Lessons From the Yahoo CEO Scandal

Scott Thompson, who barely had time to warm the CEO seat at Yahoo since he was hired in January, announced his resignation Sunday amidst an uproar over false credentials.

This followed days of speculation since Thompson admitted to falsely citing his attainment of a computer science degree in biographies and filings with the U.S. Securities and Exchange Commission. Many called for not only Thompson but also Patti Hart, the director who oversaw his hiring, to step down. Following his resignation, Yahoo was quick to appoint Ross Levinsohn, its executive vice president and global media head, as an interim CEO.

The scandal — and the blow of losing a permanent CEO for the second time in eight months — does little to help the already struggling Internet company gain momentum in its turnaround effort. But it highlights how ethics and integrity have become emphasized in business today.

In 2006, RadioShack’s president and CEO David Edmondson was ousted for similar discrepancies on his resume. At the time, the electronics retailer admitted that its background checks did not include academic verification when Edmondson was hired. That has since changed.

“Maybe in another era, if the [company] thought the person was good, they [may] have found a way to put it aside,” said John Challenger, CEO of global outplacement firm Challenger, Gray & Christmas Inc. “Today, it’s just not possible because of what it says about the character of the individual, the integrity of the company and even the policy of the company.” For instance, if a company’s policy states that false statements on an application would be grounds for termination, it would be nearly impossible to justify a double standard for executives.

The pervasiveness of the Internet and social media plays a significant role in keeping companies and executives accountable, said Kevin Krumm, managing partner at Objective Paradigm Inc.

These days, resumes can be made available for public consumption via sites like LinkedIn and professionals run the risk of shared connections exposing any discrepancy or fib, Krumm said. Case in point: Thompson’s lie was uncovered by means of a simple Google search by an activist investor.

“The transparency that the Internet and social media has brought us will be the biggest contributing factor to the reduction in these sorts of instances; more so than any sort of ethical epiphany for folks with respect to resumes and honesty,” Krumm said.

That’s why it’s in companies’ best interests to exercise due diligence when it comes to screening and conducting background or employment checks on incoming staff — even at the upper echelons of an organization.

“Any partnership that exists between a recruiting firm or executive search firm and the client — somewhere someone’s going to determine who’s responsible for initiating that background check, and it needs to be clear who’s going to initiate that process,” Krumm said.

Mr. CEO, Why Did You Lie?
In an interview about the Yahoo scandal on CNBC this week, Jeffrey Sonnenfeld from the Yale School of Management said, “The cover-ups are worse than the crimes [in these] types of situations.”

This brings up a legitimate question: Did Thompson land the CEO role at Yahoo because of his fabricated academic credential?

“It wouldn’t have mattered that he didn’t have a degree in the decision of the company to hire him,” Challenger said. “What you did when you were 22 — [now] 30 years later — is just irrelevant to hiring decisions. Companies want to know what you’ve done in the last five [or] 10 years.”

So why not come clean instead of living in the shadow of a lie that needs to be covered up for one’s entire professional career? This is a question that continues to baffle people — prompting speculation as to Thompson’s motives.

“Either he had done it so long ago that he had forgotten [about it,] or the lie had taken on its own life and he couldn’t figure out a way to get it all off,” Challenger said.

While unethical behaviors — including resume fraud and sexual harassment — may be common in the lower and middle levels of an organization, these tend to go unnoticed, according to Challenger.

“We’re hearing about executives because they’re icons — it’s like sports stars or Hollywood actors and actresses or politicians,” he said. The introduction of business shows such as “Undercover Boss” — along with increased shareholder activism and demand for transparency — have fueled public fascination with executives in corporate America, he said.

No Golden Parachute
Unlike Thompson’s predecessor Carol Bartz, who was fired by Yahoo eight months ago, he leaves without a severance package — something he may have been entitled to if he were terminated “without cause,” Time magazine has reported. He also doesn’t stand to receive $22.5 million in potential stock awards, a cash bonus of $1.5 million, or his annual salary of $1 million, but he is entitled to stock and cash worth $6.5 million, according to a Forbes piece.

While the financial padding is great for ousted executives, companies are often left teetering in the wake of a scandal, working to restore confidence in the public eye.

Deanna Hartley is an associate editor at Talent Management magazine. She can be reached at dhartley@talentmgt.com.