Executive Recruiters: Three Risks
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I was recently made aware of a small business owner who felt he needed a COO. So he retained a large, nationally-known executive recruiting firm and spent thousands of dollars on the search. He hired the recommended candidate (more dollars spent) and then found out within the first year that the new COO was incompetent, abusive, and detrimental to his business. I find this to be a common story in our business although the evidence is only anecdotal.   One source estimates that less than 40% of candidates hired via executive recruiters are successful.

The attraction of executive recruiting firms is obvious: they act as counselors, they have more capability to search than in-house resources do, and they have a lot of experience in finding and placing executives. What’s not to like? A few risks need to be recognized…

Risk #1: The recruiter doesn’t do competent background checking on candidates being presented to management. I’m aware of one case where an exec was fired from a major aerospace company, only to be touted to another large company by an exec recruiter. The client company hired him and after he cost them hundreds of millions of dollars in lost business, they fired him. Once again picked up by an exec recruiter, he was sold to yet another major company client in a top position where he failed once more. This entire cycle of lost business for hiring companies could have been avoided by a few key phone calls.   But typically, exec recruiters only call the HR department to verify employment and HR departments will never tell the truth about an ex-employee.

Risk #2: Exec recruiters are incentivized to place bodies. The retainer is nice, but the hiring bonus is the true goal.   The recruiter doesn’t have to live with the results of the hire…the client company does. This means that the recruiting firm is all about presenting candidates who look good, talk good, and have good looking (though not always factual) resumes….think of the recruiter as a sort of “fluffer.” They are in the sales business and so long as the candidate survives for the minimum guarantee period—anywhere from 90 days to six months—all is well in the business model of the recruiter.

Risk #3: The extensive investment a client company makes in the recruitment process (30% or more of first year total compensation of the candidate) makes the client very reluctant to admit a mistake or to take corrective action and start all over again. This reluctance has real consequences for both the top and bottom lines. In the example above, the large company who hired the problematic executive lost over $300 million at the revenue line. That same company, some years later, used an exec recruiter to hire a CEO and once again, the mistake cost them over $2.5billion at the top line. Reluctance to admit a mistake is very costly.

Being in the business of cleaning up after hiring mistakes, I have some suggestions.

  1. If you feel the need for a top executive in your organization to turn things around, grow the business, resolve issues, etc. don’t immediately reach for the phone to call an executive recruiter. A new hire with a major salary and equity commitment as well as a golden parachute may be a risk you cannot afford at your inflection point. Think about an interim executive team that can stabilize, revitalize, and provide you a blueprint for progress…and then help you select the right new hire.
  2. If you do insist on using a recruiter to make a top hire, do your own background checking and don’t be bashful about it. Make the calls, work your network, gather the facts before you commit. Check everything in the recommended candidate’s resume…dates, accomplishments, titles, claims, assertions…everything.
  3. Insist on a guarantee from the recruiter of at least six months and preferably a year where if the candidate proves bogus, you get all of your fees back with no further obligation. Don’t be shy about invoking this clause…the loss of time is nothing compared to the prospective loss of customers, revenue and profits.
  4. Lastly, don’t be unrealistic about your job specifications. Superman is not available to fill your COO slot nor is Wonder Woman. Narrow your spec down to what is truly important and measurable. Be very leery of specs written by your HR department…is an MBA really necessary for the manager you seek? Does she really need 35 years of identical experience?

In these troubled times, turnover in the management ranks is running well above average. Many businesses are going downhill because they are poorly managed. The need for common-sense hiring and engagement practices is self-evident and urgent.

 

Pete Janke