Advice to Clients
Good management is essential to the health and welfare of all companies. Excellent management is the key to success in today's highly competitive business environment. The services of outside professionals are utilized by prudent companies for high-level legal, accounting and other special needs. Executive recruiters should be viewed in the same light: skilled specialists who can identify the best executive to fill an important position on the management team. Although executive search can be performed by in-house human resource departments, employing the services of an executive search firm is ultimately more expedient, efficient and effective. Executive recruiters provide strict confidentiality, an extensive network of contacts, objectivity in candidate evaluation, and negotiation experience and expertise.
Executive recruiters observe strict confidentiality. Organizations with an opening in their executive ranks are vulnerable. Whether an existing position needs to be filled or a position is newly created by downsizing or market opportunity, the hiring process must be strictly confidential. Confidentiality can keep competitors from being tipped off to management shake-ups, new products, and market initiatives and can protect against employee, stockholder, and supplier apprehension. Search consultants value the highly sensitive information they become privy to during the search process. They are acutely aware and respectful of their client's vulnerability.
Executive recruiters can tap into a global network of contacts. Top notch executive talent is a scarce commodity today. The limited contacts of in-house human resource departments can not compare with the wide net cast by a recruiter's network. (A transnational search especially calls for the capabilities of transnational search firms.) The best candidates are already employed. Many will deal only with a recruiter. They appreciate the worth of third party representation, confidentiality and professional mediation. Recruiting superior candidates is intricate and best performed by a discreet professional.
Executive recruiters bring objectivity and feedback to management. Executive search is a time-consuming, sensitive process. Recruiters can help clients evaluate their expectations, review relevant organization structure and reporting, and define a realistic profile and compensation package for the open position. Search consultants provide objective feedback on the candidates and advice to the client. As experts in research and reference checking, search firms can glean significant information from even reluctant reference-givers.
recruiters are cost effective. The benefit of using an executive
search firm can be weighed against the cost of preparing and executing
an advertisement/recruitment campaign, screening and qualifying
candidates, and operating without a needed employee for an extended
length of time compared to the relative insurance of getting
the right person for the job. The use of executive recruiters
is an investment in improving the quality of an organization's
managerial might. But even beyond that, the risk not to use executive
recruiters is too great. For smaller companiesin which one
hiring mistake can have disastrous resultsusing executive recruiters
is sometimes more important than for corporate giants. Hiring
an incompetent employee who makes bad decisions can cost a company
large sums of moneyor its very existence. More than ever before,
executive talent is at a premium and can make or break the fortunes
of a business. Professional executive recruiters can deliver the
How to Select an Executive Recruiting Firm
a Short List
2. Ask Recruiters
Industry Experience Against Blockage Problems
This critical issue must be assessed carefully on a case-by-case basis. If you view your direct competitors as highly likely sources to fill the position, do not work with a recruiter who cannot touch those executives.
However, it is usually an acceptable compromise to use a recruiter who is intimately familiar with your industry and has a few blocked competitors.
The standard "off-limits" policy in the recruiting industry has been that a search firm will not approach a company for whom it has worked during the previous two years. But be aware that there are considerable variations from this norm, and the ground rules themselves are in flux. Some recruiters specify one year instead of two. This will mean they have fewer companies that are blocked from you, but it will also mean your own future protection against being raided is that much shorter. Some search firms observe no off-limits restrictions, and some clients do not require them.
The "off-limits" problem has a second dimension. When a retainer recruiter is working on an assignment, he or she will typically take possession of the search firm's files on suitable candidates for the position. If you then retain a second recruiter at the same firm, this recruiter will not have access to these files until the first recruiter returns them to the firm's database. This policy is designed to avoid outright competition for executives within a search firm. For large firms that work on many assignments at once and for highly specialized firms, this can mean that many of the best candidates are not available to you. Ask about the number of searches that will be going on simultaneously in your area. Your recruiter will always try to gather the best slate of candidates for you, but, if the files of the five best VP's of Business Development in telecommunications are sitting on a fellow recruiter's desk down the hall, you are never going to see them.
