Corporate headhunters - The Economist

Corporate headhunters - The Economist

2/26/2020

Take me to a leader - Corporate headhunters are more powerful than ever | Briefing | The Economist

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Briefing

Feb 6th 2020 edition

Take me to a leader Corporate headhunters are more powerful than ever

The benets of using them are hard to measure. They may be most useful as diplomats

Feb 6th 2020 GENEVA, LONDON, NEW YORK AND PARIS

F or a few months last year Matthieu (not his real name) was on the most important team in nance. swift , a global payments-messaging service owned by 11,000 banks, was looking for a new chief. So was cls , an institution that settles four-fths of worldwide foreign-exchange turnover. Each had hired Matthieu’s rm to nd one. He was aware of the stakes. Both outcomes were going to “impact everything” that money touches, he told The Economist at the

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Take me to a leader - Corporate headhunters are more powerful than ever | Briefing | The Economist

time. His voice barely rose over the mellow music of a Manhattan hotel’s bar but nonetheless it carried a bass note of self-importance.

The rm got the job done. Javier Pérez-Tasso, swift ’s former Americas head,

took over as boss in July. Marc Bayle de Jessé, an ocial at the European Central Bank, started at cls in December. The placements testify to the brokering brawn of executive-search rms. The industry’s top tier is busier than ever. The bosses of 311 of America’s 3,600 listed rms left their jobs in 2019—the highest share on record. Someone needs to nd their replacements.

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Like Matthieu, the search industry is secretive, and numbers are hard to pin down. Estimates from aesc , a trade body, suggest that the business has enjoyed strong growth for much of the past 30 years—with the exception of slumps after the dotcom bust in 2000 and the nancial crisis of 2007-09 (see chart 1). aesc reckons global executive-search revenues grew by 12% in 2018 and that many rms had their best year ever in 2019 (for which it is still crunching the numbers). Today, the biggest search rms hold sway over who rules many of the world’s most potent organisations. The best deserve their hefty fees, clients say. But the industry is facing increased scrutiny, amid suspicions that it may be holding back performance and diversity at the top. Executive search—headhunting, in the vernacular—emerged in the post-war boom, when fast-growing rms in Europe and America began ghting over experienced leaders. The battle intensied in the 1970s as the internationalisation of business turned a consulting backwater into a mainstream profession. One recruiter’s ex-boss recalls opening 30 outposts that decade, from Singapore to Sydney. Just as quickly, the business earned a reputation for sloppiness. Recruiters were “golf-course, back-slapping sales guys”, as one veteran admits. Candidates in their Rolodexes were lazily recycled. Criteria for drawing up shortlists were often a mystery, says Angeles Garcia-Poveda of Spencer Stuart, a search rm.

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Fifty years later they have become tightly woven into the fabric of corporate life, and are seen by most multinationals as indispensable. Five giants—Spencer Stuart, Heidrick & Struggles, Russell Reynolds Associates, Egon Zehnder and Korn Ferry—dominate ceo search. This quintet, known as the “Shrek” rms, earned fees of $4.8bn in 2018, 14%more than the year before and 43%more than in 2014, according to Hunt Scanlon Media, a trade publisher. Spencer Stuart places an executive in a leadership role or boardroom 11 times a day, says Ben Williams, its boss. (The Economist Group has recently employed Egon Zehnder and Heidrick & Struggles to ll senior roles, including ceo and chairman.) Interviews with more than 50 insiders suggest that 80-90% of Fortune 250 or ftse 100 companies pay headhunters to nd their ceo , even when the successful candidate is likely to come from within a rm’s own ranks. Among the next tier of companies, perhaps half do. Universities, sports clubs and ocialdom enlist them, too. Last year their clients included English football’s Premier League and the International Paralympic Committee. As the big headhunters have grown bigger, boutique rms have struggled to keep up. Nonetheless, some with deep expertise in specic industries or corporate functions have thrived, says Nancy Garrison Jenn, who helps multinationals headhunt the right headhunters. True Search, a tech-focused outt, saw its revenues jump by 64% in 2018. Lower down the scale, the rise of online social networks has clobbered recruiters specialising in mere mortals like department heads and middle managers—since, as one puts it, “anyone can buy a computer, get a LinkedIn licence and call themselves a search expert”. The big headhunters have beneted from the conuence of four forces. First, boards are looking for an ever broader skillset in modern ceo s. Bosses should be physically t to withstand the brutal workload, comfortable dealing with the media and, increasingly, woke. They must grapple with complexity as big rms get bigger and industries converge—giants like Apple or Amazon are at once retailers, consumer-goods companies and tech rms—and with new threats, such as cybercrime.

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Second, the rise of private equity ( pe ) means greater management churn at rms subject to buy-outs. America has some 8,000 pe -backed companies, double the number in 2006. Headhunters hustle in the hope of supplying bosses for pe rms’ entire portfolios. A partner at a buy-out giant says it works with just three providers because it wants vip treatment. The third reason for the headhunting boom lies in emerging markets. Scions of business dynasties in places like India increasingly want to devolve control of subsidiaries to professional managers, says Dinesh Mirchandani of Boyden, one of the oldest search rms. Startups like Ola, a ride-hailing rm, are looking for executives to help them conquer foreign markets. China, too, has champions keen to expand abroad but lacks managers with international expertise. Lastly, boards and regulators are increasingly urging rms to plan for succession years in advance—and not, as in the past, to rely on a name in an envelope, to be unsealed should the boss be hit by a bus. Headhunters gladly help by benchmarking internal stars against potential external candidates. The pressure to plan ahead has led to the growth of all sorts of other ancillary services too, from leadership development to board-eectiveness assessment. Those now account for 43% of revenue at Korn Ferry, the largest Shrek. Growth in demand has aected headhunting’s supply-side. Nobody has ever studied to become a headhunter but the profession is becoming more diverse. Those serving in its ranks include ex-engineers, a former Olympic gymnast and an erstwhile neuroscientist. The big ve are big employers of former McKinsey consultants. New recruits like the fast pace and the opportunity to interact with

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Take me to a leader - Corporate headhunters are more powerful than ever | Briefing | The Economist

boards.

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They also enjoy the money. A median partner at the Shrek ve typically earns $600,000 a year, according to industry veterans. The top 1% get $3m-4m, most of it bonus. Those hiring for nance usually earn the most. Seven-gure slice Generous pay comes courtesy of eye-watering fees. For decades headhunters charged one-third of the chosen candidate’s rst-year compensation (including any bonus). Caps became more common over the past decade as ceos’ salaries climbed into the stratosphere, fees more often exceeded $1m—and clients started to rebel. Now fees at the top end are typically limited to between $500,000 and $1m, though the boom in ancillary fees means overall revenues continue to grow fast. The search for a ceo takes anywhere from 90 days to a year. The board forms a committee to oversee the process, which the headhunter helps shape. It then helps directors crystallise what they want the new boss to achieve, such as boosting prots or expanding into new markets, and draws up a list of required competencies.

Once the actual headhunting begins, recruiters hire armies of researchers to

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