search-consult Issue 14 by margaret jaouadi

2002 / ISSUE 14

The International Executive Search Magazine

Ray & Berndtson: The inside story Search in Financial ServicesIn-depth Review

search-consult speaks to all the major players in the Executive Search story of the year

AESC Conference on Governance

FEATURE

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The Global Search Firms

Search in New York

Focus on Interim Management

Technology in Search

search-consult MANAGING DIRECTOR Jason Starr jason@search-consult.com EDITORIAL Pilar Gumucio editorial@search-consult.com PRODUCTION Margaret Jaouadi margaret@search-consult.com

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search-consult is published by Dillistone Systems Ltd, Calvert House, 5 Calvert Avenue, London, E2 7JP, United Kingdom and printed by Printhouse Corporation, London NW10 6ST, www.printhouse.co.uk. All statements, opinions, and expressions are the sole responsibility of the authors and the Publishers reserve the right to amend / alter articles as necessary. The Publishers cannot be held responsible for any loss or damage, however caused, of any materials supplied. Any materials supplied may not always be returned. No part of this publication may be reproduced in any format without prior written consent of the Publishers.

Front Cover: Clockwise from top left: Richard Boggis-Rolfe, Odgers Ray & Berndtson; Paul Ray Jr., A.T. Kearney Executive Search; Steven Fisher, A.T. Kearney Executive Search. Photography courtesy of respective companies. © Copyright 2002-2003 Dillistone Systems Ltd

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Survey Indicates Bonus Payouts For 2002 May Suggest Economic Rebound www.search-consult.com

NEWS

A SURVEY BY MERCER HUMAN Resource Consulting found that more than 60% of US companies will be giving bonuses this year that are the same or larger than the bonuses given in 2001. This finding is making some employees optimistic that the economy is rebounding as 22.7% of the companies surveyed expect to give even larger bonuses than in 2001.

According to Steven E. Gross, who leads Mercer’s compensation consulting in the U.S., “Employers have been doing a good job of cost control, and that’s allowed some to exceed bleak performance forecasts for the year. So while most are still holding the line on base pay increases, we are seeing a rebound in bonus pay this year at some organizations.”

TMP Executive Search Announces Spin-Off www.search-consult.com

NEWS

QUARTERLY REVENUES FOR THE executive search division of TMP Worldwide fell 31% in the third quarter to $16 million from $23 million a year earlier. Commissions and fees totalled $15.9 million, compared to $22.9 million for the same period last year. Total revenue for the New York firm was $284 million, a 21% drop from $361.2 million a year ago. Andrew J.

McKelvey, Chairman and CEO of TMP Worlwide, said results had been affected by slow economic activity and sluggish European labor markets. He said, “Moving forward, we will continue to right-size our business, and believe that the planned spin-off of our eResourcing and Executive Search units into a separate company will allow both organizations to more clearly focus and capitalize on their core competencies and markets.”

DHR International Acquires R.W. Elam & Associates www.search-consult.com

NEWS

CHICAGO-BASED EXECUTIVE SEARCH firm, DHR International, has recently acquired R.W. Elam & Associates, a Dallasbased firm. This acquisition significantly enhances the firm’s presence in Dallas. Founder and Managing Director of R.W. Elam & Associates, Robert Elam, joins DHR International as Executive Vice President in the Dallas office. He said, “Combining R.W. Elam & Associates and DHR International grants the opportunity for a monopoly in

the Dallas region. I am very enthusiastic about the integration of the two firms”. David Hoffmann, Chairman and CEO of DHR International, comments, “Most executive search firms have found the current state of the economy to be disastrous to their business operations. DHR is responding to the current state, while preparing for the turn in the economy, and with that have acquired four executive search firms since November 2001. “

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All Change Ray & Berndtson

hen the executive search industry makes the international business press, it tends to be in the context of a scandal the background checking stories of last year being a case in point. One story that was not a scandal but did achieve significant coverage in the media was the acquisition by A.T. Kearney Executive Search of “Certain Assets” belonging to Ray & Berndtson. Sadly, the vast majority of the coverage was inaccurate. This is hardly surprising, however, when it is considered that many of the recruitment publications also reported the events of the summer inaccurately. Now, the three major players in this story: Paul Ray Jr. (the former CEO of Ray & Berndtson), Stephen Fisher (President of A.T. Kearney Executive Search) and Richard Boggis-Rolfe (CEO of Odgers Ray & Berndtson) speak exclusively to searchconsult. To understand what actually happened over the last few months, the reader must understand the structure of Ray & Berndtson. Unlike firms such as Heidrick and Struggles and Korn/Ferry International, Ray & Berndtson is made up of a number of independent firms, each of which is locally owned. These

Paul Ray Jr. firms all own shares in the ‘coordinating parent’ Executive Search International (ESI). Richard Boggis-Rolfe, CEO of Odgers Ray & Berndtson - a member firm of Ray & Berndtson’s network - believes that this structure is beneficial for clients and staff: “Every office responds to its own market conditions in the most appropriate way instead of following corporate policy laid down in a head office thousands of miles away. When a client deals with any of our offices, they are dealing with a real

By Jason Starr partner - the person the buck stops with. This is much better for clients than dealing with an employee of an overseas subsidiary.” However, the networks’ biggest strength can also prove to be its biggest weakness. Over the years, a number of networks have been damaged when major partners have left - perhaps the most notable example being the old Amrop International network, which lost members in the US, UK and Germany within a short period of time during the IPO boom. In this case, however, it was not growth opportunities that lead to the problems. The US Ray & Berndtson business found itself with a high, fixed, cost base, in an abrupt revenue downturn. Like other firms in the industry, the business made a series of cutbacks. By summer, rumors circulated within the industry; the firm was about to be bought by its European partners; the firm was about to be bought by A.T. Kearney. The first deal to be completed took place in July 2002. Odgers purchased the right to use the Ray & Berndtson brand and the logo of the old Paul R. Ray firm in the US and in Japan along with the source code for the Ray & Berndtson

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“Searchnet” software system for a combined fee of $250,000. “We looked at the other assets but, in the end, although there were still a few good people, we were not attracted with what was on offer,” says Boggis-Rolfe. By this time, a number of partners had left the US business. At the beginning of 2002, Ray & Berndtson had 33 partners in the US. By June, this number had dropped to 27. Talks continued throughout the summer. Paul Ray Jr. was interested in completing a deal that would enable the new business to retain as many of his existing staff as possible. Stephen Fisher, the recently appointed President of A.T. Kearney, was keen to grow his business and so, eventually, a deal was struck whereby offers were made to over 50 partners and staff. “The underlying reason for the deal was to expand the business and hire Paul Ray, Jr. as well as, in mass, a group of successful partners with significant track records, their supporting staff and assets, including technology and goodwill,” Fisher said. What were these assets? Fisher explains, “They are the Ray & Berndtson technology platform; the database, the research tools. We also purchased the Paul R. Ray & Company trade name.”

