Head Hunters or Scalpers?

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Let me declare upfront that both the mid-career, corporate job changes in my career were intermediated by executive search firms. Both assignments were carried out with a high degree of professionalism, integrity and competence – after all, they positioned the right candidate! Sadly, though, that is not the universal experience. 

Part of the problem lies in the manner client firms engage with their search partners and another arises from the naivete displayed by (even very senior) candidates while dealing with these valuable, yet not always reliable, intermediaries. This column seeks to provide a route map of the slippery slopes of search and suggestions on how clients and candidates can secure their footing on the trek to executive choice.

There are, of course, some model firms that display high competence as well as balanced client and candidate care. Unfortunately, the barriers to entry in this business are so low and the temptation to ride just on the wind of a powerful relationship or brand name is so high that corporate India is rife with horror stories of the 'kuru'¹ that afflicts some executive head hunters. The task itself is not easy and we will look at some reasons for its innate difficulty before turning to practices that are less than healthy.

The Eye of the Needle

The selection interview is a notoriously unreliable tool for assessment. Its flimsiness is particularly exposed when the interviewer is quizzing an astute intention-reader and word spinner, which most CXOs are. Yet this imprecise and easily fakable check continues to be a significant (if not the prime) weapon in the arsenal of search firms.

As Jason Dana writes in 'The Utter Uselessness of Job Interviews', even when the candidate is being open and sincere, interviewers draw unjustified generalizations from random information. "… [I]nterviewers typically form strong but unwarranted impressions about interviewees… The key psychological insight here is that people have no trouble turning any information into a coherent narrative… People can’t help seeing signals, even in noise."² What makes matters worse, much worse, is that "[w]e tend to prefer people who are like ourselves and thus, hire people who are like ourselves. When you first meet a candidate, you’ll probably decide whether you like them or not in the first twenty seconds… After forming a 'gut feel' about a candidate at the start of the interview, we then subconsciously search for evidence that supports the feeling. And we ignore evidence that runs counter to our choice… [T]here’s another unappreciated fact: candidate interview performance has little to do with how the person will perform on the job. Some candidates … are great talkers. They have the ability to understand and articulate exactly what the interviewer is looking for in a candidate. Here’s the worst part: 81% of people lie about themselves during job Interviews …."³ 

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Preceding the fallibility of the typical interview is the haphazard and blinkered manner in which the research for coming up with the shortlist for interviewing is conducted. No less debilitating to the process are the casual and impossible-to-validate methods of pre and post interview due diligence. It is remarkable how many executives, when asked by relative strangers about a possible candidate, turn into devout followers of the Dalai Lama’s precept that: 'If you can, help others; if you cannot do that, at least do not harm them'. Added together, these infirmities are the ingredients for a perfect 'botch-job’.

I am not suggesting well-conducted search cannot improve the probability of making the right choice. But even a slight drop in professional standards in any of the critical stages of selection can lead to a sub-optimal and possibly even disastrous decision. How much more frightening the scenario becomes when we factor in the incentives and capabilities of most search businesses.

Handy Incentives

Bertrand Russell gives a ghoulish instance from colonial Belgian Congo of poorly conceived incentives leading to unintended consequences. "Each village was ordered by the authorities to collect and bring in a certain amount of rubber ... If they failed … native troops, many of them cannibals, were sent into the village to spread terror, if necessary by killing some of the men; but in order to prevent a waste of cartridges, they were ordered to bring one right hand for every cartridge used. If they missed, or used cartridges on a big game, they cut off the hands of living people to make up the necessary number."⁴ 

Admittedly, I chose this example of incentives going amuck because the images for cannibal and head-hunter overlap in my head rather than for the exactness of the analogy. There is no doubt, however, that the payment of search firms as a percentage of the Cost to Company of chosen candidates, tilts searches in more expensive directions and has a serious upward ratcheting effect on executive compensation with deleterious consequences for internal talent, especially at less senior levels.⁵ There are a few search firms that have a different basis for computing their fees. Even for them, the pressure to generate income puts a premium on quick throughput. In general, therefore, the first candidate who is likely to be found acceptable gets pushed rather than continuing to search for a person who will be the best fit. Compensation of partners and consultants has a substantial variable component – most of it linked to revenue generation. Quality and customer satisfaction play a distinctly subordinate role. Candidate satisfaction is an even lower priority – especially if finding another assignment for an unhappy recruit will result in a claw-back of fees or a repeat exercise that has to be carried out without charge.

