what is it exactly they consider to constitute "appropriate due diligence?" Many C-suite executives as well as board members and even investors "can't imagine a better strategy" other than what Moderna is most likely to follow.
A lot of companies run a simple background check, and also conduct interviews with references on employees and feel it is enough due diligence. However, it is not enough due diligence to ensure that executive hires are properly vetted. Federal regulators can tell the difference in the event of an issue that demands proof of the amount of due diligence for executives conducted. A thorough level of due diligence by executives can add level of protection from fiduciary responsibility for the board.
Senior Board members and directors need to comprehend and recognize the three primary stages of due diligence particularly in relation to hiring corporate employees to reduce risks and keep a company from having to deal with a scenario similar to the hiring by Moderna of Gomez. Gomez.
Understanding Background Checks Versus Due Diligence Investigations
The majority of companies use regular background checks. These checks, also referred to as routine background screenings, may be conducted internally by the company's human resources department, or by an executive search firm companies rely on to not just find prospective candidates for executive positions but to assess them for potential problems. The background checks that are standard show just 1% of the serious issues, compared with the 20% found in due diligence investigations. What is the reason for such a huge difference between the findings?
In the process of hiring executives and board members, executives' background checks, as well as full-depth investigative due diligence of the executive must be carried out.
The standard background check typically looks at just five components. They generally check for employment history and criminal records, as well as degrees or educational verification Social Security validation, and address verification. Sometimes, they also check for credit histories. The same types of background checks are conducted for any degree of employee. Many companies believe that when they let executive recruiters run regular background checks and interview references they will discover any negative data regarding executive hiring.
Background checks offer only the bare minimum of information about the information available to potential employees but fail to provide substantial quantities of information, especially the unreported or hidden details. Background checks can be a good start, but do not provide enough information when it comes to evaluating any new executive hiring or board members. They are not successful in providing a complete look at the person's profile, his or her legal past, misconduct fraud, SEC violations, undisclosed employment history, and conflicts of interest to name just a handful of issues that are that are of concern.
Due diligence investigations are intended to discover hidden and undisclosed details that are not found in routine background checks. Open Source Intelligence (OSINT) investigations are a significant source of information, along with publicly accessible information since this section of the investigation is dark, shady, and historical data available on the internet (far from simple Google search results).
Due diligence investigations look at the criminal background as well as legal and financial issues as well as civil litigation concerns and relationships with other businesses or entities, reputation concerns connections of executives to foreign officials, shell company involvement, proof that there is fraud indications of the laundering of money and financial fraud, conflicts of interest, drugs trafficking, alcohol and human trafficking, and anti-competitive behavior. various other important issues.
The data gleaned from thorough due diligence investigation can be invaluable and could be a huge help to a company financially and reputationally, as well as from regulatory penalties and fines, and perhaps even legally. Executive due diligence investigations are extremely comprehensive and can provide additional proof regarding the fiduciary duty to care. An executive due diligence examination could uncover vital details that a standard background check will not uncover.
Due Diligence Investigations, Tier I
An A-Tier I due diligence investigation is the most basic of levels. It provides the basic elements of a background investigation and expands upon this. The Tier 1 Due Diligence is a thorough examination of both the federal and county record levels, as well as civil litigation histories professional permits, bankruptcy files, and other public records. Also, it examines the anti-terrorist list, anti-money laundering (AML) and politically exposed people (PEPs), OFAC and sanctions listed on more than 1,700 worldwide watches, and other similar listings of government that are provided by law enforcement agencies and public agencies across the world. This is a good level for middle-level executive positions.
Due Diligence Investigations, Tier II
Tier II includes everything from Tier I due diligence, however, it goes deeper into all aspects of public records data. This includes negative keywords search on 40 million digital online articles such as news media, and various other sources. It typically comprises a standard 20-30 keyword search as well as other pertinent details. This is right at the center of due diligence inquiries and is a better fit for executives of high rank rather than background checks. Tier II gives more than just standard executive due diligence reports but it's not complete due diligence.
