Alfredo Assumpcao, founder and CEO Of IIC Partners' Brazilian executive search firm Fesa, best-selling business book author and one of Businessweek's most influential global headhunters, discusses why retained executive search is the best practice approach for identifying c-level talent.
Early in 2008, I started to become quite concerned about a clear trend developing - one which would become a global pandemic if left unchecked: the growing lack of talent in the world's labor markets. Of course, months later we were hit by a financial crisis that pessimists said would ruin the world. However, I was confident that the BRIC countries - Brazil, Russia, India and China - would come out almost unscathed, due to the peculiarities of each of their economies. To prove this, unlike my competitors in Brazil that let go of up to 60% of their staff, I created a company in the middle of the crisis.
The talent blackout is the greatest threat to sustainable development
The 2008 crisis led to a lull in business development that has given governments, entrepreneurs and businesses time to rethink strategy not only in terms of their local markets, but also general micro and macroeconomic structures. Indeed, in the emerging markets now, and particularly the BRIC countries, strong growth is occurring. But during these periods of growth, every sector in the emerging markets is experiencing a lack of supply of skilled workers. Even during the highest periods of economic growth it is common to find relatively high unemployment indexes, characterizing the 'quantity' and not the 'quality' of who is on the market. Although facing unemployment rates ranging from 6% to 10%, it is not in this population that business leaders in developed countries or emerging markets will find the talent they require. Governments and entrepreneurs need to address the biggest challenge to sustainable growth - the talent blackout.
Educate in order to survive
For the short and medium term, the emerging markets lack leaders and technical human capital managers. These markets need to begin to significantly invest in education, if it is not already too late. What is required is a major joint effort between government and the business sector to minimize the gap of human capital necessary for the growth of the emerging markets.
The successful companies will be those able to retain, develop and motivate their existing talent and attract talented human capital from the local market and international markets.
Academic world marching behind time
The academic world currently does not provide the environment to develop this differentiated human capital in time to meet the needs of reactivated developing economies. This is because the academic world researches the corporate world to learn, and subsequently, teach best practice and insight acquired.
Note that the academic world is still a great tool for the development of human capital. But this capital will never be ready in time to meet the corporate world demands, when they arise. Therefore, the corporate world must come up with a means of fast tracking the development of its human capital, including those fresh out of the university, so as to successfully implement new business strategies.
Every company that wants to survive, if not thrive, not only needs to have an existing team of excellent people, but robust succession plans or a 'personnel pipeline'. As well as allowing for staff development, such plans assist in the retention of key personnel and provide for fast and efficient action for when key people leave. Do not underestimate the importance of having excellent human resources managers. Ask questions like: Who? How? When? How much will it cost? Will we be able to enable our human capital with training? Are we able to train? Will we be able to retain our staff? Are we remunerating adequately? Are we motivating our staff? Do they believe in the company's strategy? How is our organizational culture? Is it favorable or unfavorable to attain high levels of productivity and profitability, enabling us to compete on an equal hand in this market that extremely lacks human capital? And ensure you have answers to all these questions.
Chaotic economies contribute to talent shortage
Inevitably, after any period of economic instability a demand for differentiated human capital appears. The new talent will arrive to operationalize new methods and procedures of a new economy, increasingly sophisticated, and more chaotic. And companies, in most cases, do not have on their teams talent acquisition professionals to find in the right time frames the required differentiated human capital. An auction of talent naturally arises because each company wants to assemble its team of talented executives as soon as possible. The company that is better prepared to reassume business, in a reactivated economy, wins the market war acquiring greater market share.
Identifying and hiring talent
The decision to search the market for professionals with strong impact on the business strategy of organizations - executives - requires a careful choice of external partners, who are highly specialized and ethical in their dealing with people. I always like to emphasize a statement that I use in my profession: "People are not commodities". They need to be treated as complete human beings. This includes taking into consideration their feelings, beliefs, values and attitudes.
Executive search process: Retained or contingency?
The choice to use an outside partner to conduct this process effectively requires some attention. To recruit executives there are consulting firms that research the market in order to identify the best professionals who meet the profile required to successfully occupy executive positions. They find the right executive, with the right criteria, who can successfully fit into the role. This process involves observing the company culture, studying the achievements of the candidates, including behavior and beliefs, which will then facilitate the selection and the best fit of the most talented person to occupy the position within the client company.
Retained executive search
The investment made by the client includes fees paid from the time the search process begins. As the name suggests, the fees are a cover charge to be paid during the search process. This is a typical consulting job that usually leads to hiring - but not always. The best executive search consulting firms in the world adopt this approach, because it ensures a process of integrity that will lead to the highest possible quality result.
These firms receive their fees only when the client hires a professional whom they have recommended. In other words, the firm works on a contingency basis, not receiving any remuneration and taking the risk of not getting paid if the candidate recommended is not hired.