“.The US Ray & Berndtson business found itself with a

high, fixed, cost base, in an abrupt revenue downturn.” As part of the deal, A.T. Kearney paid outstanding bonuses to partners of the US firm. At the same time the A.T. Kearney deal went through, Odgers opened an office in New York under the Ray & Berndtson brand that they had acquired. The office was to be run by Bill Weed - a 10 year veteran of the Ray & Berndtson Group. According to Boggis-Rolfe, the plan for

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the ‘new’ Ray & Berndtson is to maintain a local presence in the short term and to quickly rebuild the US business. “Our preferred plan is to recruit a small, high quality new team in New York. Bill is leading the search. Then, having established a firm base, to merge with specialist boutiques or recruit individuals both there and in other major centers. ESI and its member firms will invest in the new American business, but it is our intention that R&B America should be run by American professionals and that the American partners should own the majority of the equity…. We are actively engaged in this exercise.” These are the facts behind the Ray & Berndtson story; but they pose as many questions as they answer. Outside of the US, Ray & Berndtson remains one of the strongest Search networks. In revenue terms, the business is still ranked sixth in the World, while in many countries notably Canada and Germany, the group holds a top two position. In the UK, Odgers Ray & Berndtson is one of few local firms to be reporting improving figures in a tough economic climate. The US business obviously suffered from severe economic conditions but, many observers feel, it also suffered from a lack of preparation for the dramatic reduction in revenues, as it worked with operating costs that were set up for a much larger firm. One observer close to the deal commented that, “In terms of real estate, compensation packages and IT, Ray and Berndtson Inc. were spending substantially more than they could afford. It was corporation costs on small company revenues.” According to Paul Ray, this only became the case when the market began to sharply deteriorate and the firm attempted to take appropriate steps to address it. A.T. Kearney invested $1,000,000 on the source code for the SearchNet system, for a brand - Paul R. Ray and Company which has not been used since 1997, and for a degree of goodwill from Paul Ray, the partners and the US client base. Given that Odgers had already acquired

use of the current brand - Ray & Berndtson - the logo - and the same source code for just one quarter of the figure invested by A.T. Kearney, it must be assumed that for the acquirer the real benefit must have been in the goodwill, technology/ development team and the partners. Looking first at the issue of the brand, in the press release announcing the A.T.

Richard Boggis-Rolfe Kearney deal Stephen Fisher is quoted as saying: “For nearly 40 years, Ray & Berndtson has been known for great client service, innovation and integrity in recruiting top-level executives.” This is fundamentally true; Ray & Berndtson is a highly regarded brand and Paul Ray Jr. is certainly held in the highest of esteem by colleagues and competitors alike. Fisher and Ray believe, however, that the Ray & Berndtson brand is only part of the story. “From our perspective, both Ray & Berndtson and A.T. Kearney are excellent brands. However, I believe that the Paul R. Ray and Company brand is equally well known. I would argue that, in the US, the Ray & Berndtson brand and the Paul R. Ray & Company brand are interchangeable,” comments Fisher. Ray concurs, “I think that there is equity in both names. The company traded for 36 years, and for 25 of those years, it was

known as Paul R. Ray and Company”. Boggis-Rolfe clarifies that, “as part of our deal, Paul agreed that the Paul R. Ray name will not be used in any way which could link it to the Ray & Berndtson brands.” Despite the apparent value in the newly acquired brand, the likelihood is that the enlarged business will continue to trade under the A.T. Kearney Executive Search moniker. “That is the thinking. We have given some thought to the matter, but it would be a little confusing to be competing with Ray & Berndtson under such a similar name,” remarked Fisher. So, in that case, logic would dictate that for A.T. Kearney, the key issues must have been either technology or goodwill. As the discussion turns to technology, search-consult would like to remind our readers that our parent company, Dillistone Systems, is a publisher of software for executive search firms.

Stephen Fisher Within this context, it is also important to note that a number of member offices of Ray & Berndtson use the FILEFINDER software. A.T. Kearney has acquired the SearchNet source code and plans to develop the system internally. As part of the July deal, Odgers also acquired the source code and, therefore, had a similar option. During the summer, with input

from the US SearchNet development team in Fort Worth, an evaluation project took place, comparing the costs and benefits associated with developing SearchNet with the costs and benefits associated with working with an independent supplier. Odgers and a group of non-US Ray & Berndtson firms using SearchNet decided that the best option in terms of both cost and functionality was to standardize on the FILEFINDER system. The conclusion, therefore, would seem to be that the underlying reason for the deal was to expand business with a group of successful partners, in addition to supporting staff, goodwill and technology. If this analysis is correct, it can only be assumed that the “acquisition of certain assets” was significantly less important to A.T. Kearney than the goodwill that would come from hiring Paul Ray Jr. and as many of his partners as possible, because the technology, itself, would be of little use without them. This argument is supported by a claim made by one person close to the deal, who believes that A.T. Kearney just paid bonuses to partners who - in some cases achieved only negligible client billings during the first six months of the year. From his perspective, Fisher certainly believes that these additions will strengthen the business. “The main thing that immediately attracted me to Ray & Berndtson was the fact that we were very complimentary both in terms of Geography and Practice Groups, and the partners had excellent relationships and reputations with their clients. These hires have enhanced our strength in all of our markets.” Even prior to the deal, A.T. Kearney Executive Search was heavily focused on the US market, with roughly 70 percent of business centered in that market. Will the firm take steps to strengthen in Europe? “We are certainly growing, but the only way that we can do grow in a similar rate (the dramatic increase in size seen in the US) would be through the acquisition of another business. However, our basic plan is to target small groups or

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individuals rather than look for acquisitions. Having said that, if we were to be presented with an opportunity that made sense, we would certainly explore it,” comments Fisher. From the perspective of the “new” Ray & Berndtson US business, Boggis-Rolfe is confident of the future: “Obviously, in the short term this has been a headache for us. However, it is more of an opportunity than a problem. We have a business with a superb brand, no debt, no unpaid

“On the face of it, it would appear that A.T. Kearney have gambled $1,000,000 and significant ongoing cost

they will be able to retain and develop a significant proportion of the client base.” on the hope that,

bonuses, no SearchNet costs and an established international network. I think that an awful lot of top professionals and boutiques would find joining us to be very attractive indeed.” On the face of it, it would appear that A.T. Kearney have gambled $1,000,000 and a significant ongoing cost on the hope that, they will be able to retain and develop a significant proportion of the client base. Odgers and the Ray & Berndtson network, however, have taken the stance that a combination of a clean slate and a proven brand, along with selective acquisition of talent (be it through individuals or boutiques) will prove to be the more effective to develop the US market. It will be interesting to see what develops.