Search Firm Presentations
Pay attention to what is not said. Are there companies that should be important hunting grounds for your assignment at whose mention the recruiter appears uncomfortable or changes the subject? Many recruiters hope that clients do not ask directly about companies that are "off-limits" to them -- a kind of "don't ask, don't tell" policy. Your best strategy is to ask about every company you would like the recruiter to consider.
Who Will Do the Work
Recruiting firms also differ in the extent to which they use back-room research staffs. Some firms, particularly the largest ones, employ almost as many researchers as recruiting consultants. Researchers do much of the front-end work on an assignment, scouring through databases to uncover candidates and often making the initial contact to gauge a candidate's interest. This can be an effective way to speed up an assignment, allowing your recruiter to focus on evaluating candidates. The danger is that the busy recruiter ends up relying too much on the short-list of candidates presented by a researcher. The best searches usually involve a good blend of digging for resumes (by researchers) and inspired networking (by recruiters). Make sure the firm you work with is not overly dependent on just one approach.
6. Make the
One Fortune 500 company's head of HR reported a different perspective to Executive Recruiter News. They pick retainer search firms based on these seven factors:
1. The search
firm must have completed searches at comparable salary levels
in the last three years for one of their divisions or a "highly
reliable" reference in other Fortune 500 companies.
A final client perspective is offered by John P. Finnerty of National Westminster Bank: "The real test of any search firm is not only how well they know their own business but how well they know ours." In addition to this six-step process, we have found a few issues that crop up repeatedly. The following section discusses these frequently asked questions.
Is it important
for the search firm to have a local office?
The largest recruiting firms do maintain offices in major cities around the world. This can be an advantage if they can bring local knowledge to bear in finding good candidates. These candidates can then be interviewed in person by the local office before going to the expense of flying them to see the lead recruiter and client.
If an assignment demands a local executive be hired, then it does make sense to use a hometown recruiter. Local presence can also be thought of as a tie-breaker between otherwise comparable search firms.
are professional affiliations?
Executive recruiting firms have their own New York-based professional association called the Association of Executive Search Consultants. The AESC was founded in 1959 and now has over 100 member firms including most of the largest in the business. Membership in the AESC is indicated in the listings. For a client, AESC membership is perhaps less important than whether a firm adheres to the professional standards set down in the association's Code of Ethics. This code is intended to assure clients of a confidential relationship with their recruiter as with a banker, lawyer or accountant.
Some individual recruiters are members of the International Association of Corporate and Professional Recruitment (IACPR). This association maintains entry requirements, and members must pledge to honor the group's ethical code.
a Firm Perform a Search?
The search begins with extensive evaluation of the client need. The search firm works closely with the client to arrive at a thorough understanding of the company, its culture and organization, and the specifications of the position to be filled. Job specifications include title, department definition, reporting structure, and details of compensation.
Once prepared, a draft of the position description is submitted in writing to the client team for approval. It is imperative that the job description reflect a clear understanding and agreement between the client and search consultant before proceeding.
When the job description is finalized, the intensive research phase of the search commences. The search firm engages in extensive industry research and networking; existing sources are contacted, leads are vigorously pursued. If the client wishes, an internal search of the client company can be performed to identify company employees suitable for possible promotion.
Based on research well underway, the search firm contacts prospective candidates by telephone and begins screening interested and promising candidates. Personal interviews ensue in parallel with thorough reference checking activities.
Good recruiters regularly report their progress and, at some agreed-upon point, present a strong candidate pool to the client. Recruiters sometimes recommend the best candidate(s), though the client and recruiter often arrive at an initial selection of the most promising candidates. Client interviews are arranged with the best two or three prospects. The search firm prepares the client to meet the candidates and may or may not attend the interviews.
