Selecting a Retained Executive Search Firm
Competence
You are hiring a retained executive search consultant and his or her team, not a firm. It is difficult for an outsider to judge a retained executive search professional’s competence. It can be hard to separate someone with true retained executive search execution ability from someone who merely makes a good first impression. Insight into the following factors can help you make an informed choice.
Past Track Record
The best indicator of a retained executive search professional’s ability is his or her track record. When you inquire into a consultant’s experience, be sure to differentiate between searches the firm has completed, versus searches the specific consultant has completed. Beware of senior consultants who “sell” the work and pass it on to another – typically junior – coworker to execute. Specifically ask who is going to make the initial calls. This task is most frequently handed off to junior staff who lack the requisite experience to engage the most promising, heavily recruited prospects.
When gauging a retained executive search consultant’s performance, consider two key metrics: completion ratio and average time to complete. Completion ratio measures what percentage of a consultant’s searches ended with a successful placement. In the retained executive search industry, this figure typically hovers around two-thirds. (In other words, in a full one-third of searches, the client paid a retainer and was left with no results after months and months of looking. Clearly not a laudable statistic.) However, some individual consultants have completion ratios in the 90% range. Seek out these execution superstars by asking the question specifically and getting a hard, definitive answer.
Second, within the retained executive search industry the average time to complete an assignment averages slightly in excess of 180 days—half a year! However, high performance consultants can average as low as 70 days. Again, seek out these individuals by asking questions and getting hard answers. “We aim to complete our searches in 90 days” or “We recently completed a search in less than 100 days” are inadequate responses.
How important is domain expertise?
Domain knowledge is important, but it is best not to define the domain too narrowly. Terms like “high tech” or “financial services” are in fact too broad. However, to do a search for a storage software company, a consultant that has done work of the same seniority level for both software companies and storage hardware companies, should be acceptable. It is far more important that the consultant have a stellar track record of completing assignments successfully. Such execution ability is rapidly transferred across domains.
Reference Checking
Talk to at least two of your consultant’s prior clients. What did they like about working with this consultant? Dislike? Would they hire this person for another retained executive search? How is the consultant best managed? What would they do differently the next time around? How well did the placed executive perform? By examining the caliber of the consultant’s placements, you can get a good measure of his or her skill level.
Also, talk to one or two of this person’s placements. Did the consultant articulate the opportunity’s potential effectively? Keep the candidate well informed of where he or she stood in the search’s progress? Would this person hire the same consultant to perform a search in the future?
Everyone knows reference checking is a must, yet surprisingly few do it.
Bandwidth
The most important factor in how quickly your retained executive search is completed is how much attention the consultant and his team devote to it. This is typically a function of the firm for which the consultant works. “Major” search firms leverage their senior consultants heavily with junior staff. In many cases (especially when the economy is hot) these consultants may carry 8-10 or more projects simultaneously. This means that your project might only be worked on half or one day per week at best. (No wonder the large firm’s average time to complete is 180+ days!) Hire a consultant working on no more than 3-4 projects at a given time.
“Blockage”
Search firms do not recruit from their clients. This could mean that they cannot recruit from the specific companies you would most like to target. Such “blockage” is a significant impediment for the major search firms that serve large numbers of clients.
Be sure to find out exactly what companies are “off-limits” before engaging a firm to do your search.
Large Firm v. Smaller Firm
Inexperienced buyers of retained executive search services often feel safer dealing with a major, multi-national firm. The truth is that you are hiring an individual consultant, not a firm. Despite statements to the contrary, there is actually very little “cross fertilization” between search teams at major firms. In fact, there is often competition between search teams within the same firm for the best candidates. If a firm has numerous searches within a specific industry sector, several consultants within that firm might be vying for the same candidates.
A smaller firm has fewer clients, and hence fewer conflicts in serving their clients. You will also have more clout with a smaller, more personalized retained executive firm. Just be sure the firm has experience filling positions at the required seniority level.
Costs
Retained executive search firms almost always charge one-third of the successful candidate’s total annual cash compensation (including bonuses at target). This fee is payable whether or not the firm actually completes the search. They are also reimbursed for their out-of-pocket expenses, typically associated with candidate travel. In addition, all the major search firms charge additional, “allocated” expenses of 15-18% of the total retainer amount. The stated rationale for this charge varies, but in fact it is a hidden tax than can add $15,000 or more to your total cost. Look for a retained executive search firm that does not charge for allocated costs and is reimbursed only for out-of-pocket costs that are agreed upon in advance.
Contingency search firms charge only if they place a candidate. While this would appear to reduce your risk, such firms work on a large number of assignments simultaneously and offer very little personalized service. Also, few of these firms work at the executive level. Using financial terminology, such firms are on the “sell side,” often representing candidates they hope to place. In contrast, the retained executive search firms are on the “buy side,” devoting a large amount of time conducting a highly tailored and intensive search for a specific client with an urgent, senior level, need.
Clients often overlook the largest cost of all: the opportunity cost of not having a top-notch executive in place and advancing the company. This opportunity cost is just as real as out-of-pocket costs. In the case of fast-rising tech companies where the firm’s progress and valuation – if not outright survival – can be affected, having the search completed quickly and with high quality outweighs the fee.
Savvy retained executive search buyers are rarely cost driven. Rather, they select a retained executive search consultant they feel will drive the project through to a successful conclusion. Look for a retained executive search consultant that “takes it personally,” and is truly committed to getting it completed successfully and quickly.