The End of Transactional Executive Search

It’s true! Although some of us have been preaching this for years, it’s amazing how some top executive search firms have buried their heads in the sand and continue doing business as usual.

What’s business as usual? If you’ve been part of, or done work with, executive search firms you know the process. In simple terms, it goes something like this: a vacancy arises, a detailed job spec or job requirement is gathered, and then weeks or more likely months into the assignment the weekly updates culminates with a slate of three to eight (or sometimes more) candidates for the client company to interview and hopefully, if their lucky, hire someone. However, the executive search firm collects its retainer usually in three easy installments at each step of the process: 1/3 when the search is commenced, 1/3 when a slate of candidates has been presented, and the final 1/3 once the interviews have concluded.

These fees are usually 30% or more of the total executive’s compensation and in this day and age a seven figure retained search has become the norm rather than the exception.

What’s wrong with business as usual? From the executive search firms’ perspective some might argue with the way I’ve defined the process, saying it’s oversimplified. Some might say that I don’t take into account the hours invested in flights and travel to wine and dine execs, and the strategy and complexity that goes into a search. That I’ve neglected to mention the large database “the crown jewel” of all firms that has taken years to build. They might also say that beyond the slate of candidates presented, the data gathered through the process is valuable intelligence for the client and part of the total package that justifies the fees. On the client side, an HR leader or company executive might argue that they’ve negotiated the fees down (due to volume business or long-term commitments) and they have a good relationship with the executive search partner who understands their needs and their company culture ( the old adage of: “If it isn’t broken……..”)

The Top 5 Reasons Exec Search Needs an Overhaul

  1. The economy and economies of scale. During good times many companies in desperate need of top executives went for the path of least resistance or the one they were most accustomed to. Hire a top firm for must-have-now executive needs. However, as the economic climate has changed, companies in many instances still have the need for those top executives that are going to drive growth and revenue but they don’t have budget for “a-la-carte” search pricing. Executive search retainers don’t guarantee a hire. Fees are sometimes being paid with no ROI to show for it, and in conversations with HR and talent leaders in major organizations this trend is becoming more prevalent. To be fair, sometimes this happens because of the client company shifting gears mid-stream, “moving the target,” or shutting down the search altogether which the firm has no control over. However, this still speaks to the high-risk, inflexible, and expensive proposition of executive search, regardless of where the responsibility lies.
  2. The Crown Jewel has lost its luster. Not too long ago, finding these executives and keeping track of them was part of what a search firm prided themselves on. Through the years they have amassed and grown a huge database which they have guarded with their life. Now there is a shift of power and expectations with the advent of web 2.0, 3.0, and all of the social networking tools available; these execs are accessible now to everyone. This has upped the anti — it is no longer enough to have access to executives. To be in the game you must also have constant relationships and branding to keep your firm top of mind.
  3. Executive candidates are wising up to the game and no longer want to be part of the interview “cattle calls.” You’ve heard many of my colleagues here on ERE stress the need for relationship-building in the recruiting profession. This is particularly true in executive search. Digging up candidates to present from a database is no longer plausible or feasible. Executive professionals don’t warm up to a call out of the blue regardless of who it’s from, especially if it’s a ” jump on a plane to fill a req now!” type of call. Constant, relevant communication and contact to stay “top of mind” is essential regardless of when a position is vacant. It goes beyond your current needs to staying in touch with top executives and building that relationship. If you engage people only when you have an opening, the relationship starts becoming one way and transactional. People pick up on this very quickly and are turned off.
  4. Are companies getting true intelligence? Many firms have “hands-off” clauses on existing clients for obvious reasons. Your search results will have huge blind spots if a search firm that you engage is currently working with your top competitors or top industry candidate sources. You will only have a partial mapping of the market place and potentially miss out on the best candidates out there.
  5. At the end of the search who owns the intellectual property? I’m not just talking about the candidate bios or the slate resumes. I’m talking about all of the intelligence gathered and all of the people engaged through the process. The search is essentially building the firms’ property on your dime. When the search is finished they retain all the information gathered in their proprietary database/CRM tool and can leverage this work at any time for future searches or unfortunately in some instances can turn around and repackage/resell the information gathered to other companies. You’re left with a slate, and if you’re lucky an Excel spreadsheet with the people contacted for this search. A list that starts going obsolete the moment it’s presented.

Validation

Many of us in the space have seen this paradigm shift for years. Validation came in the form of a statement to BusinessWeek at the beginning of this year by the CEO of one of the top search firms in the industry. His acknowledgment of the current industry process being broken and a need for an overhaul is astute, visionary, and courageous. It marks the beginning of a broader change in the industry as many more firms will follow suit and become more innovative and flexible in the way they service their clients.