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ISSUE 14 2002 search-consult

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AESC Madrid Conference:

focus on

and Corporate Search Diversification

By Peter Felix

onvening in Madrid at the Ritz Hotel for the 6th European Conference of the Association of Executive Search Consultants, senior search consultants from the EU countries and representatives from Turkey, India and Russia, met to discuss the changing environment for Executive Search Consulting. Peter Felix, AESC President said, “The significant attendance by quality search firms from across Europe shows that the AESC is now the main forum in Europe for the executive search business. The conference provided an opportunity for members to gain a perspective on market developments and to compare notes in handling the current recession. In particular it provided a forum for European consultants to review the impact of the Corporate Governance Crisis that has been ravaging the US and the potential that this creates for Board consulting services. By holding the conference in Spain we were able to

shine a spotlight on executive search as a professional service that has grown greatly in significance during the recent renaissance of the Spanish economy.”

“The need to professionalize Corporate Governance provided considerable opportunities for Executive Search.

Board work is, however, less well compensated and extremely sensitive but very rewarding.”

IMPROVING CORPORATE GOVERNANCE IN EUROPE Dr. Jordi Canals, Dean of IESE, the leading Spanish Business School, set the scene for the Conference with an overview of the Corporate Governance Crisis that was now finding its way into Spain and was the subject of much debate there. Placing much of the responsibility for the worldwide crisis at the door of the inflated marketing and finance cultures that have been so prevalent in recent years Dr. Canals believed that a historically ‘unilateral’ attitude by top management was to blame. Instead of focusing on organic growth, companies and their CEOs have been caught up in a spiral of market inflation via financial engineering, acquisition strategies and unconstrained inflation of company prospects. Risky international expansion of companies, trade conflicts, and even economic crises in emerging countries have resulted; finally this had lead to the

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erosion of trust in public companies and their leadership. Disregard for traditional indicators of corporate success lead many down a path of reckless optimism thereby creating an economic bubble of gigantic proportions. The investment banking industry helped fuel these fires by promoting bigger and bigger deals and convincing investors that the paradigm of economic growth had changed. In some instances the final ingredient of disaster was deception by management and negligence by Boards of Directors. Now that the party is over and we are counting the cost, Dr. Canals suggested that a return to more rational management and corporate governance is essential. This cannot be achieved by legislation but only by responsible selfgovernment. The recent debate in the US and now in Spain (November 7th draft law and the Aldama Commission) about the need for new regulations in corporate governance, will only contribute in small measure to the major changes that are needed. The real solution to corporate governance actually has little to do with rules, and everything to do with improving the decision making process. The application of traditional values of responsibility and integrity are key to whatever success will be achieved in restoring public confidence. In this respect the division of the roles of Chairman and CEO may be helpful. The Dean suggested that management must not: (1) overvalue companies and related financial indicators, leading to overoptimistic business forecasts; (2) focus decision making only on company growth and financial outcomes; (3) confuse means with goals, because of the tendency toward manipulation of goals. To create a new wave of institutions with social, not just economic, value will require: a renewed focus on building great companies and a profound shift in the role of top managers towards the development of core management competencies and the true engagement

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of all members of an organization toward a common goal. CORPORATE GOVERNANCE - THE ROLE OF THE BOARD AND IMPLICATIONS FOR EXECUTIVE SEARCH The practical aspects of Corporate Governance were further debated by a panel of experts chaired by Manuel Soto, a leading independent director in Spain and including John de Zulueta, Managing Director of Sanitas, the Spanish Health Insurance Group, and Joaquim Agut, Executive Chairman of Terra Lycos, the internet and communications group. Joined by AESC

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Peter Felix Europe Chairman Didier Vuchot of Korn/Ferry, Fransisco Gasset of Spencer Stuart and Dr. Florian Schilling of Heidrick & Struggles, the panel also discussed the implications of the Corporate Governance Crisis for the executive search profession. KEY IDEAS FROM THE DISCUSSION INCLUDED: ● Companies should avoid the recruitment of ‘glamour’ CEOs who offer an illusion of strategic promise but may destroy a good company through risky strategies. There should be more focus on the longer term development of internal talent. ● Fundamental personal characteristics

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such as integrity, flexibility and a receptive attitude are often as much a key to executive success as grand strategies or corporate vision. American CEOs are more than likely than CEOs in Europe to manage for short term gain in order to influence stock prices. Board members are often inhibited in asking critical questions that require a “third” question going beyond superficial answers from management. CEO and senior management compensation schemes should include a fixed portion (salary), a short-term incentive portion (bonus), a medium term incentive (3 year bonus) and a longer term incentive portion (options). Many potential Board candidates today will not even listen to opportunities, due to increased risk and time commitments. Prestige of serving on a Board is no longer enough to motivate candidates. They must (1) be compensated more, (2) feel that they would have the opportunity to have a voice and benefit from the experience, and (3) have good D&O insurance. Board membership should rotate often, in order to generate new ideas and viewpoints. Board members should own shares in the company they serve in order to obtain full commitment. Board evaluations should be an integral part of a more professional approach to Corporate Governance e.g. in Germany where they are very thorough. The need to professionalize Corporate Governance provided considerable opportunities for Executive Search. Board work is, however, less well compensated and extremely sensitive but very rewarding.

EXECUTIVE SEARCH FIRMS AND HIRING ORGANIZATIONS - BUILDING VALUE THROUGH PARTNERSHIP David Lord of Executive Search Information Services lead a panel

discussion of Human Resource Directors including Karen Hoggard of Merrill Lynch Investment Management, Jesus Vega of Inditex and Cosme Furlong of Cemex. KEY IDEAS FROM THE DISCUSSION: ● Most large international companies today have a short list of global preferred providers, but also use employ local boutique firms with specialized expertise. ● Terms and conditions are driven more by the large client now than by the search firm. Traditional terms are less common. ● They do not generally look to their search firms for add-on services and in recessionary times have little budget to allocate to such services. ● However, they do look to firms to be long term partners and stress the importance of a strategic relationship between hiring organization and search firm. ● A successful search is quality, achieved in the least time possible.

A high level of trust in the search firm is crucial. ● Differentiation between search firms is very small. ● Search assignments fail when the search firm does not truly understand the company’s culture and does not engage as a partner. ● Search firms should be consistent, have a professional, quality oriented approach, and avoid diversification solely for the sake of gaining revenue. ● Client ‘Quality’ surveys by the AESC would be welcomed. The Executive Search panel, also moderated by David Lord, consisted of Luca Pacces, Spencer Stuart, Italy; Marc Swaels, Korn/Ferry, Belgium; Bengt Lejsved, Heidrick & Struggles; and Stephen Bampfylde, Amrop Hever, UK. Key ideas from the discussion: ● Belief by larger firms that clients want solutions, not transactions, therefore firms need to broaden their service portfolios. ● Belief by smaller firms that coaching

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and other services have inherent conflicts of interest with executive search that can be difficult to manage. Partnership with clients to better assess their own needs improves matching of candidate to company and adds greater value. Importance of building a “shared logic” with clients to help the two parties make better decisions together. Predictions for non-search revenues among firms 5 years in the future: ● Heidrick and Struggles 30-40% ● Korn/Ferry International 10-15% ● Spencer Stuart 20% ● Amrop Hever Group less than 5% Agreement by panelists on the need for better measures of quality in search assignments and the linking of rewards to quality performance.