After the successful candidate has agreed to accept the position and when candidate and client have agreed to acceptable terms, the dynamic aspect of the search effort is complete. Most search firms "guarantee" their executive candidates for 60 days (contingency firms) to a year or more (retainer firms). The firm will replace such an executive should he or she leave the client company for any reason. Often these replacement searches are free or at a greatly reduced price. Though a sensitive topic, clients need to have a clear understanding of the search firm's replacement policy and all fees associated with such searches. The search firm stays in touch after the new hire comes on board to help smooth the transition and assure client satisfaction.
Making the right executive hire pays huge dividends for the client. The right choice can dramatically increase a company's value, and that value rises exponentially as you move up the management chain. So from the clients' perspective, retaining an expert to identify these candidates makes perfect sense. The fees associated with any particular search become almost incidental considering the ultimate payback.
About 75% of all searches are successfully completed. For those that are not, the reasons are usually straightforward:
Most search pros try to achieve 100% client satisfaction. It is fairly clear to gauge this in the contingency world since recruiters' fees are directly tied to hiring the candidate they have identified. Retained recruiters, meanwhile, face a different situation. Although they get paid regardless of the search's outcome, retained search pros tend to go to even greater lengths to maintain good client relationships.
Another point that should be covered is the so-called "Off-Limits" policy, under which the recruiter is barred from recruiting from the client for a specified period. Some clients want this spelled out very carefully, others do not give it much or any significance. Our point is that the issue should be addressed, so there are no subsequent surprises or disappointments.
It is the recruiter's responsibility to help the client define the terms of any search engagement. A good recruiter usually works around the aforementioned obstacles that can lead to failure. The best recruiters take the consultative approach with the client. Such objectivity means search pros may turn down business rather than start a hopeless engagement -- which in the end is a much better prospect for the client.
It may seem fundamentally more attractive to pay for success (contingency) rather than for the process (retainer). Culturally, and in terms of working methods, the two types are quite different. Most contingency firms tend to operate like brokerages, working quickly and uncovering lots of resumes. Retainer firms typically assemble a small slate of pre-screened short-list candidates to present to the client. The right choice depends on your particular assignment. Fees are comparable.
When to Focus on Contingency Firms:
When to Focus on Retainer Firms:
Beyond these differences, contingency and retainer firms also tend to specialize in different industry and functional areas, depending on salary levels. Many contingency firms emphasize advertising, fashion, publishing, and mid-level IT specialists. Retainer firms have a strong presence in Board of Director recruiting, investment banking, management consulting, venture capital, and top general management positions.
Recruiting firms bill their work in two distinct ways. Contingency firms are paid only when their client's position is filled by an executive identified by the recruiter. If another candidate gets the job, the recruiter gets nothing. Retainer firms, in contrast, are paid regardless of the outcome of the search. They may be hired to work on a specific assignment, or they may be put on a true "retainer" to work on assignments on a continuing basis, but in either case, they will submit invoices regardless of their rate of successfully closing searches.
Percentage-based fees are used about 80% of the time. Alternatively, some recruiters bill based on a fixed fee for the assignment. This approach is becoming more common for the most senior management positions with very high salaries. Recruiting a top-notch CEO who will demand a million-dollar package of salary, bonus and options is certainly a challenge for executive recruiters, but clients tend not to be happy about paying $300,000 when the "search" involves only the handful of executives who could step into the position.
Occasionally recruiters will work on some other basis, such as hourly rates for time spent, or even (with some venture capital backed start-ups) for equity instead of cash. But the percentage model remains the standard approach in the profession.
What If an
Assignment Is Canceled?
Sometimes clients change the job description substantially during an assignment so that the recruiter has, in effect, to begin a new search. It is common practice in these circumstances for client and recruiter to negotiate a partial payment on the previous work and begin a new fee agreement.
When the search fails to produce a candidate that the client is prepared to hire or when the executives offered the position turn it down, contingency firms walk away without compensation. In theory, retainer firms will be paid in full, since their agreement is independent of the outcome of the assignment. In practice, there should be some discussion of why the search failed. If the recruiter bears some responsibility, it is not uncommon for the search firm to receive partial payment only or to give the client a credit against future work.
