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Dangerous Liaisons

There's no question that an executive-search firm can help expedite some of your most crucial recruiting assignments; just beware the potential harm in not keeping a close enough eye on what it's doing.

Friday, May 16, 2008
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Hell hath no fury like a job candidate scorned.

Particularly if that candidate was someone on your short list for a top executive position, someone who came in for a round or two of interviews but is now getting completely ignored by your search firm.

He wasn't tops on your list, and maybe you've forgotten about him. But he and his family are on pins and needles. Weeks have gone by, and your search firm won't return his phone calls or even his e-mails.

The next time this executive gets asked about your company, at his country club or at the exclusive resort where he vacations, what do you think he's going to say?

You can't buy that kind of bad publicity.

Many executive-search firms do treat job candidates with professionalism and respect. But search-industry experts, as well as corporate hiring executives and many search consultants themselves, say HR executives need do a better job of managing the search-firm relationship.

They not only have to make sure job candidates are treated well, they need to be mindful of other, equally serious dangers. If a search firm hasn't taken the time to learn your culture, for example, it may be bringing in executives who are ill-suited for your company.

And HR chiefs also have to be sure that their in-house executive recruiters, and the company's hiring mangers, fully understand how "off-limits" agreements can cripple an executive-candidate search.

As the war for top talent has become red-hot, companies have increasingly turned to retained executive-search firms for help in filling executive positions. But in so doing, they've also placed their reputations in the hands of headhunters who may or may not be serving their clients in the best possible way.

"Most hiring companies don't know what they're getting into when they hire a search firm," says Joseph Daniel McCool, author of Deciding Who Leads, which gives advice to companies on how to partner with executive-search firms. "They're not educated consumers."

That kind of knowledge is more critical than ever, as corporate America is increasingly using headhunters to find its leaders. The retained executive-search business has seen an explosion of growth -- just since 2000 its revenue has increased by one-third, to more than $5 billion annually in the United States and Canada, according to the Association of Executive Search Consultants.

Much of that is being driven by the scarcity of talent as baby boomers retire, says Peter Felix, president of the New York-based association. As companies compete for executives, they're looking for all the help they can get.

"The war for talent is now raging with a vengeance, and it's been very good to the search-firm business," says Felix.

At the same time, says McCool, many companies have done a poor job of grooming their own leaders in recent years, and have come to over-rely on search firms.

McCool says that, based on dozens of interviews with corporate hiring executives, he believes that more than half of all executive searches are done by outside firms. Two decades ago, he says, only about 20 percent were handled by search firms.

"Executive-search firms have always been meant to be used sparingly," he says. "But over the years, they became the first option. Anytime there was a vacancy in senior management, it became a reflex reaction to go outside."

That's starting to change, as more companies are building an in-house capability to do searches, says David Lord, founder of the Executive Search Information Exchange, a Harrisville, N.H.-based association that helps its 65 member companies deal with the search process.

However, says Lord, it's still very common for organizations to go outside for executive searches. And all too often, he and other experts say, the hiring organization doesn't pay enough attention to how the search is conducted.

Those who deal with search firms, such as HR executives and hiring managers, frequently neglect to make clear the ground rules for the search, including who has the responsibility -- the headhunter or the company -- for which task.

Dissecting the Problem

Nowhere is that more troublesome than in the treatment of executive job candidates, says McCool, who calls it "the Achilles heel of the executive search business."

Here's what happens, he says:

Working with the job specifications provided by the hiring company, the search firm will identify a hundred or more potential candidates, and will eventually screen at least a dozen. Of those, typically three to seven will be brought to the hiring company for interviews.

Each of these short-listed candidates will meet with in-house executive recruiters and senior managers from the company who will provide their feedback to the search firm. On critical executive hires, such as for the C-suite, the top HR executive is often directly involved as well.

"What happens," says McCool, "is that once the hiring company begins to express interest in one to two candidates, the other candidates are forgotten -- they're left behind by the process."

Often, says McCool, they never hear from the search firm or the hiring company again. Ever.

And so these executives are left hanging. "They've probably told their friends and family," he says. "The spouse and the children are on edge, because, if the individual gets the job, they might be forced to move. But the headhunter is no longer returning the candidate's calls. They're red-faced and humiliated. They might even read that someone else has been chosen for the job."

Based on his research into the search-firm business, McCool says, this scenario happens in the "vast majority of cases."

Usually, he says, the hiring company considers it the search firm's job to cut loose the also-rans. But that can be an unpleasant, time-consuming task many search firms would prefer to avoid, he says.

Most executive-search consultants, he says, "would rather ignore an unsuccessful candidate than summon the courage to confront them with a difficult message."

While this can make it difficult for the recruiter to go back to the candidate for a new search later, many search firms consider this downside simply a cost of doing business, says McCool. They'd rather put their energies elsewhere.