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Search in Financial Services:

Navigating

through the

Storm

By Pilar Gumucio ncertain times dominate the headlines as the volatility of the stock markets around the world mirror peopleâ&#x20AC;&#x2122;s skepticism in what lies ahead. It is not one particular event or factor that has unleashed this course, but the sum of many factors and events that have, and continue to, influence the outcome. The burst of the Internet bubble, a dramatic decline in equities and personal wealth, the horrific attacks of September 11th as well as the economic and political uncertainties that event has engendered most notably, the prospect of a full-bore war between the US and Iraq - are among the leading factors. Moreover, there has been an explosive epidemic of corporate scandals worldwide that have made investors think twice about how they are

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investing their money. The ethical conduct of these corporate executives and the involvement of some accounting firms and investment banks have been questioned as confidence levels continue to diminish. Within this context it is easy to understand why executive search, and in particular those in financial services that operate in investment banking, trading and asset management have especially been hit hard. Nevertheless, it is important to point out that, as in all moments of crises, opportunities are always present. The overall picture may seem glum, but those search consultants who are looking beyond the storm are the ones that will survive. They are taking this time to reflect, restructure and assist their clients in preparing for the next upheaval.

LEAVING PORT Although search in financial services began in the 1970s, the nature of the business has changed dramatically. Fiona Stephens, Managing Director of Stephens Associates, which is based in the UK, recalls, â&#x20AC;&#x153;How different the industry of financial services was then, especially since its focus was on domestic markets. In the late 1970s there was a relaxation of exchange controls. With the Big Bang in the 1980s, everything changed. The traditional partnerships were bought by large, mainly US, banks and other institutions as the structure, regulations, and focus became much more international.â&#x20AC;? Since then, the industry of financial services has been at the forefront of executive search. As investments poured

into the US, Western Europe, Asia Pacific and then to developing countries, search firms opened up offices in these regions to fulfil a growing demand for top talent, especially in financial services. During the 1980s and the 1990s investment banking experienced a rampant growth as globalization, deregulation, technology, e-commerce and the transformation of product portfolios permitted the expansion of new markets and created new market conditions. These factors contributed to making the business of banking much more global as more cross-border links developed and financial professionals became much more mobile. The net effect is there was a huge increase in both demand and supply of international financial service professionals. Fiona Stephens explains how “The markets developed and expanded as investment banks increased their coverage internationally hand in hand with building their corporate and institutional clients around the world. Investment management divisions were reformed as new autonomous companies provided an increasing range of products for the growing pool of retail, institutional, corporate and other clients. Investment banks set up private equity teams to capture funds from the rising private client wealth. More recently and with the difficulties in the equity market, the need to focus on credit and derivatives increased, debt markets became active and structuring gained importance. Investing institutions also began increasing their expertise in alternative investments to compete with the higher performing hedge funds.” Dan Kreuter, President of DAK Associates in the US reports, “Deregulation, the creation of new products, alternative distribution channels and a prolonged bull market in equities were vital factors that created a robust job market.” “In terms of product areas,” Paul Aldrich, Managing Partner of Global Sage Europe, believes that, “most retained search firms would have built their

practices on investment banking/corporate finance, M&A, equity and then over the past 5-10 years expanded into the debt and credit markets. Then they will have started covering other areas as clients become involved in new product areas” as the level of specialization required has mirrored this trend.

Simon Hall Meanwhile Simon Hall, Managing Director of Whitney Group in Europe, indicates, “The euphoria surrounding the potential revenues in all areas of TMT and the Internet was enormous and there was upward momentum until 2000 and even into the early part of 2001. However, as dotcoms and corporates in the sector faltered, so did the revenues of the major advisors and investors and therefore demand for talent in the sector languished.” Demand for financial services continued to skyrocket as compensation packages soared. Pay packages were running into 8 figures as bonuses easily doubled or tripled base salaries. As a result, search consultants in financial

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services were earning high fees. Jill Niemczyk, Partner of Sextant Search Partners in the US, reports, “Investment banking has historically represented the largest part of search firms’ financial services practices’ revenues and on a per search basis, has been the most profitable. Nevertheless, the scale of fees in investment banking does not necessarily correlate directly to escalating compensation packages.” The Internet bubble burst, Mergers and Acquisitions (M & A) grew to a halt and the equities market collapsed as once again the landscape of investment banking began to change. Dan Kreuter describes how “The search market has been in a 24-month contraction. Over expansion, over distribution, and untenable business models have led to layoffs in certain segments that had previously enjoyed unfettered growth. Consolidation has also sped up, eliminating or hurting some firms.” LOOKING FOR THE HORIZON Today the industry of financial services is in a state of flux, trying to find its horizon. In turn, this has exerted demands on the markets and simultaneously, contributed to how financial firms are selecting quality talent to help them operate their businesses. Yet because of the economic downturn investment firms are caught in a dilemma: on one hand they must cope with the need to lower costs while simultaneously boosting productivity and revenues. Some responses have included massive layoffs and drastically reducing pay packages. In fact, Business Week, The Economist and The Financial Times have published reports that have estimated that between 25-60,000

WHAT THEY DO IN HARD TIMES CLIENTS

SEARCH FIRMS

Intense Restructuring

Increase Personal relationships

Massive layoffs

Increase Value- added Consultancy Services

Reduce Compensation Packages

Increase & Expand Products’ Expertise

Selective Hiring

Widen Scope of Clients

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bankers have already lost their jobs. Many of the financial giants, like Merrill Lynch, Goldman Sachs, Morgan Stanley, Lehman Brothers Holdings, Deutsche Bank, and USB Warburg have already cut between 10-20% of their personnel as hundreds more are expected to continue to do so before the year ends. Fiona Stephens explains, “Although the market falls have resulted in losses and hence massive layoffs in the financial sector, we have seen these cycles before. History repeats itself, just on larger platforms each time. Bull market bandwagons always have to stop and be corrected at some stage. The greater the expectation had been, the more painful the fall. Business becomes much tougher, experience and relationships count for more, controls are greater, and life is never the same until the hype begins again.” For Dee Symons, Head of Financial Services of TMP Worldwide, “During 1998-2000 there was a massive emphasis on building businesses and executors were in high demand. As the market changed, more emphasis has been placed on client relationships and executors are far less valued. Before, the objective was to sell products, now the objective is to provide solutions to clients.” According to James Norton, President of James Norton Partners in the US, the blind exuberance surrounding Y2K, technology and the dotcom craze created incredible excess. He explains, “Then there was the unexpected ‘911’ and the final blows of war and scandals. These events and the lingering Middle East issues continue to drag on, affecting the worldwide economy as well as consumer confidence. When these issues begin to ease, the economy is poised for growth.” Jill Niemczyk reports that these massive layoffs are simply following a trend. She further elaborates, “First, firms have had to let go their most under-performing professionals. As a result of the belated post-merger rationalization of staff at firms that have