Not every newly hired executive succeeds in his or her new position. When the executive is terminated or resigns for performance-related reasons within a year of being hired, most search firms will agree to find a replacement for zero or modest fees.
Clearly there are a number of ambiguous and potentially awkward situations that can and do occur regarding fees. While these problems cannot be predicted in advance, they can be mitigated if the client selects recruiters on the basis of building a close working partnership, not simply to carry out a hiring transaction.
the Search Begins
"How have you reacted when a client or customer has been angry
with you or a member of your team?"
While it is important to use the interview to form an assessment of the skills, thought-processes and attitudes of each candidate, there are also minefields to be avoided. For instance, asking what citizenship a candidate holds is discriminatory on the basis of national origin. Similarly, asking how often the candidate has been absent from work due to illness discriminates on the basis of health or disability. Avoiding this kind of pitfall makes thorough preparation for every interview vital. You should have a game plan mapped out before sitting down with the candidate, no matter how seasoned an interviewer you are.
Suggested Structure for First Interviews1
2. Take control,
4. Sell the
questions and close
6. Post interview
1Source: Rick Hornberger, President, Hornberger Management Co., a Delaware retainer firm serving the construction industry; Executive Recruiter News, May 1991.
25 Favorite Interview Questions2
2Source: Jim Kennedy of Management Team Consultants, San Rafael, CA. (415) 459-4800; Executive Recruiter News, May 1993.
Be A Good Client
the right firm for your needs; get a good fit. Communication between
search firm and client must be open and cooperative. The relationship
should feel friendly and comfortable. Reflect on the atmosphere
during initial meetings with search firms.
5. Establish high standards in evaluating candidates but be sensitive to feedback. Understand the trade-off between the candidate qualities you require and those you desire. Do not be impatient with the process. Keep things moving from the client side: give timely feedback, schedule regular reviews with the search team, conduct candidate interviews promptly, maintain security and confidentiality.
Handle candidates skillfully. Do not "window shop," but do not compromise either. Keep an open mind. Do not confuse a candidate's former position and company with his or her qualifications. After the search is complete, give the search firm feedback on progress of the new recruit.
Remember, the alliance between client and executive recruiter requires teamwork. Clients need to provide access to top management and make decisions without delay. A spirit of partnership will go a long way towards enabling search firm and client to reach their mutual goal.
Legal Issues in Search
"Avoid litigation at all costs" is the key watchphrase in discussing the legal issues involving search. In our litigious society, that is easier said than done. Search is an intensely personal and trusting business. It is often difficult to define specific legalities surrounding client/candidate/recruiter relationships without offending one or all involved.
There are a few key areas to cover:
Most lawsuits between clients and recruiters involve breaches of contracts that may, in fact, have never been clearly defined in the first place. Although some points may be obvious, it is always better to spell them out in writing.
Should clients feel compelled to take action, arbitration is clearly more desirable than litigation for all concerned. It is not only less expensive but can also salvage the long-term relationship. Finally, both sides should consult their respective legal counsels with specific questions. There may be no clear answers to some of these situations. But raising the issue before it becomes troublesome goes a long way in staving off potential problems.
Pitfalls During the Executive Recruiting Process
1. No internal consensus before beginning the search. It is a mistake to bring in an executive recruiter before you have developed a clear analysis of the company's needs. Searches sometimes fail because a client rushes to engage a recruiter to find a VP of Marketing before developing a detailed job description that is agreed to by all of the other relevant executives.
2. No manager with final responsibility for the search process. Searches do not manage themselves nor should the executive recruiter be left to work independently. One member of the client organization must be the "point person" for the search process. This person should take direct responsibility for the success of the search and should demand briefings from the recruiter every week or whenever new developments arise.
