The Economy’s Impact on Executive Searches in the Financial Services Market

Nov 14, 2008

The economic downturn is impacting all of us in one way or another. From a recruiting standpoint, one sector that has been dramatically changed in many ways is the financial services practice area.

First, the urgent, recent needs to serve investing clients, as a priority, is overwhelming the players who provide guidance and advice. Putting together deals urgently to avoid calamity has been a drill we see described in financial newspapers, but has changed recruiters’ abilities to communicate with candidates and clients alike.

This is an industry-wide fire drill that is using up all the bandwidth of a professional’s normal day. Bankers and politicians are working through weekends and spending nights at their offices to handle client inquiries or urgent needs to restructure, or to put together deals to save large companies under emergency duress. Due to this change in pace, searches and calls to consultants fall to the bottom of priority lists.

For search consultants, this is making it difficult to communicate with clients and candidates in a timely manner. The clients of our clients, whether they be retail (individuals) or institutional (private and public companies, foundations, and other financial firms) are storming the phones of advisors, bankers, managers, etc. with their frantic calls.

For professionals in the lending side of the financial services profession, the news isn’t much better. They’re busy working out troubled loans from credit cards, to business loans and mortgages, and it’s taxing their time-management abilities as well. Re-negotiations, re-structuring, and renewals all compound for a busy banker’s schedule, with the statistics of delinquencies and defaults continuing to soar. Again, this makes the job of the search consultant that much more difficult.

Second, consolidation is creating rapid changes in the players. The number of potential clients for search firms serving the financial industry is materially shrinking.

Between the failures of Bear Stearns, Lehman Brothers, and Washington Mutual, and the consumption of Merrill, Wachovia, Countrywide, along with many other institutions going through shifts of strategy, the chain of relationships is changing rapidly.

Simply keeping score relevant to who owns who, and who bought what business group, requires the service provider to read financial papers for several hours each day to avoid embarrassing gaps in understanding client and candidate situations.

Third, as these firms address their deteriorating financial condition and face major systemic, infrastructure, and personnel integration challenges, hiring freezes or “pauses” are being declared, which of course stops the search consulting process altogether, but not the need to continue staying in contact with clients and potential clients. Several firms (Morgan Stanley, Goldman) are changing their business charters and strategies overnight, which will require a re-calibration for service providers. Additionally, personnel within the human resources functions are changing rapidly, which means a relationship management shift on the part of search consultants.

Fourth, the number of candidates reaching out to search consultants and recruiters has reached flood stage, with thousands of active and passive candidates reaching out to trusted search consultants and headhunters. This creates a challenge of prioritization, because there is some extremely credentialed and experienced talent that has hit the market that in previous years would be unavailable. Great executives are simply putting out feelers, knowing their companies could be impacted, which creates opportunities for quality relationships to be established. These defensive moves are a perfect opportunity to expand one’s network of leaders.

The severity of the impact is going to be substantially negative, short term, but this can be attributed to the shock and the historically extreme changes in the market that we have witnessed in the past several weeks. The consolidation of companies in the market will continue. The financial health of the remaining companies that make up the financial services marketplace is almost entirely dependent on the effectiveness of brand-new, never-tested regulatory meddling in these private enterprises, along with the government’s new heavy-handed participation in the market for financial services worldwide. The long-term health of the system is precariously dependent on trust.

I believe that financial services will come back quickly, but with fewer players in a potentially long-term recessionary environment. The financial institutions will operate going forward with higher quality assets and a more conservative approach to managing the companies. Certainly, Goldman Sachs and Morgan Stanley have signed on to a less-leveraged approach to doing business, and the earnings and growth of financial services firms will be constrained to unspectacular results.

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