The Economist February 8th, 2020 pp58-60 Briefing Headhunters. “Take me to a leader”. “The industry tasked with finding bosses is more powerful than ever, even though the value it provides remains hard to measure.
Executive search and leadership consulting revenues have, except for 2000 and 2009 downturns, risen steadily from ~$3B in 1991 to $15B in 2018. The so call “Shrek” firms are Korn Ferry, Spencer Stuart, Egon Zehnder, Russell Reynolds Associates and Heidrick-and-Struggles account for about $5B as of 2019.
Demand for their services is driven by demand volume, the rising complexity and strenuous nature of leading modern enterprises. Regarding demand volume, of 3,600 listed American firms 311 of their CEOs departed in 2019. Add to that 8,000 private equity firms and multinationals with similar or more complicated demands. Regarding complexity, today’s boards are calling for proactive succession planning and CEO candidates that have demonstrated expertise across corporate functions including finance, IT, procurement, operations, sales, marketing, media and investor relations.
As always, headhunter firms still recycle their "stable" of executives but are leveraging their increasing exposure to internet resources and big data. Besides using Glassdoor etc. they are more than ever able to understand the candidate's network via LinkedIn et al. Using these accessible data they are reaching out or interviewing anyone having past interaction including sales executive, suppliers, clients, ex-bosses and subordinates to better understand each potential CEO or CFO. Other data sources evaluating legal and ethical behavior are more readily available than ever. Of course, recruiters still "get up close and personal" making and maintaining contact by phone and meeting in person with top candidates.
The Shrek's and other large firms are going even further into the "Brave New World" by including psychometric testing- a modern day "crystal ball" trying to better project a candidate’s fit for the job. Besides various question based tests, it is not uncommon for consulting psychologists to be prodding deeper by examining and questioning a would be CEO's personal narrative. Unlike these types of psychological testing, which are bothersome to candidates, executive-type simulations are becoming popular with candidates, executives and boards. In such a simulation, the candidate is given a case study similar to a situation s/he might encounter as a CEO. The scenario would include the study company profile and the case situation packed with data and information regarding functional silos. After digesting the case the candidate then presents to a mock-board.
At the executive level, nearly 90% of candidates have experienced a career “blow up”. So, selecting one candidate over another is tricky but “choosing badly” can cost a firm time and as much as 5% of annual profit. Shrek firms are paid well for placing talent with fees as much as $1,000,000. Not surprising, but nearly 80% of S&P500 companies eventually hire their replacement C-Suite from a well-honed internal pipeline. For these reasons, some companies are developing their own “in-house” executive recruitment group. Regardless, in behemoth companies given all the complexity and politics, recruitment firms may still be consulted as objective diplomats helping the hiring organization arrive at a consensus pick.
Beside recruiting, almost 1/3 of Shrek firm revenue comes increasingly ancillary services like leadership development and board effectiveness.
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