Signs You Need a Retained Search Firm
7 Signs You Need Retained Search
Retained executive search represents a significant investment. Executive search retainers start at $100 thousand per search engagement for the largest global retained executive search firms known as the Big Five (Korn Ferry, Russell Reynolds Associates, Spencer Stuart, Heidrick & Struggles, and Egon Zehnder). For the uninitiated, retained search fees seem pretty stunning. However, retained search firms that are good at what they do deliver top-performing executives and technologists — the kind of talent capable of accelerating profitability. Given the context, the investment in retained search makes perfect sense.
So When Do You Really Need a Retained Search Partner?
If a senior executive position is critical to the success of your company, it is time to consider retaining an executive search firm. Alternatively, if you have a growing sense of unease about an executive’s performance or if you worry that your company’s search for a senior leader may not end well, those are pretty strong warning signs that you could use some help.
7 Warning Signs You Need Retained Search
1. You Are Rapidly Scaling Your Company
Venture capital-backed startups have their eyes on the prize: a hockey-stick growth curve. When they get to the inflection point, usually at their Series B or C round, they need to grow . . . and fast.
Any Delay in Hiring Is Costly
Any delay in hiring the necessary leadership can cripple sales, marketing, production, engineering . . . you name it. Your company loses opportunities it may never get back. Profitability suffers as does morale, which can lead to more people leaving. Not to put too fine a point on it, but failing to fill executive positions is a recipe for disaster. It affects your ability to raise subsequent rounds of capital. Without capital, you run out of runway. It’s all over.
VC-Backed Startups Use Retained Search
If you’re actively scaling a VC-backed company, that is a warning sign that you really need a retained executive search firm. In fact, as startups approach an IPO, retained search firms are regularly tapped to deliver marquis-name talent. Impressive leadership teams make for higher valuations and ultimately higher stock prices when the company goes public. That’s why retained search firms are essential partners to venture capital firm portfolio companies as they scale.
2. You Suspect a Key Executive May Leave
If you have a star executive, you can assume that they are being courted by the competition. So, as you work to ensure your brilliant executive is more than satisfied with the scope of their job, career path, compensation, and work-life balance, you need a backup plan.
A Succession Bench is Ideal Backup Plan
Developing a succession bench is a best practice in talent acquisition and talent management, as well as in diversity recruitment. At the senior executive level, you don’t want to be caught flat-footed — unprepared –for the sudden loss of a key executive. Succession searches are executive searches that are conducted in advance of a possible opening. If a senior executive takes off, you’ve got a slate of viable replacements, ready to go.
Build Succession Benches for All Company VIPs
Succession plans usually focus on finding potential replacements for C-level executives and other senior executives. However, companies also create succession benches for anyone whose sudden departure could disrupt the business. Employers should create a succession plan, according to SHRM, and update it at least once a year.
For Potential Successors to Current Executives, Companies Turn to Retained Search
Searches to find replacements for current executives are highly sensitive, and for that reason, rarely conducted by the corporations themselves. Doing your own outreach risks news of your search for a replacement getting back to the incumbent who is currently in the role. Not good.
Retained Search Firms Build Confidential Succession Benches
Retained search firms regularly build external succession benches. They tee up possible replacements for underperforming leaders and corporate rockstars who might jump ship. Succession Benches provide incredibly useful benchmarking, empowering companies to compare their senior executives to external leaders. After considering alternative executives, some companies discover that a senior leader isn’t as strong as they thought. Instead of being the rockstar, the incumbent is average or even sub-par when compared to possible replacements. In fact, some companies use succession benches for topgrading. Succession benches make it possible to replace average executives with “A-players”. In addition to driving profitability, A-players, by definition, attract better-quality talent to their teams.
3. You Need to Fill a Senior Executive Opening ASAP
If you need to fill a senior executive opening as soon as possible, companies usually turn to retained search for help. Many companies first try to fill the position themselves. So by the time they discover the search is more challenging than they thought it would be, usually it’s several months later. The urgency is greater than its ever been.
Companies Find It Harder to Fill Senior Executive Openings
When companies come to us with a challenging executive search that they tried to fill, it is clear those internal recruiting teams have worked incredibly hard. Frequently, their list of potential candidates numbers in the hundreds. Often, by the time they get to us, in-house recruiters are exhausted and the hiring executive is running out of patience. If you’re noticing these warning signs, now would be a good time to turn to a retained search firm.
When Executive Search Is Hard, Search Firm Selection is Critical
When an executive search has dragged on too long or is otherwise in critical condition, selecting the right search firm matters more. Make sure the search firm excels at challenging searches. Searches that hit the wall need a firm with the capability to surface candidates other miss and to engage candidates who previously did not respond. Investigative research that reaches beyond typical recruiting resources is key.
Beware of Search Firms Claiming They Know All Contenders
Moreover, beware of any firm that makes promises that make little sense. For example, any retained firm partner that asserts that the firm knows all the best candidates is, well, lying to your face. Seriously. (Check out Dunbar’s Number.) That deception is a red flag and it is disqualifying.
