Introduction: A Consultant’s Insight
I don’t usually fully endorse other points of view, but this fellow consultant has hit the nail on the head. Senior-level management and leadership professionals would benefit from reading—and applying—these insights. Check out the article here.
Big Search Firms: Surviving, But Under Pressure
Whether you love them or hate them, the large retained executive recruiting firms are still standing. Two, in particular—Spencer Stuart and Heidrick & Struggles—continue to be at the forefront, making headlines with major players like General Motors (GM), AIG, and Freddie Mac.
Spencer Stuart has taken on the task of remaking the GM board after the company appointed Edward J. Whitacre, Jr. as chairman. For our thoughts on this development, see our previous post: Stuck in a Time Machine. In short: The more things change, the more they stay the same. But the bigger question remains—why did GM need a search firm to find Ed Whitacre? The answer, it seems, lies in the government’s directive.
Despite the flurry of high-profile activities, the reality is that search firms are not immune to change, nor will they remain unaffected by the current economic climate. Far from it.
The Forces Driving Contraction
Search firms, especially the major ones, are facing significant challenges, with staff cuts becoming more common. Russell Reynolds has reportedly gone through four rounds of layoffs in the past 18 months, and Spencer Stuart has cut staff twice since 2001.
What’s driving this contraction?
The Loss of High-Paying Jobs: Unlike previous recessions, this one has hit jobs at all levels, sparing few except for CEOs—the very people who hire search firms. However, the so-called “talent war” and “shortage of qualified workers” rhetoric has largely been put to rest in the wake of this downturn.
Pricing Pressures: The traditional payment structure—retained fees or one-third of a placement’s first-year salary—is being revised in response to the recession. Some industries, like private equity, have already adapted their payment models, while others are asking for payments to be made only upon successful placement. Firms like CTPartners are even offering executive-level searches for flat fees, requesting additional business when the market improves.
The Evolution of Executive Search: Is It Keeping Up?
Traditional executive search practices are facing growing pressure to innovate. Companies are turning inward to manage leadership needs through succession planning and internal development, bypassing the need for outside recruiters. For example, companies like Procter & Gamble (P&G) are showing that effective succession doesn’t always require a search firm.
Some companies simply don’t need external recruiters, while others, like GM, require them for political cover. As the market evolves, search firms must either adapt or risk becoming obsolete.
The Search Firm Dilemma: Search vs. Advisory
Currently, large publicly held search firms are caught between two models: search and advisory. While firms claim that these services complement each other, the reality is unclear. It’s akin to claiming to be both a dentist and a doctor. Even within these firms, consultants often aren’t sure what advisory services are offered or how they fit into the firm’s overall strategy. Until the market chooses one model over the other, the ambiguity will remain.
The Public’s Understanding of Executive Search
Only about 10% of the wider business public fully understands what executive search is, and even fewer grasp what “advisory” services entail. This leaves the majority of people to speculate on something they don’t fully understand. However, most people do recognize the high-profile brands working in tumultuous situations. It’s unclear how this dynamic will change, as long as Fortune 100 companies and their executives continue to exist.
Conclusion: What’s Next for Search Firms?
While it’s hard to predict exactly what the major search firms will look like post-recession, it’s clear that the industry is facing significant changes. As the market continues to evolve, so too must these firms. How they adapt will determine their relevance moving forward.
Addendum: For those interested in the dealings between Whitney Group LLC and Hunt Scanlon, check out this article: Recruiting Entrepreneur – February 2009. While the source is uncertain, the issue certainly warrants an industry-wide re-examination.