Things take a far uglier turn for clients when the true incentives for the search firm as well as for the candidate operate below the table. Even if nothing as sordid as money changes hands, the unwritten (and sometimes unsaid) understanding with a senior appointment (especially in the CEO or CHRO role) may be that a growing stream of business will reach the search consultancy. The business need not only be in search. Several of these firms offer a bouquet of services or have Chinese walled sisters that do. And we all know how respectful the Chinese are of barriers! The permeability of Chinese walls can also work in the other direction. Having maneuvered an entry for an internal training or evaluation assignment, the service provider becomes privy to a motherlode of talent information which can be invaluable (though totally unethical) for use in conducting searches for other firms. Clients do attempt to prevent such outages by non-poaching arrangements with search firms. This has the curious consequence of further reducing the general usefulness of above-board search firms that actually respect such agreements. The more clients they sign up (and hence enter into non-poachings with) the less their potential use to other clients who see swathes of choices ruled out for them as a result.

Unhealed Physicians

Speaking of unapproachable territories brings us to the structural (and commission-sharing) arrangements in globally spread search firms. One of the most attractive capabilities they offer clients is their ability to source talent from every single relevant country around the world. That is easier advertised than actualized. Whether and how much local expertise and networking is made available to the search originating office is frequently at the mercy of dominant partners in the targeted markets. Commands can do little because search is an activity where the time and extra effort (that make the difference between an adequate and an excellent choice) can rarely be measured. Moreover, a shared commission can never come up to the level of an unshared one. Inter-partner relations across national borders can make all the difference – in either direction!

Matters are not helped by the highly variable quality of search partners and other staff, sometimes within the same firm. It is the rare search agency that subjects its own intake to the same rigorous processes it claims to undertake for clients. The competencies of ace search partners are not innate gifts but hard-earned results of learning, observation and practice, practice and more practice. 

The head of one of the most reputed search firms in the country, when I spoke to him for this column, bemoaned the fact that neither in postgraduate HR courses nor in substantive/ certified training thereafter were executive search skills imparted. Even rarer is the phenomenon of search firms themselves providing intensive training in structured interviewing or much else for that matter. The whole domain of Psychometrics remains a black box to most search practitioners. Some firms do bolster their claims of scientific selection practices with the use of personality tests, but several of these are of questionable provenance and almost none of them have locally established validity. Tedious concepts like validity and reliability don’t really matter to partners canvassing for assignments. They treat the instrument as if it were Pandora’s box: a gaudy bauble to lure clients on board but lethal to peer into and understand. 

If selection and training are ignored, more sophisticated people processes like Talent Management are rarer than snow in the Kalahari desert, in any but the largest search firms. The subject of adequate internal HR (or the lack of it) in professional services firms can fill volumes and deserves at least a column at a future date.

I Spy Solutions

Client firms and their CHROs are not doomed to be helpless pawns in the hands of unscrupulous search firms as long as there is no unholy nexus between them. Here are five 'I's that can mitigate many of the problems we have surveyed in this column.