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merged over the past few years, more people have been let go. Now firms have been cutting into the muscle, and layoffs have become much less discriminating.” Yet Emma Weir, Global Managing Partner of Eban International warns, “Although firms are currently still cutting muscle, between now and the end of the year, if the situation continues to develop as it has, firms might have to start cutting into the bone. This might include closing entire business areas that are perceived as ‘core’ and contribute towards critical mass.” Jill Niemczyk agrees and believes that despite the massive amount of layoffs, “In most institutions, the number of

Paul Aldrich employees is still probably not down to pre-1998 numbers. Until pre-1998 numbers are reached, there is only room for selective and strategic hiring.” The end result is that the market is flooded with candidates. Candidates’ responses vary from simply holding out for the good times to return, simply transferring to another competitor, switching from a top tier to a second tier firm, to leaving the financial services industry all together. When asked about making a lateral move to another sector within financial services, all the consultants searchconsult interviewed cautioned that lateral moves were very rare at senior

levels because employers were not willing to risk on moving someone who did not have an excellent track record in that given sector. Whether candidates could make lateral moves ultimately depended on who they were - their skills and training, their background, their flexibility and ultimately their personality. REPAIRING THE SHIP Meanwhile, large investment firms are restructuring, which means that some divisions are consolidating as others are downsizing. Yet, at the same time, some firms are upgrading and even expanding as they refocus and concentrate on the more buoyant areas of the sector. In fact, many banks are hiring in one sector, but laying off in another. Bank of America, for example, fired 600 people worldwide in 4th quarter of last year but this year had plans to hire125 bankers and traders in Europe. Within this context, investment firms are more reluctant to use executive search except to handle the most critical, urgent and hard to fill positions. In fact, Hugo Hunt, Managing Partner of Allemby Hunt and a member of FINSAL, explains how “Clients are taking more time to make decisions”. Paul Aldrich describes how “Financial institutions are focusing on costs, focusing on who they use to do what and streamlining processes as much as they can as they want to create some discipline in the hiring process. They are concentrating more heavily than before on headcount and compensation packages as well as all the various strategic aspects of human resource management.” Margaret Doman, Managing Director of Cambridge Consulting Services in Australia/Asia, remarks that this is a difficult period for investment firms as some of these downsize. Yet it is also a time of vast opportunities as she explains how “Selective hiring has become key for investment firms to strengthen their capabilities in order to take advantage of the buoyant sectors

that are arising.” In regard to hiring new staff, their main challenge is looking for talent in a tight labor market as the current supply outweighs the demand. Although there may be an oversupply of candidates, quality leaders are still scarce. Therefore, financial institutions are taking advantage of the downturn to hire the brightest talent that would normally cost much more in a bull market. Andrew Lowenthal, Head of Financial Services for Egon Zehnder, explains how his firm’s client base has grown wider in scope in relation to the volume of searches conducted. He explains, “Although large investment banks are still important clients, we are also working with smaller specialized institutions.” Simon Hall agrees as he has noticed a shift in Whitney Group’s client base. “Within the last two years, our client base has become much more diverse. Previously, we would have had 5-8 major clients across the investing banking community on a global basis. Owing to the high number of mergers within the industry, the number of meaningful investment banks has shrunk. Therefore, we can only really work for 2-3 top tier firms, at any one time with the rest of our business coming from a wide range of niche players.” Hugo Hunt believes that “Small boutique houses with specific specializations are taking advantage of the current situation to hire top talent”. In fact, James Norton explains how “Many financial service professionals are moving out of the large houses in favor of the small niche firms, especially in alternative investments.” WATCH OUT FOR SHARKS The end result is that the volume of search has gone down. Financial institutions are becoming more selective in the way they use search as many are reducing the number of preferred suppliers or at the very least, reviewing

the terms and conditions of their current contracts. Clients’ requirements are becoming more specific and demanding as the level of competition among search firms intensifies. According to Andrew Lowenthal, “This, in turn, has added pressure on fees. As the number of searches has fallen, so have the fee levels. In addition, retained search firms are being asked to increase the element of contingency in their fee structures.” Moreover, Dee Symons believes “The financial services market is becoming more contingent, especially in equity and fixed income. She describes how more junior levels are increasingly going to contingent firms, as the top retained

Dee Symons search firms increasingly battle for the senior level assignments. In fact, the search firms that will survive are the ones that add value, perform consultancy services, are relationshipdriven and are able to demonstrate product expertise.” Andrew Lowenthal also believes that many investment firms are choosing contingency firms rather than retained search firms. He describes off-limits as a reason and added, “as a result, there is increasing pressure from search firms to make off-limits agreements more tailored to the areas of activity, rather than providing blanket cover.” When looking at competition, Paul

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Aldrich explains that he considers both direct and indirect competition. According to him, “Direct competition includes firms that provide any type of search service, be it a one man band that does contingent work all the way through to the thoughtful and high quality type of search firm such as Egon Zehnder, and everything in between. When a business manager hires a candidate directly, that is indirect competition because it takes away a potential fee from the marketplace. The same can be said about in-house resourcing. However, in-house recruiters will mostly threaten contingency rather than retainer based search firms. There might be greater competition for selection, but not the retained end. Getting involved in retained search has a high barrier of entry, especially in today’s world.” Emma Weir explains how in-house recruiters are more “involved in finding jobs for their firms’ personnel, negotiating new contracts and even preparing recruitment supplier lists, but are not directly competing with the services retained search offers. They do not have the adequate contacts or experience to do so.” In fact, Emma Weir affirms, “Clients are probably more comfortable using outside firms. From a candidate perspective, search firms are also more appealing as the most talented professionals and the best paid prefer to go to a headhunter. Their success rate lies in the fact that search consultants not only have to deliver the best candidates to their clients, but after each candidate accepts the offer the search consultant must hold his or her hand through the resignation process and make sure he or she joins the firm. This is the point where inhouse recruiters lose their candidates.” WALKING THE PLANK Due to fierce competition, personal relationships have become fundamental. Although strong personal relationships have always been vital in search, the economic downturn and the growing

