Executives at Internet firms are four times more likely to have an 'unsavory background' than executives at traditional companies, according to investigations by corporate securities company Kroll Associates.
The findings compound concern about the stability of Internet companies and the ability of the staff that lead them.
Kroll researched the backgrounds of 70 executives and board members from the US, Europe and Asia Internet executives over the last six months. Past misdemeanors included problems with the US Security and Exchange Commission, insurance fraud, bankruptcies, and even links to organised crime.
The hyperfast nature of the dot-com industry is said to contribute to the situation, with Kroll blaming hurried appointments of key executives and a failure to adopt traditional methods of executive governance. It says the situation could leave dot-coms vulnerable when the truth is revealed.
"What you want is to know the truth," says Tomy Helsby, a senior executive with Kroll. "It can come around and bite you later. For example, when a company comes to do an IPO, there may be problems."
Although many Internet companies bring in young and inexperienced executives, Kroll says the most dubious characters in this industry are usually more senior executives.
"We've been concerned for some time about the young founders of Internet start-ups bringing in the 'grey beards' to add stature to their companies -- without first checking them out," said Ernie Brod, executive managing director of Kroll's New York office in a statement. "It's a ready-made market for fraudsters."
Brod says senior executives have been known to charge exorbitant consultation fees from companies that do not have adequate controls in place. "The irony is that the consultants, advisors, and board members brought in to add credibility to the venture because of their age and experience have some of the most distasteful histories we've found," he said.
Kroll carries out some 1,000 and 1,500 investigations around the world each year in connection with initial public offerings.
