Today's 4Q earnings/2012 report by Heidrick & Struggles reveals what's been known for quite some time: Executive search is on a downward path -- or spiral if you prefer dramatic effect. What remains to be seen is where this downward trajectory eventually lands.
The executive search industry now comprises two groups: The disrupted or large publicly held firms that are trying to change and the disrupters, or smaller and independent firms that love to tweak the big way of doing things. The large publicly held firms, Heidrick and Korn Ferry International, continue to show why being public makes little sense while the privately held firms, Spencer Stuart and Russell Reynolds, go about their business quietly under the radar. To those close to the wider picture, the disruption is masked by across the board growth in the number of executive searches such as what Peter Felix at the Association of Executive Search Consultants likes to cite in expensive reports.
The big firm way is no longer as big as it once was. Nor is the executive search function as standard as it once was. The pie has shrunk, and in the overall picture of recruiting, executive search is declining at a pretty rapid pace with the growth of LinkedIn and more corporations pulling searches -- and recruiters -- in house. Major business media have reported at length on this trend starting with the Wall Street Journal and then Bloomberg Business Week.
One side note: As a large firm recruiter puts it, the movement to in-house recruiting is nothing new. Corporation A, let's use the Coca-Cola Company as an example, loves to publicly boast about how they're bringing the function in-house to reduce expenses. Then whoever gets the big title/position turns around and runs the expenses right back up only to be questioned later with, "why are we getting such bad or mediocre candidates?" Attention then shifts back to outsourced service provider and the cycle lathers, rinses and repeats.
The lone exception to the shrinking pie continues to be where brand value resides at the Top or CEO and board-level. Every major Fortune 500 company facing scrutiny has used one of the Big Five firms, and until a major company board publicly states they're not going to use an executive search firm then it's business as usual. (Note: Boards don't generally issue those types of statements.)
Granted the actual work is different now. A few years, Spencer Stuart started re-framing CEO turnover as "internal and external transition." This simply reflects how Fortune 500 CEOs have remained largely intact reversing an earlier decade's fascination with churning and burning the position. Boards continue to perpetuate the status quo despite growing investor pressure. The old days when a major company conducted a major CEO search in the dark are now officially over and have been for some time. Throw in all the other services that are growing by leaps and bounds, coaching, on-line assessments, culture shaping, succession planning, etc. and the mix gets pretty, well, mixed up pretty fast.
A CEO of a firm asked last year, "where do you think this industry ends up?" Who knows, hard to tell. Here's the only certainty that you can take to the bank: The most valuable service performed at the top of the house -- assessing, vetting and informing -- selection of C- and board-level leadership, will not only survive but will prosper in a different form. There's simply too much at stake for these all important decisions not to be done fully and completely with the help of objective third-party advice. Especially now with risk aversion at an all-time high and boards scared to death they're going to make a big public mistake.
The problem is that the value of executive search was sold out long ago in the name of money and profits, which are now dwindling thanks to disruptive change that only comes around once in a generation. Unfortunately or fortunately depending on your view, disruptive change is now the name of the game. The individuals and firms who adapt the best to this dynamic will lead the industry forward; the ones who don't will die or move on to other platforms. Everyone will ultimately get stronger, assuming you're a free market capitalist. If you're not, well, the executive leadership marketplace isn't for you.
2 comments:
Following is feedback to yesterday's post on the executive search industry. From the head of an independent firm who also used to work in a big firm:
"...If the search firms wished to truly flourish, it seems to us that they should view their activities as at the confluence of capital, human capital and information. To do so requires a Lazard style approach of less volume with greater impact...requires higher skilled and insightful professionals...advice and outcomes over process.....
These firms see themselves as recruiting and leadership organizations.
Ok, I get that. In fact, that is all they know in a world that has evolved and seeks solutions that deliver a velocity of value.
Companies and their boards are being increasingly influenced by activist shareholders who care only about enhanced value and speed to achieve it....care nothing about management evaluations, team building, org structure, emotional intelligence of the CEO et al.
Activist influence will be greater in the next few years than it is today and the large search firms are not prepared nor do they even have a plan to meet this challenge. Frankly, I don't think they even have a clue of how to address it.
Bottom line...their contribution isn't valued by this increasingly influential investor class.
And, accordingly, they are increasingly pressured for volume ie relegated to be a pharmacist who takes the job description and fills the prescription...little judgment and less value to the increasingly important large scale investor and influencers.
The bottom line is that the risk reward of these firms is now tilting away from value, i.e. a higher beta.
I wish to thank our fellow competitors for not intruding in our niche. Certainly, we don't want to play in their ever shrinking sandbox.
The goal behind selecting recruitment agency is not simply to find the most obvious candidates but to recruit the right people: they need to be a great fit for your company.
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