Says McCool: "Literally tens of thousands of senior executives in this country are left at the altar of the executive-recruitment process, searching for answers. But there are no answers, because the executive recruiter doesn't want to communicate with them, and the hiring company doesn't have a need for them anymore."

This can cause untold harm to a company's reputation, say McCool and others.

The spurned executives are often powerful people whose extensive networks helped make them attractive to the headhunters in the first place. Because of the social circles they travel in, and because of their influence in other organizations, they can spread a lot of negativity about a company.

This can happen on the Internet, through blogs and executive-networking sites, or the old-fashioned way -- over a drink at a cocktail party or at a chamber-of-commerce meeting.

Hal Reiter, chairman and CEO of the New York-based executive-search firm Herbert Mines Associates, says his office has established a reputation for treating candidates well. But, he says, he understands why some search consultants might have trouble doing that -- and he doesn't think it's intentional.

"It's always difficult to deliver bad news," he says.

What sometimes happens, he says, is that a search consultant might plan to call a candidate on a particular day to share the news that he or she is no longer in the running, but puts off doing it that day, and then the next, and then the next.

"You're kind of hoping they'll call you so you can tap dance, and say something like, 'I've been traveling,' " he says. "A few days later, you say to yourself, 'Oh, no, I didn't call.' "

Crucial Steps

However unpleasant the task, it has to be done, experts say.

Mark Jaffe, president of Wyatt & Jaffe, a retained executive-search firm based in Minneapolis, says some firms take the approach, "I don't have time to give the candidates tea and sympathy."

But, he says, "You have to make the tough decisions as you go along. When you have three strong candidates, you have to be willing to cut the others loose."

Says Jaffe, who has been in the search business for 24 years, "I made a resolution many years ago that I would not let candidates die on the vine. I will put them out of their misery.

"I consider myself an advocate of 'shoot them in the head, not the body.' Most people do a body shot and let them bleed."

But it's not always the search firm's fault, says Jaffe. Often, the hiring company tells the recruiter to "keep everybody warm -- on the back burner, but warm," he says.

"At least 50 percent of the time that I see candidates getting anxious for feedback," says Jaffe, "it's the result of the company dragging its feet, being indecisive, or simply wanting to keep all its options open as long as possible."

Some search consultants complain that hiring companies are also often silently complicit in the poor treatment of executive candidates.

Says one search firm CEO who asks not be identified, "Most HR chiefs have an expectation that an executive recruiter will treat candidates professionally and courteously. But in terms of the specifics of how they handle them, what they tell them, how compassionate they are, whether they string them along -- whether they really even tell them the truth -- that's a matter of little or no concern."

Experts say HR needs to care about those things, and to make sure the search firms care. That's now being done at Armonk, N.Y.-based IBM, which last year began a "high-touch" program to stay in close communication with executive candidates.

Allan Dudley, one of two members of the team that does executive recruiting for IBM in the United States, says that not only are search firms expected to stay in regular touch with candidates, but he personally sends the candidates e-mails about once a week with an update, "Just to let them know, 'We haven't forgotten you.' "

Last year, IBM hired 58 executives in the United States, and about 60 percent of those came through outside search firms, says Dudley.

A key element of the program is a weekly conference call Dudley has with the search firm, the executive who has the opening, and any other people the executive wants involved. The status of each candidate is reviewed, so everyone knows where things stand.

If the company has decided that a particular candidate is to be eliminated, says Dudley, "I can make the assumption that the firm will now go back to Samantha Jones and tell her, 'Although you did very well, you're not a match.' "

Says Dudley, "If we've interviewed someone and we're not going to hire that person, we cut that person loose."

But IBM doesn't leave that job entirely to the search firm -- Dudley and the executive with the opening will call the unsuccessful candidate to convey their thanks. This conversation allows the company to evaluate how well the search firm has handled the candidate, and to make sure the candidate didn't have a bad experience, says Dudley.

"You never know whether that person might be perfect for another job, or she may get a job somewhere else and become a customer of IBM," he says. "If I have not closed her out properly, if I have left her hanging, why would she want to talk to us again? Not to mention that it's just the right thing to do."

And he adds, "It only takes one person at the country club or the tennis court to badmouth IBM about the bad experience they had interviewing for the executive position. The executive pool is very shallow, and they all know each other."

Because of IBM's strong oversight of the process, says Dudley, "The search firm cannot brand us. We can control the opinion of IBM by what we do."

"Off-Limits"

One of the most controversial aspects of executive-search firms are "off-limits" or "hands-off" agreements. Although HR executives may be familiar with off-limits, say experts, hiring managers are often clueless about the extent to which such agreements can limit the pool of candidates a search firm is evaluating. They often don't realize that a search firm may have so many agreements that the search process is essentially hobbled.

Tim Jones, the global vice president of human resources for Hypercom, says that typically an executive-search firm will tell a hiring manager, "Here are the target companies we think we can find that skill set in."

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But after the firm has been hired, he says, it will look in its internal database to see which of the target companies are clients it can't touch. The firm might have started with 30 companies. "Now, all of a sudden, that list is down to seven."