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AMONG THE MOST DYNAMIC AREAS OF EXECUTIVE SEARCH IN FINANCIAL SERVICES

g Hedge Funds Alternative Investments Legal & Compliance Credit Derivatives Fund Management Risk Management Private Banking Private Equity ABLE AREAS FOR Foreign Exchange ANCIAL SERVICES

distrust in large corporate institutions have made clients demand that trustworthiness be embedded if a personal relationship is going to continue. Emma Weir reports, “The days of doing one off transactions are dead. Its time to cement client relationships and be much more lateral in the way we assist our clients. We must convince them that we know them, we know their management style and culture and therefore, we can advise and help them with competitive information that will allow them to move forward. The services we can offer depend on the client. In the past, we have helped our clients with management appraisals, salary surveys, competitive numbers and styles, and market surveys - but it is ingrained as part of our overall executive search service.” Simon Hall admits that retained search firms are probably doing more for less. “The lower compensation packages mean that our percentage fees have also fallen dramatically so we have to fight to make sure to win as much business as possible in order to maintain overall revenue levels. Clients also expect much more ‘free’ information with regards to industry trends, compensation levels and competitive strategies.” According to Andrew Lowenthal, “Search firms must stay close to their clients, be flexible in solving their problems and focus on providing a consistent top quality service.” He believes that in order to compete effectively in this business, search firms

must be more systematic with their data and increase their reference checking abilities. Harry O’Neill, Managing Director of Whitney O’Neill (part of Whitney Group in Asia), explains, “Search firms must take into consideration their clients’ difficult situation. And you may have to perform a certain amount of tasks that were not necessary before, however, they are always tied into the possibility of search. The biggest challenges are that clients are suffering and therefore not resorting to search as often as before. Yet we manage to stay on top by demonstrating our loyalty, maintaining our high quality of service as well as maintaining and developing core relationships.” For John Holmes, Head of Financial Services at Odgers Ray & Berndtson, “Strong knowledge of the markets and your clients’ businesses are key. You must sustain these relationships and do what you have to do to the benefit of your clients.” James Norton elaborates, “Each firm must address the set of unique problems and opportunities that their clients face, they must be able to understand the market and have the necessary established relationships to move their clients and themselves forward.” According to Paul Aldrich, “Innovation and value are fundamental. It is vital to remain visible, raise standards, be very client focused and always communicate well within your own organization.” He strongly believes that you can succeed as long as you take into account “your clients needs, the products and the geographic market you are targeting.” THE CAPTAIN STEERS THE SHIP In financial services there is an array of prominent search firms, ranging from the large global search firms, like Spencer Stuart, Egon Zehnder, TMP Worldwide, Russell Reynolds, Heidrick & Struggles, Korn/Ferry International, Whitehead Mann and A.T. Kearney. Then there are the specialist global boutiques, such as Whitney Group and Eban

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International. There are specialist regional boutiques, illustrated by Global Sage, Executive Excess, The Rose Partnership and DAK Associates. Finally, there are the alliances, like FINSAL (Financial Search Alliance), that combine niche boutiques from Frankfurt, Brussels, Luxembourg, Amsterdam, Paris, and London under one pan-European umbrella as a means to effectively compete against the big players. The size and opportunities available in financial service markets in the United States are enormous. Therefore it is difficult to list all the key search firms. Nevertheless, search-consult will try to highlight some of the leading firms. Among the dominant large search firms are Spencer Stuart, Korn/Ferry International, TMP Worldwide, Egon Zehnder, Russell Reynolds, Heidrick &

Andrew Lowenthal Struggles and A.T. Kearney. Among a few of the smaller prominent boutiques are Whitney Group, DAK Associates, James Norton Partners, Sextant Search Partners, Choi & Burns and Orion Advisors. Meanwhile in Europe, the majority of the search firms have their headquarters in London. Among the leading large global search firms are Egon Zehnder, Spencer Stuart, Russell Reynolds, TMP Worldwide, Odgers Ray & Berndston, Whitehead Mann, Heidrick & Struggles, Korn/Ferry International. Among the

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most distinguished specialist firms are Sainty, Hird & Partners, The Rose Partnership, Whitney Group, Hogarth Davies Lloyd, Alexander Mann Global Markets, Armstrong International, Sheffield Howarth, Eban International, HammondBlack, Stephens Associates, Global Sage and FINSAL. In Asia, among the prominent search firms are: Executive Access, Eban International, Whitney O’Neill (part of Whitney Group), Global Sage, TMP Worldwide, Spencer Stuart, Cambridge Consulting Services, Korn/Ferry International, Heidrick & Struggles, Egon Zehnder, Russell Reynolds, Alexander Mann Global Markets, Pelham Search Pacific, Spencer Associates, East-West Consulting and Options. SAILORS TAKE THE HELM Another important development has been the fragmenting of the search market in favor of small boutiques as consultants are opting to go back to basics and take personal control of the search process. Simon Hall begins, “There was a time when people thought that ‘big is best’, but now there is a resurgence of consultants interested in joining a boutique. Historically, the large ‘branded’ search firms were an extremely comfortable place to work as many assignments were originated via long standing global relationships. However, in these market conditions, each consultant is required to originate revenues and those who are ‘personally’ capable of winning mandates clearly stand out from those who are incapable - these types of consultants tend to exist in boutiques.” “You can run a more profitable model in a smaller firm”, says Jill Niemczyk. She explains how “Many search consultants were content at larger search firms during the boom years because they saw the opportunity to realize value from stock in public search firms. Now, it is pretty clear that the value won’t be realized. Although this influx of new firms will produce more

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competition, ultimately it will create more value to clients, as a more efficient model allows a firm to deliver superior service without sacrificing the bottom line. A smaller firm can align the client’s interests with the search firm’s interests.” James Norton, formerly Managing Director of Korn/Ferry International and Director of the Americas Financial Services Practice, decided to open his own firm because he missed working closely with clients and having the flexibility and freedom to respond to challenges in original ways. He believes that “Big firms tend to promote their brands versus personal relationships.”

Jason Chaffer According to Emma Weir, “It’s very hard for a search firm to have overall quality, especially in terms of effectiveness and integrity. There are pockets of quality in different offices and disciplines within search firms. Many times, the bigger you are in size means the harder it is to maintain such high standards. Therefore, many consultants prefer to go to a small firm as it is easier to make sure that each consultant is performing top quality.” Meanwhile, Fiona Stephens explains, “Many financial institutions prefer specialist firms because they understand the market, the dynamics, the people and have the flexibility to relate to a client. Most importantly they are not selling the process of a general search

firm, but proving their ability with concrete results.” Paul Aldrich elaborates this concept further as he reports, “you cannot impose a traditional search model on the dynamics of today’s financial services. The traditional investment banking search model was more akin to CEO and board level search, assuming people and the culture are similar. The dynamics differ for each market/product area as the culture, pace and complexity must be taken into consideration. For instance, the context and culture of doing search for an origination position is very different to that of a trading position and therefore so is the type of relationship you would have working with the head of trading vs. the head of origination. There are very different dynamics to the search process that have to reflect the needs of the client, not the needs of the search firm. You’re still selling search but you have to go about it in a different way and have a degree of flexibility in dealing with clients.” “Although the trend currently favors small boutiques,” James Norton believes, “it is important to note that this is cyclical. When you look at the larger historical picture, search firms started small, and they got big. Then boutiques dominated the industry, they merged with the big firms and now the circle is beginning again.” Dee Symons admits, “Large search firms/brands tend to have some institutionalized baggage that some search consultants, currently frustrated with the current market conditions, are no longer content with handling. Off limits, internal bureaucracy and the fact that large search firms are not always as flexible with fee reductions are some of the motivators for some search consultants leaving large search firms for boutiques. At the same time, the tables will turn as a boutique’s strength - its AMONG THE MOST VULNERABLE AREAS FOR EXECUTIVE SEARCH IN FINANCIAL SERVICES Corporate Finance

