When You Have to Look Outside

The Conference Board Review^® Article

The state of executive recruitment.

By Joseph Daniel McCool

Joseph Daniel McCool is senior contributing editor of ExecuNet, featured columnist for Search-Consult, and a columnist for BusinessWeek. Adapted from Deciding Who Leads: How Executive Recruiters Drive, Direct & Disrupt the Global Search for Leadership Talent (Davies-Black). ©2008

The mostly unwritten rules that have governed the way companies recruit their senior leadership have gone unchecked and unchanged for about ninety years, since the very first executive-search consulting practices were conceived inside some of corporate America's burgeoning management consulting firms. That may explain why, today, executive tenure and public confidence in corporate management are at an all-time low while the demands of organizational leadership have never been higher.

The truth is that executive recruiters are both part of the problem and part of the solution. Because they drive, direct, and disrupt the global search for leadership advantage, they can be both builders and destroyers of organizational culture, earnings, teams, product delivery schedules, customer relationships, R&D, momentum, and succession plans. They shape the culture and performance trajectory of organizations as no other outside advisers to management can.

Executive recruiters have long shaped corporate employers' views of the supply-and-demand dynamics of the executive labor market because theirs are the voices, perspectives, experiences, and opinions of the free-market economy. Their insights, coupled with their access to external leadership talent, have enabled client hiring organizations to compete in that market. Recruiters are the silent vanguard — way out ahead of the Wall Street analysts — when it comes to judging corporate management performance and identifying employers of choice.

When an executive plans to leave an organization or aspires to join it, the executive recruiters are often the first to know. They know exactly what it takes to lure individual executives at outstanding organizations and how to persuade such talented performers — most of whom aren't looking for another job — to come and work for their client organizations. They know what's behind the exodus of key managers from underperforming and dysfunctional organizations and why they should be leaving. They know precisely how much one company paid to recruit a vice president of marketing from a competitor. And they can tell clients about another company's failure to sweeten its offer to land a sought-after executive, who ultimately rejected the overture.

What's more, these executive-talent scouts find themselves in an especially influential role when it comes to either accelerating or de-escalating the migration of executive talent. This has huge implications for corporate earnings.

In some of the clearest terms — those relating to executive pay — executive recruiters continually challenge conventional wisdom by convincing those most interested in luring the competition's best-performing executives that they'll have to step up and pay more to do it. Executive recruiters have a vested interest in selling the potential rewards of recruiting executives externally, and they've been particularly good at selling the "Superman" qualities of potential CEO recruits.

Generally speaking, they market organizational change and change agents because employers long ago came to terms with the fact that change is a necessary fuel for organizational growth, and also that they'd have to pay at least a 15 to 20 percent premium to recruit someone from the outside, presenting a significant income opportunity for those positioned as the lubricants and third-party facilitators of the executive-labor market. And while executive recruiters have continually emphasized the value of change, thereby escalating executive compensation, they have concurrently inflated the amount of their fees — making theirs an especially profitable business exercise.

These market dynamics have often put internal candidates at a decided disadvantage, partly because they lack an external advocate and partly because executive recruiters have succeeded in convincing the top brass that they need to add something to stay ahead of or even keep up with the competition. In fact, the prospect of improving their organization's lot while weakening the competition has always attracted corporate chieftains to the idea of recruiting from the outside rather than promoting from the inside.

The best-known executive-search firms have, over the years and by virtue of their predilection for recruiting the alumni of Harvard, Yale, and highly regarded business schools, largely failed to bring diversity to the senior-management ranks, despite being in a remarkable position to do just that. That's because their Rolodex files were, in years past, populated almost exclusively by the white, male, and middle-aged — the exclusive demographic group they would rub shoulders with at the country club, on the golf course, and in the boardroom. Today, their computerized candidate databases can include profiles on more than a million outstanding executives from around the world, but they are only slightly more inclusive of women and minorities than the old Rolodex files, and still heavily populated by the social and economic elite.

It is easier for search consultants to recruit someone who looks like the person who agreed to retain them (most often the CEO or a senior line or business-unit executive) than to challenge the job specification (and risk losing the search assignment) by questioning whether the organization is sufficiently diverse.

In the consultants' defense, this failure to diversify is equally the failure of entrenched business leaders, who refuse to consider any candidate who hasn't already held the same title with another employer. This cycle feeds on itself, ensuring that few not already in positions of authority will ever ascend to the corner office, or even get within sight of it.

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