June 2006 – Headhunters threatened by regulation

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

Headhunters, like most professional service firms, rely extensively on client relationships for repeat business. If a company has received good service from a firm there seems no reason why it should shop elsewhere.

But the growth of some search firms during the late 1990s led to fears that recruitment was becoming commoditised, particularly in the mid-level finance and IT sectors where some companies were buying accountants and programmers by the batch-load and where some search firms were tempted too often to take on more business than they could reasonably service.

In those circumstances it was inevitable that claims would emerge of deteriorating service levels. Another problem is the dominance of a handful of big firms in a business that numbers thousands of operators, including some small, specialist boutiques that rarely receive recognition in the media but which may be operating at the very highest levels of their chosen sectors.

Indeed some of the smaller firms are run by highly experienced headhunters who have broken away from the firms 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 firm. Mr Brudno is an example of the established veteran who built his reputation in a much larger firm, Leon A. Farley Associates.

The publication of leading executive firms, ranked by revenue, he argued, 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 wrote.

So how could an organisation rank headhunting firms for 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?

What kind of measures would be useful? How do you measure recruitment success? If I were a client I would want to know about the average time to completion of an assignment. I would want to see the completion rate and I would want to know something about the quality of candidates. This last point is a difficult one to assess. Any recruiter can compile a shortlist but the quality of those shortlists can vary enormously. It doesn’t matter how quickly a position is filled if the successful candidate turns out to be a dud.

Perhaps search firms should be expected to track the success of their placements – as I’m sure many do – and provide prospective clients with “success in job” data.

One of the problems surrounding existing placement rates is that not every firm applies the same definition of a successful assignment. 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, has chosen to avoid the ambiguity over completions by concentrating on placements that it defines as filled positions, whether from outside candidates or from internal appointments.

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 deliverable in some firms has dropped significantly,” says Brian Sullivan, chief executive.

He recalls one competitor firm – 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 instigated a number of measures designed to provide more information on the search process. One is a progress audit – a kind of quality check - 40 days in to an assignment carried out 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. This shows the client that he has hired the firm rather than an individual consultant,” says Mr Sullivan. Finally the firm carries out a post-search client satisfaction survey to help consultants improve their service.

While he says he is pleased at the firm’s placement rate, Mr Sullivan believes it can be improved. “I think it can get in to the low 80s,” he says. Will other firms follow suit? For now, he says: “I think that 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 dictating that the consultants who win the business get the lions’ share of the fee – still the practice in many big firms - Christian & Timbers has begun paying the people who execute the search a larger percentage of the fee than used to be the case.

“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 a while back in this column by Giles Crewdson, UK managing director of Korn/Ferry who noted the way much of the industry was re-shaping itself around a professional service format where knowledge is shared around firms and where 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 firms 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 grown 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. She adds: “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 firms will need the 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 an increasingly sophisticated online recruitment industry.