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The Inside Job

The recession hasn't caused most companies with in-house executive-search operations to abandon them. In fact, it's having the opposite effect.

Tuesday, June 2, 2009
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Need to hire a top executive?

Before you pick up the phone to call your favorite search firm, you might want to consider doing the job yourself.

A fast-growing number of large companies are setting up their own in-house executive-search operations. They say they're making hires faster, getting much better fits and -- of no small importance -- saving vast amounts of money in executive-search fees.

In the six years that Time Warner has been doing all of its own executive searches, for example, the company has saved $100 million that would otherwise have been paid to outside search firms.

And in-house search operations are proving particularly handy during the economic crisis. "The cost savings is a huge advantage during tough economic times," says Maggie Rubey Lynch, Time Warner's senior vice president of worldwide recruitment and executive search.

Although some companies are cutting back their in-house search operations because of the slowdown, most with such operations are actually expanding their work to save even more money, according to a recent survey of Fortune 500 firms by the Executive Search Information Exchange.

Of the 40 companies surveyed, 18 have in-house search operations, and nearly all of those report they'll be taking over more of the searches now handled by outside firms, says David Lord, founder of the exchange, which advises companies on executive recruiting. Six of the in-house operations surveyed plan to add people to their teams.

One in-house team that's doing more searches itself is at Eaton, a Cleveland-based global diversified manufacturer. This time last year, hiring managers looking for executives debated whether to use an outside search firm or the in-house operation run by Zachary Simon, director of executive talent acquisition.

But these days, says Simon, the managers "don't have the money to pay a search firm" -- and so are turning to his team for all their searches. "We've been fortunate to build this model in good times," he says.

The in-house executive-search operation is a relatively recent phenomenon, but is one that has been rapidly taking hold in corporate America.

The number of Fortune 500 companies that have in-house operations is double what it was five years ago, says Lord, whose information exchange is based in Harrisville, N.H. Ten years ago, he says, very few companies had such operations.

What has made such growth possible is the Internet. In the past, companies had limited access to lists of executives in particular fields -- people who might be contacted about a job opening. Such lists were the closely guarded secrets of executive search firms, which compiled the names through years of laborious networking.

Now, names of executives are readily available on the Web through business databases such as Hoovers and ZoomInfo, business and social networking sites such as LinkedIn and Facebook, and through blogs and Web-based affinity groups. And e-mail has made networking far easier -- a hiring manager or in-house search director can now instantly ask a dozen business contacts around the country whether they might know of a possible executive job candidate.

But while technology has fueled the in-house trend -- and the cost savings have made it attractive -- it wouldn't have gained much traction if it didn't produce high-quality executive hires, according to directors of in-house operations.

"I'd put us up against any of the major search firms, as well as the boutique firms," says Rubey Lynch, of New York-based Time Warner. "We run a first-class business within a business."

One Step Ahead

Rubey Lynch's in-house operation is one of the largest of its kind -- her team has been handling more than 500 global assignments a year at the vice-president level and above, including C-suite positions. That level of activity has remained steady even during the recession, as some areas of the 90,000-employee media and entertainment company, such as digital distribution of content, have continued to grow.

Rubey Lynch was one of the pioneers of in-house search operations. Before joining Time Warner, she worked for a retained executive-search firm -- the typical background of directors of in-house operations.

As a consultant with Gary Kaplan & Associates, of Pasadena, Calif., Rubey Lynch handled searches for most of the movie studios, including Warner Bros., a division of Time Warner. In 1998, Warner Bros. hired her to create an in-house search team and, over the next five years, the operation expanded to other West Coast-based Time Warner divisions. In 2003, Rubey Lynch and her team began handling all of Time Warner's executive searches.

Rubey Lynch credits her boss, Executive Vice President of Administration Pat Fili-Krushel, with having the "global vision" to take the operation companywide. Fili-Krushel reports directly to Time Warner's CEO, which means that Rubey Lynch is "one rung removed" from the top -- part of the reason her in-house operation has been such a success. "It is empowering," she says.

One of the more remarkable aspects of Rubey Lynch's operation is that it not only fills executive positions; it anticipates when new ones will open -- and is ready with candidates.

The key, she says, is to learn as much as possible about where Time Warner is likely to grow. And so when she or members of her team visit a division to talk to a hiring manager about an opening, "we'll take time out to meet with other department heads and learn about their business," she says.

"I'll ask a department head, 'How's your business going? What are your biggest challenges?' If they're here and they want to go there, then I need to start thinking about that so we already have people in place."

Rubey Lynch also needs to know what is happening in the marketplace, where the business trends that affect Time Warner take shape. She'll talk to senior executives at other companies, as well as experts in media and entertainment fields. And, she says, "I read every trade publication out there, so I know where the businesses are, and where they are going."

At the same time, she and her team members also put together lists of internal and external executives who might one day be good job candidates in the areas Time Warner is likely to expand. "We know who the key talent is in the marketplace," says Rubey Lynch. Those candidates are identified through networking, research and knowledge of Time Warner's competitors.

"We create proactive pipelines of talent in the key growth areas," she says. "When a position opens up, we already know who the candidates are in certain disciplines. We're ahead of the curve."