Equity

Mergers & Acquisitions

Research

High Yield Research

Telecommunications

Trading

Technology

Sales

specialization of a niche product - will also be a limiting factor. When that market dries out, it will not be able to reinvent itself. In the long run, large search firms will always have a key advantage over the smaller niche boutiques: we have a team of product specialists that cover all the relevant sectors, we have the track record and we have the proper infrastructure to operate across all the geographic regions.” Andrew Lowenthal agrees as he believes that in today’s world, “only global search firms can consistently provide their clients with the scope, depth, knowledge and international capabilities that they require to move forward.” Meanwhile, John Holmes reports that recently, “there is a large amount of movement among search consultants” as one of the trends appears to depict a great number of consultants leaving large firms in favor of working for small boutiques or creating their own search firms.” At the same time, he points out that “many of these search consultants were not the big producers and therefore, are not voluntarily choosing this path.” Jason Chaffer, Head of Global Financial Services for Spencer Stuart, explains how important it is to remember that many of the search firms, especially the larger firms, are mirroring their clients in upgrading talent. He believes that the best option is to “work like a boutique, with clear specializations and intense personal relationships, yet at the same time, be able to provide clients on a global scale. If you look at Spencer Stuart’s performance record for searches in financial services in 2002, its US and UK teams have already exceeded their achievements in comparison to 1999 and 2001.” Therefore it is obvious that some clients are still opting for the large search firms. “In the end,” James Norton believes, “if clients are happy with the services provided, they will follow their consultants wherever they are.”

VISITING DIFFERENT PORTS “One should not consider financial services as a mass market,” declares Simon Hall. “Equity and debt products tend to peak and trough at opposite ends of the cycle in almost every scenario. Similarly, all the other product areas we cover will also have specific factors, which affect their profitability and the requirement for search services. In fact, it is rare that our specialist practices in fixed income, equity, investment banking, private equity, real estate, legal, asset management and insurance all operate at full-capacity at the same time, markets just don’t react in that way. Indeed it’s the very fact that we have experts operating in every field, as

Harry O’Neill opposed to generalists, that enables us to weather almost any storm.” Paul Aldrich believes, “It depends which part of the client you are servicing as the search market varies radically from sector to sector. Investment banking is pretty dire. Although it hasn’t completely halted, it does not have the high level of growth that the credit market, for instance, has shown. Equities are in the middle as people are being retrenched from some houses while other institutions are hiring. Hedge funds have had significant growth over the past 2-3 years and there is still room for more growth, although some have closed this year.” According to Dee Symons, “The main

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product areas that have shown significant demand have been asset management, alternative investments and hedge funds. Fixed income is holding up, in particular, credit derivatives, risk, and finance directors are also generating growth.” John Holmes views “Alternative investments, credit, fixed income, risk and compliance as well as hedge funds as growth areas over the past year.” For Andrew Lowenthal, “Asset management, private equity, private banking, compliance and risk management” are the main areas of growth. Meanwhile, Jason Chaffer said, “The areas of alternative investment and asset management are buoyant. Some parts of investment banking, such as equities continue to show a fair amount of activity. Then there are the credit and debt markets that also continue to generate demand.” For Simon Hall, global product areas that have shown signs of growth this year have been “Fund management, debt markets, insurance, as well as legal and compliance.” In fact, due to the uncertainty that dominates the recruitment market in investment banking, legal and compliance are buoyant, as corporate scandals and increased legislative pressure by financial service authorities have highlighted the need to reform standards of corporate governance and financial statements. Another interesting development has been the gradual increase in interim management as investment firms are forced to change structures in these tough markets. ANCHORS AWAY Financial services are considered to be among the most global of the service industries. In fact, for the first 6 months of this year, the average percentage of cross-border candidates and assignments per firm was between 2550%. Although this figure may have been higher during the boom years, the

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figure depicts that there is still a substantial amount of global activity taking place. Another important development is that in the last couple of years there has been an alignment in base salaries in the US, Europe and Asia Pacific. What differs is the bonus, but today that depends more on the opportunities available rather than a specific location. For the purpose of this review, it is important to take a glimpse at these three regions, highlighting their main characteristics and key products. Paul Aldrich begins, “There are historical and structural reasons why some of the product areas might not fill out as quickly in one region compared to another. The context of each region is different and one must take all these factors into account” when planning a search. He continues, “In the United States, the sheer size is enormous. Markets are large in comparison to Europe and Asia Pacific. It has the added advantage that

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it is a homogenous market. There aren’t regulatory, language or cultural barriers in the same way that there are in Europe. It is also a deep and liquid market in terms of potential candidates for clients - although finding the right person is always a challenge in any market.” Emma Weir also points out that “We still see some demand for non-domestic US equity sales people to sell to the USbased institutions”. Dan Kreuter explains that in the United States it is important to “work nationally. For instance, New York City may be in a recession, but Texas could be in an expansion mode.” Therefore, it is important to make the necessary adjustments to these circumstances. In terms of products, “the general areas of growth include: niche firms in asset management, private asset management, quality fixed income players, well-run brand equity players, hedge funds and prime brokers, SMA organizations, boutique consultants and

third party providers and DC Providers.” Simon Hall reports that, “Our real estate and global asset management and debt practices are doing very well. New York and London are both suffering from a downturn in mainstream bulge bracket business, which we have not been used to. However, we are working for boutique investment banks, hedge funds, asset management firms and a couple of specific investment banking divisions that are expanding globally.” Dee Symons explains how “The US went into a slump first, and now, in the second half of the year, there are signs that it is slowly beginning to come out of it. Yet Europe is still feeling it.” Meanwhile, Fiona Stephens believes that within Europe, “There are pockets of growth. The prospect for different products or services varies from culture to culture but, as within Asia where Korea is active and China is unleashing its potential, albeit in a different way, some European countries have the fundamentals to bounce back more

