Julia MagasBeing an entrepreneur can bring you into contact with a vast network of people, including clients, suppliers, employees, contractors, fellow CEOs and leaders, and more. Our relationships with these networks are often predicated on the basic principles of good old-fashioned trust. However, as a business grows, so does the network of people it interacts with. While it’s wonderful to think that we can rely on our intuition to tell us something’s off, that isn’t always the case.
What’s more, those associated with our business can have a serious impact on its reputation. According to Deloitte, reputation damage is the primary risk concern for business executives around the world. The same logic that has brands scrambling to be associated with celebrities and influencers can easily turn toxic if the influencer suddenly does something to damage their reputation.
For instance, when it emerged that 19-year-old YouTuber Olivia Jade Gianulli was part of the college admissions scandal, sponsorship deals with firms including Sephora and Boohoo came to a rapid end due to fears that the reputational damage would spread to their brands.
The digital footprint that all of us leave behind online can offer some insights into the kind of people we’re thinking about doing business with. But any business owner considering doing their own detective work on a potential client, supplier, or employee should be aware that regulations govern what they can and cannot do in terms of background checks.
What Kind of Checks Are Allowed?
Credit reporting is the most stringently governed type of background check that exists. Understandably so – nobody wants to think that their most sensitive financial data is available for anyone to see. For this reason, credit reporting is strictly governed by the Federal Trade Commission and the Consumer Financial Protection Bureau under the terms of the Fair Credit Reporting Act.
If you’re in the financial business, or if you’ve ever applied for credit, then you’ll know that imitating such a transaction also initiates a background credit report.
It’s also possible to run credit checks on employees under the terms of the FCRA, and advisable to do so if you’re employing someone in a position of fiscal responsibility in your business. However, you can only obtain an employee credit report with their explicit consent.
Similarly, some states have now totally outlawed salary checks to prevent employers from unethical pay practices and encourage equal pay for equal work.
As an employer, conducting any kind of background check can put you at risk if there’s a chance you’ll fall foul of the rules laid down by the Equal Employment Opportunity Commission. If you want to check information such as criminal records, then you’re obliged to notify an employee in writing, including the fact that it may impact on their eligibility for the job.
Of course, if a candidate has left information about themselves online in the public domain, then there isn’t anything to stop a prospective employer from looking that up. But employees and candidates have a right to privacy, and any questionable activities such as setting up fake profiles to access information under private settings risks creating a legal problem.
Sites such as Checkpeople.com are open for anyone to use. They allow you to check a wide variety of information that’s in the public domain. However, the terms of the site explicitly warn against using it for employment screening or to determine credit eligibility.
What About Other Contacts in My Network?
There may be circumstances when you want to conduct background checks on other contacts in your business network. For instance, a business selling goods online can run into issues with customers making orders under a deliberately wrong address and then requesting a “refund” when they don’t receive their goods.
In these circumstances, there is nothing to prevent you from conducting some background checks to help you protect your business. Address data is often already in the public domain. The Freedom of Information Act states that anyone has the right to request access to federal agency records. The only exceptions are that you can’t conduct such access requests for employment purposes, tenant screening, insurance eligibility, or illegal activities like stalking or harassing.
Managing Reputational Risk is Critical
Maybe you think that you’d rather run your business based on your own instincts and intuition. But it’s worth remembering that public information is there for anyone to see. Even if you think you’d prefer not to run background checks in your business, there’s every chance that someone could be running these checks on you, your employees, clients, or suppliers.
It’s not always a matter of finding something “wrong” about someone so you can break your professional relationship with them. But in terms of reputation management, forewarned is forearmed. Perhaps you’ll make a conscious and informed decision to maintain a working relationship with someone who has a checkered past. But the opportunity to know about issues upfront gives you a chance to ensure you can protect your business reputation if that information ends up being used against your company.
Managing reputational risk is an important part of running any successful business, and knowing how and when to use the right kind of background checks can make all the difference.
This article was written for Business 2 Community by Julia Magas.
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