Jones, whose Phoenix-based company makes credit-card-swipe devices, says this is a particular problem if the search firm has already been hired by several of your competitors, because it now makes their executives untouchable.

Search firms will say, "We have tremendous experience in your market segment," says Jones. "Translation: 'We have so many non-solicits, it's going to be hard to find your guy.' "

Jones believes that most hiring managers aren't savvy enough to even ask for a list. "Nine times out of 10, they're not sophisticated enough to ask, 'Who are you iced out of?' " he says.

Reiter of Herman Mines Associates says members of his firm will volunteer their off-limits lists to hiring companies. And if a client doesn't know to ask, "We tell them anyway."

That's just good business, he says. Trust is crucial to the relationship between the search firm and the hiring company, he says, and "you can't build trust if you're lying by omission."

Companies that don't pay enough attention to the outside search process also risk hiring executives who are a bad fit. This can happen, says McCool, when the search firm doesn't spend enough time with a company to understands its politics, culture, management and strategy, and how they're all evolving.

Without that kind of knowledge, search firms can produce "short lists of candidates who are misfits for the organization," he says. And the problem grows exponentially when the new executives, who want to bring in their own people, engage the very search consultants who recruited them.

"You've just turned a bad hire into a cultural tremor," says McCool. "Now you have multiple executives who are misfits."

Good, Bad and Ugly

The executive-search business can be very lucrative -- top consultants can earn $1 million or more a year. As a result, many new people are drawn to it -- but not all are equally qualified, experts warn.

There are no licensing procedures for search consultants or other barriers of entry to the field.

But companies aren't always careful about which search firms they hire.

Jim Pappas, the director of recruiting and retention for Lance Construction Corp. in Cheshire, Conn., estimates that at least two-thirds of managers retain "somebody they know -- their neighbor, a guy from the golf club. But once you go down the path of someone who doesn't know the industry, you're in trouble."

The problem, he says, is that most hiring managers "don't know where to go for the right person." There are directories that list specialties, he says, "but that doesn't mean they're any good at it."

Pappas says he calls HR people at other companies to get information about a particular search firm. "You try to figure out who would know," he says. "But it's not as easy as it sounds. You'd think in this day and age of information, you could find out what you need."

Jay Andre, head of executive hiring for McLean, Va.,-based consulting firm Booz Allen Hamilton, says many new search consultants are former corporate CEOs and others who want to try their hand at the business.

"Anybody can wake up and say, 'I'm an executive-search consultant,' as long as they have a telephone and a computer," he says.

But not everyone is good at interviewing and assessing candidates, says Andre, and inexperienced search consultants may not be familiar with the candidate population.

Therefore, he says, it's essential to ask the recruiters questions such as how long they've been doing searches and what percentage of their placements are still employed two years down the road.

Hiring managers, says Andre, should also ask search firms for references.

And they should talk to executives the firms have placed, to see what the process was like for them. In addition, companies should check with some of the search firm's other clients -- particularly those that hired the firm for only one search.

Ask all these people a lot of questions, he says, including, "Is there anyone else I should talk to?"

Good Governance

Search-industry experts, hiring managers and search consultants agree that even with the best firms, HR executives need to make sure their in-house executive recruiters are fully involved in all aspects of the search process.

When the search firm is hired, for example, both the recruiter and the company should have a clear understanding of exactly who will be doing what. They need to agree on how often the search firm will communicate with job candidates, and how and when the unsuccessful ones will be cut loose. All this should be put in the contract with the search firm -- but it's often not even discussed, the experts say.

Says McCool: "I've never seen candidate closure addressed in a contract, and I've seen a lot of contracts over the years."

Arlene R. Barro, founder of Los Angeles-based Barro Global Search and author of WIN Without Competing! Career Success the Right Fit Way, says the hiring company must make it very clear to the search firm what it wants, from the job specifications to which companies should be targeted and which ones should be left alone.

Barro, whose own approach is to present the hiring company with a single, "right fit" candidate rather than a slate of candidates, says employers need to take the initiative to make sure the search firm fully understands the company's culture, and precisely what kind of executive it wants to hire.

"Don't wait for the search firm to probe for the information," she says.

Lord says the success rate of searches can be significantly improved if the hiring company closely manages the search and then measures how well each of its search firms performs.

Those measures, Lord says, can include how often a successful candidate is produced; the number of candidates provided before an offer is made (a gauge of candidate quality); the performance of the hired candidate; and the racial, ethnic and generational diversity of the candidates brought forward. Lord says employers often focus on the cost-per-hire -- but that's a shortsighted mistake that does not produce quality candidates.

In the end, experts say, HR executives and hiring managers can't afford to just sit back and play a passive role, leaving all the decisions to the search firm. HR needs to be right there in the mix, armed with all the information it can get its hands on.

Says McCool: "You really need to be an educated consumer or you will get burned."

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