The difference: Investing in scientific research
In the case of hiring a retained executive search firm, the client seeks a partner to fill a specific executive position. Payment of fees is a result of a profound research done. In contingency recruiting, there is no guarantee of the recruitment firm receiving any payment. Therefore contingency recruiters do not have much time to invest in the search and in actual research. This can mean that the best candidate may not be found. To reduce the assumed risk of not receiving the fees, contingency recruiters usually process a large number of projects simultaneously, and instead of specific research work in the market, they use databases of known candidates, seeking to match what the client wants, with the profiles of available candidates in the database.
While there is a risk involved in retained executive search as there is not a guaranteed return on investment, the risk is remote. In my experience, the main reason this occurs is when there is a change in the client's strategy during the project, thus, canceling the process. However, the chances of achieving an excellent result by finding the best possible candidate are extremely high. Retained executive search companies usually have their work backed up by high credible professional organizations, such as IIC Partners and the Association of Executive Search Consultants (AESC). Both these organizations establishes rules of procedures, high professional standards and a code of ethics that defines rights and duties in dealing with clients, executive candidates, the consulting firm itself and communities in general, including ensuring that all members receive appropriate consulting training to act in the retained executive search practice.
Recruiting in mass numbers
In the exact sense of the word, the contingent search process is sometimes appropriate when the client organization wants to play a major role in the process of screening, interviewing and negotiating with the candidates, when there are multiple identical positions to be filled and there are plenty of qualified professionals, or even when the positions are technical in nature or are junior managerial positions. The client, in these cases, seeks a contingency recruiter that replaces him/her in conducting the screening process for candidates and complete preliminary interviews before the finalists are presented.
Exclusivity in research
There are several other differences between retained executive search consulting firms and contingency recruiting. A retained executive search consultant works exclusively on the search, evaluating all suitable candidates for the position, and selecting the best to be presented to the client. Hence, contrary to the contingency recruiter, the same candidate will never be presented to more than one client. A contingency recruiter usually does not have an exclusive search contract, but only a risk contract. In that sense he/she competes against other sources in presenting candidates to the client. Therefore the same candidates - the best and most qualified, found via the internet and advertisements in newspapers and magazines - are presented to as many customers as possible in order to increase the consultant's chances of being paid. Sometimes the same candidates are also presented multiple times to the same client by competing contingency search firms, which is frustrating for all concerned.
Recruiting for C-Level
Fesa's executive search using the retained fee model, a step-by-step approach:
- Interviews with the management team of the client company, to develop a complete understanding of the context, the position to be filled and the desired qualifications of the executive to be recruited;
- Development of a summary of insights gained, including a detailed profile of qualifications and experience of the candidate required, the company's expectations and key factors for the executive's success. This summary will be sent to the client at the beginning of the project. A proposal will be sent with a work plan including a position description and how the research is conducted and the consulting firms procedures with regard to fees, expenses reimbursement, guarantees and certainty of protection for future searches in the organization;
- The retained executive search professional is available to continuously give advice to the client on everything from attracting and welcoming the candidate, to drawing up an attractive remuneration package, evaluating existing potential candidates inside the company client etc;
- The consultant and his/her search team then conduct studies and initial surveys, targeting organizations identified as probable employers of potential candidates and will access their own database to look for available candidates and sources;
- Through these searches the consultant develops a long list of potential qualified candidates. This is followed by a telephone interview to identify candidates for personal/face to face interviews and also to get from them the permission to introduce their data to the client;
- During personal interviews, the consultant makes a full assessment of the suitability of each candidate, including the candidate's interest in the offer;
- The consultant will then present only qualified candidates to the client for interviews. During the interview process, the consultant will be available to act as a mediator, depending on client's requirements, to ensure that all relevant issues to fill the position are addressed;
- Once the client has selected one or more candidates to be hired, the consultant conducts reference checks among previous employers, and in some cases even among previous colleagues, analyzing the whole previous organizational environments, where the executives had performed theirs functions before, aiming to identify the executive's personal and professional styles, focusing on professional, behavioral and attitudinal approaches. After this stage a correct basis for the decision making process for the client company will be guaranteed to assure the success of the recruitment;
- The consultant also supports the client in structuring the offer letter and helps negotiate with the candidate;
- The consultant assists the executive in all the steps necessary to leave his/her current company and begin work at the client company, in order to minimize the stress that usually comes from changing positions and employer;
- Afterwards, the consultant maintains contact with the client and the candidate hired, to ensure a successful integration into the new work environment. This involves providing advisory programs of cultural integration in order to have the executive yielding the most in his/her position in the new company;
- Finally, the client receives from the consulting firm a few guarantees: guaranteed candidate replacement without payment of new fees, if the candidate does not remain in the organization under certain circumstances and the commitment - that the consultant will not recruit from the client organization. These guarantees are valid for a predetermined period of time, usually, lasting from six months to a year. As for the executive placed, the consulting firm will never again approach him/her offering a new position or facilitate his/her recruitment, unless authorized by the client's upper management.