What can companies do to protect themselves?
The Tier III investigation also known as a deep dive investigation encompasses everything from the previous levels however, it is more thorough and involves a full analysis of the executive's actions and their business background. At this point it's not just helping to identify bad people or identify bad actors it can also identify behavior patterns that may suggest a desire to bypass internal controls or stray from ethical boundaries that expose a business to potential reputational or legal concerns should the person's conduct continue after coming to the company.
The issues that arise can be quite diverse and can include conflicts of interest, whether personal or professional breach of contract issues litigious behavior and sexual harassment, as well as problems with anger, like violence or bullying, or even being a fraudster. Also, severe financial pressures, a large number of collections accounts, or even high tax liens may be a sign of an addiction to drugs or a past history of tax avoidance, gambling, or poor management of money.
A history that is not disclosed could reveal details about SEC types of violations (in the USA or in another country) as well as time spent in prison, fraud perpetrated by a company previously not disclosed and unreported board involvement continuing civil lawsuits, and even involvement in other businesses in which serious crimes were committed. Certain situations can be explained while others raise alarms. If they are accompanied by other issues serious financial pressures may result in unusual behavior at the top level of management. Would you be worried about being unaware of this kind of thing that could later have consequences for your company or the one you inherited from acquiring the company?
The most surprising results uncovered through deep investigation due diligence include the following: bribery and money laundering concealed aliases, unreported board involvement SEC violation, IP theft, interstate bankruptcy, evidence of misfeasance, conduct (with or without a criminal conviction) or concealed criminal activity media negatives, social negatives in the media sexual harassing and class action lawsuits. murder and manslaughter in the past, historic issues, unreported company ownership, money laundering embezzlement, and bribery, racketeering. There is evidence of fraud or misconduct or fraud, identification of fraudsters as well as con artists, and litigation or other negative behavior.
This increased due diligence is a comprehensive lookup of the internet's media, which includes newspapers, periodicals digital media, as well as other magazines can reveal many details about previous behavior and connections. Additionally, it scans the available part of the dark web. For someone with an international presence, There may be local data that is only obtained through local language or search results within the country.
A majority of the information is available via a mix of public records as well as skilled analytical analysis. 20 percent of the information that is that is not found during routine background checks could make a company vulnerable by identifying significant problems, which could affect conformity, and good governance as well as preventing compromised people or criminals from getting accepted into the company.
A reputable investigative company will create a custom due diligence study to meet the industry, your business as well as your needs. They will deliver not just the findings of the investigation but also recommendations for actionable steps to take where there are concerns that require further investigation for example, involvement in various other businesses and potential conflicts of conflict.
Tier III Addition: Deep Dive Due Diligence-Enhanced Country-Specific
In the event of conducting business in a foreign locale with global subsidiaries, going through Mergers or Acquisitions (M&A) within a different country, or and/or acquiring via M&A executives from abroad or executive from another country, an investigation of a Tier III investigation must be complemented by a specific country-specific thorough due diligence.
The investigations must be carried out by professionals who conduct site visits, understand the local language, have contacts within the country who are knowledgeable about the cultural aspects, and possess an understanding and the skills to obtain information from these areas.
At a basic level, the socially and occasionally legally, accepted in one place can, however, constitute a legal problem in a different.
Due diligence in the country may be required in certain situations to gather "on-the-field" data for business. In the event of operating from an international domain however, businesses are responsible for observing the FCPA and any other applicable laws where they conduct an accounting or financial function that provides the nexus of a bank or business to the USA.
Conclusion
A different method Moderna could have taken could have been to carry out a Tier III due diligence investigation into Jorge Gomez before bringing him onto the team. The Tier III due diligence investigation could have revealed his previous employer Dentsply Sirona's shortcomings and the management's recent changes at a minimum posing questions.
0 Comments