Spencer Stuart is remaking the GM board after the company named Edward J. Whitacre, Jr. chairman. See yesterday's post for our POV on this latest installment. http://povblogger.blogspot.com/2009/06/stuck-in-time-machine.html Summary: The more things change, the more they stay the same. Not to mention: Why do they need a search firm to find Ed Whitacre? Guess the answer is because the government told them to.
The latest flurry of high profile activity doesn't mean search firms are immune from change -- or that everything will remain in current form. Far from it. Every major search firm active in North America, with the exception of Egon Zehnder, has been forced to cut staff to the bone. Even the top privately held firms, which love to talk about the advantages of not being public, have whacked away forcibly within their ranks. Russell Reynolds reportedly has experienced four cutbacks during the past 18 months, while Spencer Stuart has cut staff for the second time since 2001.
What's leading the contraction? Well, for starters, the loss of good paying jobs at every level. Unlike the previous two recessions, this one has spared few levels except for CEOs, which (shock!) are the buyers who along with their boards generally hire search firms. Regrettably losses have not ratcheted down all the blah-blah about "talent war" and "shortage of qualified workers."
What the downward spiral has brought to the surface are a couple realities, which will either be dealt with or held in contempt at the firms' peril. First, the most sacred cow: How big firms are paid by clients. Pricing is getting whacked like a pinata. Anecdotal evidence suggests the traditional payment structure -- retained fees/expenses or one third of placement's first year salary -- will be revised as a result of the current recession. Some industries, such as private equity, have already forced their own variation. Other client buyers are asking that the final payment be paid upon delivery of a hired hand. At least one middle market search firm, CTPartners, is doing executive-level work for a flat fee and then asking for more business when the market turns.
The second reality is search as a traditional practice has grown dated by not innovating quickly enough to keep up with what's going on in the marketplace. Companies can't afford to get the leadership vs. management question wrong so they're turning more inward to more controllable practices, such as succession planning and development. Effective succession, such as what unfolded at P&G this week, doesn't require putting out a search. Then there's the simple reality that many inside companies don't have enough to do so they're handling recruiting themselves. Or the chosen few, such as GM, that require political cover.
The large publicly held search firms are currently caught in these crosswinds and have invested in two models, search and advisory. They'll tell you the businesses are complementary. But that's like saying you're a dentist and doctor, too. Talk to some big firm consultants and they'll tell you they don't even know what advisory services are offered by their own firm. Until the marketplace embraces one more than the other, then the muddle will remain.
Final thought: Only about 10 percent of the wider business public knows what executive search is. Even fewer fully understand "advisory," present company included. That leaves at least 90 percent left to offer up conjecture on something that they don't know anything about. What others do get are high profile brand names working in tumultuous situations. It's difficult to see that dynamic changing as long as Fortune 100 companies and their executives remain in existence. Unfortunately, or fortunately depending on market position, equally difficult to tell is what the major search firms will look like when the recession is over.
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Addendum: If you haven't seen the following gem on dealings between Whitney Group LLC and Hunt Scanlon, then you may want to: http://www.recruitingentrepreneur.com/2009-FEB.pdf. Not sure about the source, but at the very least, issue begs for an industry re-examination.
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