How to manage third-party risk
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Use a company director check to your advantage

Hiring an employee is an important decision for any company – not only is it an investment in the potential employee, it’s also an investment in the company’s performance and its future. But, when inviting someone new into your company, there are always risks involved – from underperformance through to employee fraud. Which is why effective background checks are crucial.

HR references

There are different ways to gather information on someone’s professional history. The most common is an HR reference. However, the law regarding this is complex, and hiring managers can find that it doesn’t give them enough information to flesh out a rounded picture of a candidate. In fact, employers are not legally obliged to provide a reference, unless the employee’s contract states they are entitled to one, or if the employer risks victimising the employee by not providing a reference.

Furthermore, many employers are now very cautious in the official information they provide, given the potential liabilities involved. Typically, they may just confirm that the individual was employed, their job title and the dates of their employment. In this case, it can be a good idea to do some more research.

Company director search

One option is to conduct a company director search on any candidates. Basic company director searches are free and provided by many online sources, with the motherships of information being Companies House and the County Courts. While a company director search is, of course, only useful to research candidates who are company directors, just because someone’s CV doesn’t state they are a director, it doesn’t mean they haven’t set up a private company outside their 9-5 job. Indeed, the latest figures from Companies House show there are 3,417,272 companies registered in the UK . With so much data available, it’s worth doing a quick check.

What will a company director check reveal?

Director searches are a useful part of employment due diligence because, at a basic level, they can further verify a candidate’s directorship dates in their past employment. But they can also throw up other useful information – both about their previous companies and their own performance. Through a company director search, you can then conduct a company check on any directorships listed in order to research their financial strength, annual revenue and any developments in the company’s history. If the candidate’s director position was at a company whose performance improved during this period, this could be a good indicator and worth bringing up for discussion. Conversely, if a company was liquidated, suffered poor financial health or investigated for fraudulent activity this will also need to be discussed.

Not all red flags are bad news

It’s worth bearing in mind that if a candidate was a director at a company that collapsed, this may not be bad news. Many companies were adversely hit by the global financial crisis and a director of one such company could even have some valuable lessons to impart from this experience.

However, there are a few red flags that do need thorough investigation. If your research reveals that a director is disqualified, personally bankrupt or currently subject to a bankruptcy decision, then it is in fact illegal for them to hold a present directorship.

The Graydon company director search provides information on over six million director and company officer appointments within UK registered companies.

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