2005 - Headhunting market recovery
The past 12 to 15 months have
witnessed a sustained revival in the international
headhunting market after a three-year recession
that began in the autumn of 2000.
The revival, however, has not been achieved without
a significant reshaping of the industry according
a to a new book that has tracked some of the changes.
The worldwide executive search
industry had been worth between $8bn and $9bn
in 1999 at the height of the dotcom boom when
the average tenure of a US chief executive fell
below three years, according to Headhunters and
How To Use Them*, by Nancy Garrison Jenn.
By 2003 annual worldwide revenues
had collapsed to something between $5bn and $6bn.
The biggest firms, Korn/Ferry International and
Heidrick & Struggles each shed about 700 staff
during this period.
At the same time firms were forced
to indulge in price cutting and diversification,
introducing new business streams in order to offset
the losses in pure search. Some of these businesses,
such as coaching, management assessment, board
practices and HR outsourcing have become important
features of the larger firms.
The downturn also led to a few
big name departures who sometimes took the opportunity
of leaving a larger firm to set up smaller partnerships
or “boutiques”, sometimes specialising
in a particular sector. These smaller firms tended
to make up what they lost in scale by maintaining
closer client relationships that were less likely
to be affected by the “off limits”
issues facing bigger firms. The so-called off-limits
problem arises when a headhunter wants to recruit
from a former client but is barred from doing
so by a previous contractual agreement.
Such concerns were often overlooked
during the boom years when some companies ignored
the usual etiquette owed to clients. Among the
questionable practices introduced at this time
was “parallel processing” –
offering the same candidate to more than one client
on the basis of who could move the fastest. The
practice was similar to gazumping in the house
market. In fact there are a number of similarities
in the trades in houses and executives. Standards
in both sectors tend to fall when the markets
begin to overheat.
There are signs that firms that
have benefited most from the upswing in business
are those that have tried to concentrate their
efforts on service quality. For boutiques this
is evident in the way that assignments are handled.
The headhunter you meet tends to be the one that
executes the assignment. This was not always the
case when big firms tried to bulk up their revenues
as they pursued ever greater sales volumes.
That the big firms have been
fighting back was confirmed in the March issue
of Executive Recruiter News, a US-based industry
newsletter, that noted a 38 per cent increase
in worldwide fee revenue at Korn/Ferry for the
12 months to January 31, 2005. This big gain was
matched by a 39 per cent growth in fee revenue
for its important North American market.
The revenue growth has consolidated
Korn/Ferry’s position as the world’s
largest executive search practice with $438.10m
in 2004, well ahead of second placed Spencer Stuart
that recorded $378.10m fee income in the year
to September 30 2004. In terms of revenues today
there is very little difference between Spencer
Stuart, third placed Heidrick & Struggles
($375.40m worldwide fees in 2004) and fourth placed
Egon Zehnder ($335.70m) in the ERN rankings. The
final member of the big five is Russell Reynolds
Associates with $272.75m in 2004 revenues that
rose by 35 per cent. Indeed all of these firms
enjoyed double digit revenue growth, a marked
contrast to 2001 and 2002 when revenues across
the whole industry fell by 22 per cent, then 16
per cent respectively.
The big improvement after a fairly
flat year in 2003 reflected increasing job creation
at senior levels across most industry sectors
and across most regions. The North American market
accounts for about half of all executive search
business, with about 35 per cent of revenues sourced
in Europe and Asia, Latin America and Africa absorbing
most of the remaining 15 per cent. But firms believe
there are strong long term growth opportunities
in China, India and Russia, says Ms Garrison Jenn.
The big question for clients
however is: has the shakedown experienced in the
industry done anything to improve service levels?
Giles Crewdson, UK managing director of Korn/Ferry
believes that much of the industry is re-shaping
itself around a professional service format where
client needs are met by team responses in which
people share knowledge around the firm.
This does not sound to be a million
miles away from the Egon Zehnder model where its
partners have consistently presented themselves
as consultants working for the overall benefit
of the firm. Egon Zehnder charges fixed fees for
its searches and partners are paid a salary unlike
the “eat what you kill” system promoting
star performers that still dominates the marketplace.
“I think the Egon Zehnder
model going forward is something we have to look
at,” says Mr Crewdson. “There is a
link between how you reward people and how you
“The contract is between
the client company and the headhunting company
first and foremost. Then there are the people
working on the assignment. That requires us to
move ultimately from individuals to teams,”
Beyond this rare recognition
for the strategic merits of an industry competitor,
his remarks are revealing for two reasons. Firstly,
they demonstrate a growing confidence among the
industry leaders that they can best exploit their
size advantage by securing better co-operation
and integration across the their international
Secondly, they signal a divergence
in the competitive approaches of boutiques and
larger firms. Korn Ferry’s diversification
in to other human resources services such board
assessments and the deployment of psychometric
testing is a sign that it is moving closer to
its roots in professional services. Lester Korn
and Richard Ferry left what is now KPMG, to set
up Korn/Ferry in 1969.
If a more professional approach
is indeed the future for headhunting it is to
be hoped that search businesses begin to exercise
more influence on the diversity of boards. In
the recruitment of non-executive directors, the
opposite seems to be the case with few signs that
search firms have resisted the flight to conservatism
displayed by boards in the wake of corporate governance
A new report from Heidrick &
Struggles, Corporate Governance in Europe, What’s
the Outlook, based on a study of 300 of Europe’s
leading companies found that the average age of
board directors is almost unchanged at just over
the age of 58. As for diversity, the report finds
slightly fewer foreigners on domestic boards –
16 per cent – than the 17 per cent recorded
two years ago when it last conducted the survey.
The proportion of women had increased from 6 per
cent to 7.3 per cent. The biggest changes, of
course, have been in pay, up from 55,000 Euros
on average in 2003 to 63,500 Euros this year.
* Headhunters and How to
Use Them, A Guide for Organisations and Individuals,
by Nancy Garrison Jenn, is published by the Economist
in association with Profile Books, price £20.
as a pdf file