Most Retained Search Firms Underinvest in Research
Sad to say, few retained search firms have invested in expert researchers — when expert research is what drives results. In fact, many of the leading firms lay off research support as they tighten their belts, focusing primarily on sales. Challenging searches require retained firms obsessively focused on execution. Research is the execution engine of executive recruiting. It is how a retained firm finds you your person. The better the research, the better the results.
4. Company Recruiters Lack the Bandwidth or Expertise
If your in-house recruiters lack senior executive search experience, the function expertise, or if they are busy with other searches and responsibilities, those are all warning signs you may need a retained search firm.
Handing off a senior executive search to a retained search firm empowers corporate recruiting teams. It enables internal recruiters to focus on what is most important — filling other searches, moving candidates through to hire, and managing hiring executives.
Note: If you lack the budget for retained search, we recommend executive recruitment research support. Our executive search research division Intellerati regularly partners with internal recruiting teams on filling executive searches. Of course, Intellerati is not the only recruiting research solution that provides candidate sourcing, and diversity recruiting support. Intellerati has compiled a list of The Top 10 Recruiting Research Firms.
5. Your Company Lacks an Internal Executive Recruiter
Most VC-backed startups and mid-tier companies do not have an internal executive search team. They are simply not large enough to have enough senior executive openings annually to justify standing up an internal executive search function. So when an important senior executive position needs to be filled, no one with the necessary expertise is available to do the work within the company. That’s a warning sign it is time to turn to a retained executive search firm.
Some smaller companies struggle with hiring executives for other reasons. They’re not located on either coast (but their location is growing in popularity). Their compensation is not the highest or the lowest (which suggests it may be just right.) It is clear the owner has built a successful business that cares about its employees. They enjoy a work-life balance better than what you’d find at most of the leading companies. They may be small, but they are mighty in so many ways.
However, many of the larger, multinational firms will not take on these executive searches because they focus on executive searches that enable them to charge retained fees well into the 6-figures. So if you’re seated at a mid-tier publicly traded company, a privately held mid-tier company, or a venture capital-backed startup in need of a C-Level executive, boutique retained search firms are the way to go.
6. Your Private Equity Firm Acquired a Turnaround
Private Equity firms hold dozens of companies in their portfolio, and after making an investment, Harvard Business Review observes they nearly always replace the Chief Executive Officer, if not the entire executive team. As a result, PE firms have a lot of practice hiring senior executives — and they learn to focus on what matters most: resilient player-coaches who operate with a sense of urgency.
A company in a turnaround is a significant opportunity. In fact, McKinsey & Company observes,
“PE-backed companies outperform their public counterparts during periods of distress because the owners play a more active role in management. . . improving the strategy and operations of their target companies.”— McKinsey & Company
To provide value for their investors, private equity firms and their portfolio companies require top-performing executives. If your PE firm is seeking a retained search firm capable of outflanking the competition, it’s a warning sign to find a retained search partner with investigative expertise. Investigative research makes search smart and delivers competitive intelligence along with legendary hires.
7. You Suspect a Top Executive is Unfit
Executives fail for a lot of reasons. Executives regularly send their corporations off in completely the wrong direction. They make fundamental errors in the way they perceive the opportunities and problems their business faces. Sometimes, it is because they have personal problems. Of course, most boards of directors hope executive problems can be addressed with a combination of therapy, rehab, and/or leadership coaching. Yet, some executives are either unwilling or incapable of change. Sometimes, they have a fundamental character flaw that, in the eyes of many psychiatrists, cannot be changed.
Psychopathy is Common in the Executive Suite
Narcissism and psychopathy are personality disorders that are common in the executive suite. According to the American Psychiatric Association, “A personality disorder is a way of thinking, feeling and behaving that deviates from the expectations of the culture, causes distress or problems functioning, and lasts over time. In other words, personality disorders are unlikely to get better.
One Study Finds 21 Percent of CEOs are Psychopaths
The C-suite attracts narcissists because narcissistic leaders have a grandiose sense of importance that they must satisfy. In fact, narcissistic leadership is so prevalent, it has its own Wikipedia page. Equally concerning are estimates of the number of psychopaths who are CEOs. One study highlighted by Inc. Magazine pegged that estimate at 21 percent. That is one out of every five.
If Alarms are Going Off, It May be Time for a Retained Search Firm
But here’s the thing: when you have a malignant narcissist or a psychopath, your company is at significant risk of running off the rails. Alarms should be going off as in ding, ding, ding, ding, ding. So, when you have an executive who exhibits zero empathy for others, that’s a warning sign you need a retained search firm to find a replacement. If you have a senior leader who lies, bends rules, breaks laws, or seems dangerous and violent — those are even more concerning warning signs.
There are a lot of reasons to turn to a retained search firm as a strategic recruitment partner. The 7 warning signs highlight problems that retained search firms help solve. Of course, retained search firms aren’t always the answer. That’s why we share our secrets on how to avoid using search firms whenever possible. But when little alarm bells go off, it may be time to act. The next step is search firm selection is selecting the right kind of search firm. Of course, we’d be happy to have a conversation to answer any questions you might have.
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