How do I benefit from this shift as a corporate HR leader, talent leader, or executive recruiter?

Being proactive and ahead of the curve during these times of economic uncertainty will not only improve your chances of retaining your job, but will also have leadership view you in a different light. Even when hiring is slow and budgets are tight, there are smart ways to be strategic, interface with your internal clients in a different light, and position your function as an integral business partner.

Here are three quick ways to boost your executive search.

Optimize your internal executive search function: It’s old hat for most top firms to set up a mirror executive search organization in house. This was the first logical step in cutting costs and streamlining efficiencies. Unfortunately, most internal executive search functions found out that through the shifts in demand they still had to go to third party search firms to get the job done, creating duplication of efforts and an us vs. them mentality. Now that economic times are tight and hiring is sporadic, HR and talent leaders are faced with having to reduce the number of highly specialized executive recruiter(s) they’ve hired and trained.

Mitigate these issues by not going to the extremes, meaning not doing 100% 3rd party but also not trying to do 100% in-house. Usually from interacting with top internal executive search leaders I see anywhere from a 60::40 to a 40::60 in-house to third party ratio as the right mix. The second part to the solution is to have a core executive team in house and then augment the capabilities by hiring 3rd parties that compliment or augment the capabilities of the core team rather than a third party that duplicates the work in house. As illustrated earlier, search firms are overhauling their teams and offerings to be more consultative and provide these services. In addition, there are a select number of firms in the industry whose core expertise is in leadership risk management, internal/external succession planning, and market mapping. These are all third party solutions that will augment your capabilities and what your team brings to the table.

Go beyond the work at hand to a more holistic approach. It’s not just enough to fill the few reqs in your cue right now. To be a valued talent/HR organization, knowing and mapping the marketplace is a must. You should know who the best talent is in your industry, by region and market for every profile that you hire for. You should be building talent pools, pipelines, and every other word coined today for proactive talent scouting. You should know the talent in your industry not just through a resume but through meaningful occasions and events that piques their interest in you and your organization.

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This effort which seemed unattainable once is now a realistic objective through the use of technology and a strong team behind it. If done correctly, an internal executive search team will transcend the req-filling recruiter role to an intelligence function — a function with their finger on the pulse on competitive intelligence, marketing & branding opportunities, new sources of revenue, and potential M&A targets.

If you’re an individual contributor — be opportunistic. Find ways of connecting the right talent with the right in-house leaders regardless if there is a req open or not. You should always be connecting in meaningful ways with external top talent. This economic downturn creates a window of opportunity for you to connect and build relationships with top brass at competitors that might not have returned your calls during the good times. Ask yourself these simple questions when you are building your opportunistic foundation:

  • Take the top five profiles that you are constantly hiring for (profiles, not reqs)
  • Do you know at least 10 people in the industry per profile?
  • Of those 10, people how many of those do you have a relationship with?
  • How many of these would you feel confident in spotlighting to the C suite or the Board of Directors?

If you aren’t taking advantage of the slow time to be opportunistic and spotlight the top corporate athletes you’re running into who are now more likely to return your calls, you’re missing the boat.

Companies want their interview slates to include more passive candidates to complement the active talent pool. When engaging a search firm for an active role what you will most likely get are the people in their database who are ready for that next jump. Once they have created the slate the search stops and the mapping of the marketplace is limited or never takes place. You are in essence limited to selecting the best people available right now, not the best of the best. Top executives will not be on anyone’s database or be posting their resume any time soon. They are certainly not active but they are “gettable” if two things happen in tandem.

First, constant dialogue and relationship is created and nurtured with these athletes well in advance of any opportunity.

Second, based on the consultative listening through these exchanges you will then be able to present (not just any position) but the right and ideal opportunity that meets most if not all of their expectations as top professionals in their industry.

Knowing what these opportunities are and when and how to present them is the essence of all talent professionals and, having the right intelligence is key.

Fernando Delgado is a human capital consultant, strategist, and speaker with a multicultural and multinational background, having lived extensively through Latin America, now residing in Atlanta, Georgia. He is currently vice president at Talent Intelligence, leading efforts in LATAM, Southeast USA and Advanced Technology industry sector. A seasoned human capital professional who has held leadership roles, formulated talent management strategies, and focused on the execution and delivery of business and organizational results for many Fortune 100 companies to include but not limited to: Oracle, Microsoft, The Coca-Cola Company and Deloitte LLP. Talent Intelligence is a global Human Capital Advisory firm focused on leadership risk management, succession planning, talent pipelining/mapping as well as M&A due diligence. To learn more go to http://www.talentintelligence.com>.

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