And because the in-house recruiters are part of Time Warner, they also know which of those candidates are most likely to fit in with the company's culture.

"Unless you are embedded in an organization, you don't really understand the company -- there will always be a learning curve," says Rubey Lynch.

She believes her in-house operation has a number of advantages over an outside search firm. Because the team has inside knowledge of Time Warner, it can proactively work on positions before they are officially opened.

"If our company is building a business," she says, "no one would know that but us."

And while search firms are greatly limited by "off-limits" agreements they may have with competitors of their clients, "we can call anybody at any place at any time," says Rubey Lynch.

In-house operations also have more at stake in the searches, she says. When an outside firm makes a bad hire, she says, it simply moves on to another company. "We have a finite client base -- if we don't do a good job, we're out of business," she says. "Though when we do great work, it becomes an internal marketing tool."

"Quality, Speed and Cost"

While some in-house search operations, like the one at Time Warner, hire all executives for a company, most limit their searches to the vice-president level, and only occasionally hire for the C-suite and direct reports to the C-suite, says Lord, of the Executive Search Information Exchange.

Such high-level searches require an intimate knowledge of the best executives in corporate America, and are most often left to the outside search firms. "When at that level, companies don't mind spending a couple of hundred thousand dollars making sure they get executives with the top experience and expertise," says Lord.

The average salary of an executive hired by an in-house operation ranges from $150,000 to $250,000 a year, says Lord. Although some operations have only a single executive recruiter, the average size of a team is four.

Because outside search firms typically are paid one third of an executive's first-year compensation, an in-house search operation can pay for itself many times over. But Lord says in-house teams provide something even more valuable: They can do a much better job of finding just the right executives.

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"We believe the in-house teams have an advantage over the search firm in that they really know the company, and they have a stronger sense of what kind of person is going to work," says Lord.

Simon Mullins, director of executive recruiting at Redmond, Wash.-based Microsoft, agrees. "It's not about the cost," he says. "There are cost savings, but it's about getting the best and the brightest. We understand what is going to be the best cultural or intellectual fit at Microsoft. We know what kind of people are going to succeed here."

Zack Simon, of Eaton, says that if a company starts an in-house operation only to save money, "you're going to get what you pay for." The focus must always be on hiring the best executives, he adds.

The "whole essence" of an in-house search operation, says Simon, is "quality, speed and cost." That was the order of importance prior to the recession, "though cost has definitely moved into the second spot, because every dollar counts now."

Simon and the two other recruiters on his team -- all of whom have worked for retained executive-search firms -- have hired 22 Eaton vice presidents and senior vice presidents in the last two years. Another five executives were hired using outside search firms, though Simon's team managed those relationships. Outside firms are used when an executive change in the company needs to be kept confidential, or when he and his team members don't have extensive recruiting experience in a specific area.

When an outside firm is needed, says Simon, "my team and I will work hand-in-hand with the hiring manager to determine the search firm to retain, negotiate the contract and then assist with the management of the firm until conclusion of the search."

Simon says being an employee helps him and his team establish productive relationships not only with Eaton managers, but with the candidates as well. "When we're telling the story, we're living the story," he says. "We're experiencing the growth, the challenges and the opportunities we're presenting to them."

And, he says, "the candidates know it's important we're sincere with them -- because they're going to become our colleagues. If we mislead them and they're hired, it's very easy for them to find us."

Too Afraid? 

Perhaps not surprisingly, executive-search consultants dispute the notion that in-house recruiters can make better hires.

Mark Jaffe, president of Wyatt & Jaffe, a retained executive-search firm based in Minneapolis, says in-house recruiters are actually at a disadvantage. If a hiring manager has unrealistic expectations about a position, the internal recruiter may be afraid to speak openly, he says.

"An external recruiter would say to the hiring manager, 'You're not giving the position enough clout, or there's title inflation, or you've pegged the salary too high or low for this level of responsibility,' " says Jaffe. 

In-house recruiters, he says, may be reluctant to be so forthcoming -- particularly when it comes to describing how the company or hiring manager might be perceived by potential job candidates.

"If internal recruiters are too honest, too direct or too prescriptive, their livelihoods are at stake," says Jaffe. "They are not able to deliver difficult messages, and the difficult messages are precisely why hiring managers need high-status outside consultants."

Simon and Rubey Lynch say Jaffe's comments do not describe their own operations. Both say they can -- and do -- deliver difficult messages to the hiring managers.

"My team and I are trained and focused to have a healthy dialogue and debate with our hiring managers," says Simon. "If we are not managing the expectations of the hiring manager, we are not adding value to the experience. We have no hesitation in delivering difficult messages to our hiring managers."

Says Rubey Lynch, "If we aren't candid and honest, we won't be able to hire the best candidate. Candidates who don't succeed are damaging to our business, and that would put our roles at stake. Delivering a direct message is not difficult if you have the credibility and respect within the partnership. It's not what you say, but how you say it."

Ultimately, she says, an in-house executive search operation can be of enormous value.

"Talent is the most important asset," she says. "And owning [the search for] it really gives you a strategic competitive advantage over other companies. The investment in the infrastructure to build the in-house model reaps huge rewards for the overall business."

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