• Internal Talent: According to one version of Aesop’s fable, when a group of frogs was too importunate in demanding Zeus provide them with a king, he sent a stork in their midst. The stork proceeded to devour the frogs and their cries for further divine help went unheeded. Far be it from me to call any head-hunter Zeus but some externally sourced CEOs have been no less fatal than the stork for the fortunes of the client firm and its people.  The best way to avoid the problems of senior external appointments (and consequently the risks of using search firms) is to have an adequate pipeline of internal talent and to groom them for the topmost roles.⁶ Compared to internal choices, who have been observed over years and all of whose blemishes and handicaps are known, an astute impression-managing CXO can charm the pants off a selection panel for the few hours they interact. Reference checks (particularly those entrusted to the search firm) are notoriously less than reliable. Herein lies the Plassey that has brought low many outstanding business enterprises.
• Identify the Right Search Partner: While it may be tempting to use the same firm once you have seen evidence of their capabilities and ethical standards, there are different firms that do better or worse depending on the geography, industry and functional specialization. It is also necessary to check whether their non-poaching arrangements and internal structures/ commission-sharing rules could impede a particular search. While the firm’s brand can provide reassurance about the processes and ethical standards they will follow, search is still a heavily individual dependent delivery. Hence the person handling your assignment can make or mar the candidate choice. Every one of these factors can vary with time and need to be re-evaluated before entrusting a new search.
• Incentivize Results: For all their talk of success-based fees, most search contracts are structured such that almost all the fees have changed hands before the candidate joins and long before s/he has been proved on the job. The current economic downturn may be the right time to negotiate truly contingent fee structures, with the larger part of the professional fees becoming payable after the candidate joins and a significant portion only post settling down and demonstrating result delivery capacity in that culture/situation (i.e. 6-12 months after joining).
• Involvement Without Imposition: No search can be completely 'hands off'. Without a deep understanding of the culture of the client firm, the temperaments of key stakeholders who will interact with the recruit and the system-provided decision and service support for the role, we have a high chance of placing competent misfits. Incidentally, this last factor often explains why pedigreed MNC executives, who are used to the support of robust processes, are at a loss in less structured environments where the executive has to use judgement or atmanirbharta in place of the missing system support. This and similar cultural, relational and job information can only come from the CHRO (or CEO). Moreover, they have to monitor the scan area choices, the quality of CVs proceeding down the funnel and the pre-shortlist checks. What they clearly need to eschew is providing the search firm with a favoured candidate on whom they simply expect an imprimatur of approval. An unlikely way to waste fees? You’d be surprised.
• Independent Investigation: However much you trust the search firm and have faith in your own abilities as an interviewer, they are not the ones to be entrusted with the final reference checks of the chosen candidate. With the best intentions in the world, a search firm invested behind a prize candidate suffers from the same confirmatory bias from which none of us is free. It would be in their own interest to have the client or another firm do the final check so as to save themselves from the reputational loss of a placement going belly up for reasons that adequate due diligence would have revealed. Various suggestions for gaining better reference checks have been set out in another column and need not be repeated here.⁷

Beam me up, Searchy

Captain Everyexecutive Kirk is in trouble. His phaser isn’t as effective as it used to be and the aliens he had rocketed down to save have turned hostile. If only he could get pulled off this life-threatening planet and be placed in another, he could save himself (and, of course, the Federation). For executives in serious trouble or whose capabilities and ambitions are a lot larger than the confines of their current roles, honest-broker and capable search firms are still the best hope for career renewals and greater potential realization. I, for one, look back with gratitude to the search firms that beamed me out of relative culs-de-sac and gave me an opportunity to explore exciting new domains, to seek out new learning and new experiences, to boldly go where few HR people had gone before (sorry GR). The better search firms, partnered with sensible and demanding clients, continue to do this.

What about headhunters that suffer from the handicaps we have reviewed. In 'The Enemy Within' a transporter malfunction causes Captain Kirk to be split into two people, one 'good', but indecisive and ineffectual; the other 'evil', impulsive and irrational. Either version joining a company can (and does) cause disaster.

Notes:

1. Pawel P Liberski, Beata Sikorska, Shirley Lindenbaum, Lev G Goldfarb, Catriona McLean, Johannes A Hainfellner, and Paul Brown, Kuru: Genes, Cannibals and Neuropathology, J Neuropathol Exp Neurol., February 2012; 71(2): 92–103.
2. Jason Dana, The Utter Uselessness of Job Interviews, The New York Times, 8 April 2017.
3. Jeff Hyman, The Best Way To Get The Worst Hiring Results, Forbes, 11July 2018.
4. Bertrand Russell, Freedom and organization, 1814-1914, G Allen & Unwin Ltd, 1952.
5. Visty Banaji, But who will guard the guardians?, People Matters, 14 March 2018.
6. Visty Banaji, Why great business leaders are rare, People Matters, 1 May 2020.
7. Visty Banaji, Help! The CHRO I picked is a lemon - How CEOs can choose better HR heads, People Matters, 14 March 2019.