3. Settling for a "satisfactory" candidate. Sometimes clients feel obliged to hire the best candidate of a weak group rather than let the search be a "failure." This is a mistake. The point of using an executive recruiter is to find superior managers. Everyone involved in the process should share this expectation.
4. Excessive focus on candidates' flaws. All candidates have flaws. It is important to be aware of them and to reject candidates whose problems are serious. But your hiring choice should be driven by candidates' strengths not weaknesses. If you understand what is good about a candidate, you can then place any flaws in context. For example, some view frequent job-hopping as a bad sign in a candidate. However, an executive may have been headhunted frequently precisely because she is ambitious and talented.
5. Evaluating candidates based on industry prejudice. "We would never hire someone from ABC Company -- they're too process-driven and set in their ways." Whatever the scuttlebutt about other companies, individual executives should be evaluated purely on their own merits. Weak companies have great executives and vice versa. It is very easy to confuse a corporation's culture with the executive's abilities.
6. Second-guessing the candidate. "There's no point in offering X a job -- he'd never take it, and if he did, I am sure he wouldn't stay very long." This kind of logic leads to poor hiring decisions. As part of undertaking a rigorous search process, you must confront hypothetical concerns like this with data. If you are concerned about a candidate's likelihood of moving on to another job, raise this issue during the interview process.
7. Recruiter did not understand the position/the client. A common reason for searches to fail is that some hidden qualifications were never discussed explicitly at the outset. For example, for a Vice President who will become a key member of a management team, the candidate might need to be a nonsmoker, enjoy talking about sports, be comfortable talking in the language of finance, be a member of a church, be married, be clean-shaven, or be enthusiastic about working most weekends. All too often, these "background" factors stay in the background when they should be used "up-front" to eliminate otherwise qualified candidates who will never pass muster with management.
8. Recruiter presented too many unsuitable candidates/too few good ones. Seeing unsuitable candidates is a problem that can be quickly fixed by tightening up the job description and working more closely with the recruiter to decide whether prospects should become candidates that will be presented to client management. When the recruiter struggles to find good candidates, this can have several root causes. The job title and salary may not be competitive relative to alternatives in the job market. Possibly the client company has a poor reputation. Perhaps the qualifications list for the position has been drawn up too tightly. Most clients like to choose between a handful of excellent candidates, and this target slate should normally be attainable. Occasionally the problem may be that the search firm is facing unusual client blockages. This issue must be clarified at the outset.
9. Recruiter was too slow or is overloaded with other assignments. Recruiters often behave towards their clients as if they work full-time on their account only. In reality, most recruiters are handling half a dozen or more assignments simultaneously. Good recruiters should be able to handle this amount of work, but occasionally crises develop on more than one assignment at a time. At times like this, clients may feel that they are not receiving sufficient attention. We recommend that clients recognize that they only have a partial commitment on their recruiter's time. It is also important to recognize that the process of searching for superior executives inevitably is measured in months, not weeks. If the pace falls badly from the prearranged schedule, ask for explanations, extra resources, or an adjustment to fees.
10. Recruiter overcharged us. The most common problems in the area of fees concern re-reimbursable expenses and whether a percentage fee applies to all forms of incentive compensation such as stock options. In every case, the best way to avoid these time-consuming and unsatisfactory disputes is to cover all eventualities in writing before the assignment starts.
The recruiting profession remains extremely fragmented. A handful of big retainer firms are well-known but have only about one-quarter of the market. A similar condition prevails in the contingency field. These big firms do not dominate the market the way that the Big Six firms do in accounting, for example. Even some of the firms on the Executive Recruiter News 40 Largest list have fewer than 10 search consultants. Small is the norm.
of Small Firms
Quite a few of the small firms are run by recruiters who formerly worked at a large search firm. Having benefited from the training offered by a large firm, many of these recruiters have concluded that they can be more successful working for themselves. So it is quite common to find small search firms with highly entrepreneurial professionals. There may be fewer systems and back office support, but, on the plus side, you may get more committed assistance. After all, your business represents a much larger slice of the firm's total billings.