Headhunters stalked by the threat of regulation

Advantage magazine
By Richard Donkin, June 8 2006
www.ft.com

Pressure is building within the executive search industry to introduce quality rankings for headhunting companies.

Since the growth of the industry during the late 1990s, fears have grown that recruitment has become commoditised, epitomised by the mid-level finance and IT sectors in which companies bought accountants and programmers in bulk.

With search companies also often guilty of taking on more business then they could reasonably facilitate, it was inevitable that claims would emerge of deteriorating service.
A growing problem is the dominance of a handful of big companies in a business that numbers thousands of operators, including some small, specialist boutiques that rarely receive recognition but operate at the very highest levels.

Indeed, some of the smaller outfits are run by highly experienced headhunters who have broken away from the companies they helped to established. The issue was highlighted in a recent edition of Executive Recruiter News by Bob Brudno, managing director of Savoy Partners, a Washington-based search company. Mr Brudno is an example of the established veteran who built his reputation in a much larger outfit – Leon A Farley Associates. He argues that the publication of leading companies, ranked by revenue, reinforces the presumption that “biggest is best”.

“There is no question that the largest search firms deserve thanks for helping our industry gain its recognition as a well-established and valued service. But in reality, quality and size are not necessarily linked,” he writes. So how can an organisation rank headhunting companies by the quality of their service? To be effective, a ranking would need to be based on a survey of headhunters and their clients. Would either be prepared to be candid enough to provide any meaningful comparisons?

How do you measure recruitment success? If I were a client, I would want to know the average completion time for an assignment, the completion rate, and something about the quality of the candidates. This last point is difficult to assess. Any recruiter can compile a shortlist but the quality of those shortlists can vary enormously. It does not matter how quickly a position is filled if the candidate turns out to be a dud. Perhaps search companies should be expected to track the success of their placements – as I am sure many do – and provide prospective clients with “success in job” data.

One of the problems surrounding existing placement rates is that not every outfit applies the same definition for a successful assignment. For example, some will include cancelled assignments in their calculations of successful “completions”.

Christian & Timbers, a US-based firm that has recently opened offices in London and Paris, avoids ambiguity over completions by defining any “placement” as a filled position.
In another move aimed at increasing transparency, its placement rate of 79 per cent has been independently audited by a firm of accountants. “This is an industry that is desperate to avoid change but it is going to have to change because the quality of the candidates in some firms has dropped significantly,” says Brian Sullivan, chief executive. He recalls one competitor company – one of the big five – that knew to the penny the revenue rate of its consultants but which “did not know within 50 percentage points what its placement rate was”.

Christian & Timbers has also instigated a number of measures designed to provide more information on the search process. One is a progress audit – a kind of quality check – carried out 40 days into an assignment by a consultant who is not involved in the search. “If there is a problem, we will call the client and explain how we’re going to fix it,” says Mr Sullivan. “This shows the client that he has hired the firm rather than an individual consultant.” Finally, a post-search client satisfaction survey is conducted to help consultants improve their service.

While he is pleased with the company’s placement rate, Mr Sullivan believes it can be improved. “I think it can get into the low 80s,” he says. Will other companies follow suit? “I think very few know their placement rate, and if they do they’re sure as heck not going to publish it.”

In another move away from traditional practices where the consultants who win the business get the lions’ share of the fee – still the case in many big companies – Christian & Timbers has begun paying the people who execute the search a larger percentage of the fee.

“It means that a personal assistant will be reminding a partner to call the client. Everyone is thinking about what is important to the client. Search isn’t sold with two feet, it’s sold with four. Clients want to see there is more than one person involved,” says Mr Sullivan.

The move is further evidence to support an observation made earlier in this column by Giles Crewdson, UK managing director of Korn/Ferry, who noted how much of the industry was reshaping itself around a professional service format where knowledge is shared around companies and client needs are met by team responses.

This does not mean that we shall see the end just yet of the “eat what you kill” policies of some companies, where the biggest hitters will often settle for nothing less than the biggest share of the fee. Sometimes a shrewd operator can secure a prized candidate single-handedly where the best of teams would fail. It is the nature of the beast.

Meanwhile, Russell Reynolds Associates has stressed the need for headhunters to remain alert to industry change. In a study of converging interests in the media and technology sectors it found increasing demand for executives with new skills outside the traditional sectors. “We are in a period of rapid evolution in convergence. Long-term business models and their impact on people are uncertain,” says Jane Dowding, managing director. “Boards will need to have a far greater understanding of convergence and the industries that it spans, and that new skills will be required throughout organisations.”

The same could be said for headhunters. If media and technology companies need new skills, search companies will need people with the knowledge to find them. It raises the question of whether the search industry can move fast enough to match the demands of this sector, or whether some business will be lost to a sophisticated online industry.