quickly than the relative global picture.” Emma Weir views Europe as a big and competitive market. “Everything is still London-based. In fact, the PanEuropean equity firms and global equity firms are all based in London so it is easier to conduct business from London. Germany is the second most important market and France is the third.” According to Simon Hall, “Europe represents our biggest growth opportunity. One of the reasons is because so many foreign firms are investing in Europe and it is seen as an area that will develop further over the next few years. In addition to the UK, last year we completed searches in Russia, Germany, Scandinavia, Italy, and France. All these assignments were conducted out of our London office.” For Dee Symons, “France and Germany are important markets in terms of buy outs. The Netherlands and Switzerland continue to be strong productively. Although the UK has been hit hard, it still continues to generate 50% of TMP’s European revenues.” Andrew Lowenthal reports, “Germany, the Netherlands, France and Switzerland remain key. The UK will always be important, but is currently weaker than we would like it to be.” Hugo Hunt observes activity in “Germany, Scandinavia and obviously the UK. Although London will continue to generate searches, it has slowed down in comparison to the level of activity generated during a boom period.” It is important to note that although Germany has been hit hard, its changes to the regulatory market have produced positive results for investment management houses with established domestic operations. This, in turn, has maintained a steady demand for talent in investment banking. In addition, German headhunters are said to be undertaking cross border work in areas of private banking, asset management, alternative investment and corporate finance between Germany and neighboring countries. Financial service

professionals are also finding jobs in other industries, such as the manufacturing industry, that require solid financial knowledge. Despite the downturn in markets, big and small investment institutions continue to demand investment bankers with established relationships with German banks and with the Mittelstand, the thousands of privately owned businesses that make up Germany’s medium sized company sector. In terms of products, equity and debt markets appear to have the biggest potential for Europe. With the creation of the European Community, the integration of financial services is creating a number of opportunities for

Dan Kreuter financial service professionals. Hugo Hunt believes that the products that generate the most searches are in “Alternative investment, wealth and asset management and sporadic interests in private equity.” Andrew Lowenthal believes “Asset management, private equity, private banking and insurance” remain strong. He notes that financial administration and sectors that deal with the internal side of businesses are generating demand. “Client services and relationships” are also increasingly gaining ground. In Asia Pacific, “We have a far smaller

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universe of potential clients to draw from,” comments Harry O’Neill. Another interesting aspect is that “something very important in Asia and that differs significantly from the US and Europe, is the negotiation process in itself. Here the candidate is far less keen to negotiate directly. However if negotiation is managed by an intermediary such as a search firm, the whole negotiation process can be much smoother.” According to Paul Aldrich, “Asia Pacific is a thinner market in terms of banking deals for our clients. It is also a thin market in terms of experienced candidates. In this region, both US and European firms have entered and exited the market at different times and in different product areas. It seems that it is the region that always comes in last. For instance, US institutions try to get a grip of what is happening in their domestic market first. Then they will look to Europe, and once they are happy with what is happening in both of those markets, then they will focus on the marginal revenue that comes from Asia. Likewise, European firms will tend to focus in Europe first, try to compete in certain areas in the States and then focus their attention on Asia-Pacific. For our clients, this seems to be the order in which they will do things.” Harry O’Neill explains how “The best markets in recent times have been Korea, Taiwan and China - although not necessarily based in China itself. Japan is a more mature market that is in recession. It has historically been a difficult market for search firms since institutions there are still reluctant to use retained search. What is important to note is that when dealing in AsiaPacific, one must differentiate between non-Japan Asia and Japan because their characteristics are so different.” Emma Weir agrees as she also views Korea as the most active market in AsiaPacific. “It is followed by Taiwan. The Hong Kong market is quite quiet, but as the hub of Asia, there are still jobs for senior regional roles. China is just taking off. Today China is growing, but it still

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does not compare to the activity generated by Korea. As time progresses, China will become a very huge market. Meanwhile Japan, which has been in the doldrums for a number of years now, still remains one of the world’s largest markets. We continue to see demand there because very few non-Japanese nationals have come into the markets over the past 10 years. In line with the rest of Asia Pacific, it is sometimes hard to find high caliber, totally Westernized, locals with the experience that is required for a number of roles.” In terms of products, Harry O’Neill describes that, “There has been a fair bit of movement recently in the debt, credit and structured derivatives markets.” According to Emma Weir, “Until recently, many firms were still selectively building their regional infrastructure. We therefore saw activity in areas such as compliance, Chief Operating Officers and general management, but far less demand in the client facing origination investment banking roles.” Within this region, it is important to mention Australia. According to Harry O’Neill it is a fairly self-contained market, and there have been signs that demand is increasing once again. Margaret Doman reports, “Markets have been buoyant and continue to show relative activity”. It is important to note that headcount reductions in Australia were not as severe as elsewhere in the region. In addition, Australia’s market in financial services has been in the process of liberalizing markets, undergoing structural changes and implementing regulatory systems. Moreover, there has

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always been a steady flow of Australian expatriates in the rest of Asia as their understanding of the markets and the culture continues to be rewarded. Margaret Doman explains how all these factors have resulted in a high demand for executive talent. In fact, “the most dynamic areas are investment banking, wealth management, asset management and derivatives.” MAPPING UNCHARTED WATERS When one looks to the future of search in financial services, the level of uncertainty is apparent. The surveys and reports indicate that by this time next year, little will have changed. John Holmes believes it will be “a continuation of an extremely difficult environment.” Jill Niemczyk agrees as she indicates that, “the next few years will be challenging. No one knows how the market will evolve. We have to address a changing environment and re-orient our strategies for financial services searches as the environment changes in unpredictable ways.” Jason Chaffer believes “the future is difficult to predict”. He admits that financial institutions are tightening their budgets. While there are opportunities, he does not perceive the overall situation to improve before 2004. Simon Hall is more optimistic as he explains that, “As we look forward it’s hard to say when we’ll see an upturn in overall business levels, the outlook for certain sectors in the financial services industry will remain uncertain for at least another 6-12 months. In our opinion, then momentum should pick up. History shows it will come back - it

always does to one degree or another.” According to Harry O’Neill, “Although the financial services sector may not yet have reached bottom in headcount terms, from a search perspective things are beginning to look up because institutions are re-engineering and restructuring their businesses, which always means more demand for search.” Meanwhile, Emma Weir is worried that ‘It has taken 24 months of steady decline to reach where we are today and I believe that we will take as long to come out the other end. In the meantime, every market practitioner who survives will mature through it and hopefully the market will be more efficient, streamlined and professional when the shake-out is over and recovery starts.” After witnessing many bull and bear markets, James Norton, who has 25 years experience as a headhunter in financial services, believes that, “The firms that know how to follow the changes are the ones that will survive. Searches will continue because more changes are to come.” In sum, recovery is imminent, but no one knows when. How far the markets will tumble or how many more jobs will be cut before financial services hits rock bottom is pure speculation. What is important is that today there are pockets of growth. The successful search firms will identify them, adjust to meet their clients’ demands and prepare for the next horizon. www.search-consult.com

For more information, contact: Web: www.search-consult.com

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Selecting the Right Leaders:

Why Personality

Matters

By Jorge E. Fernández eo tenure is becoming shorter and less secure. A recent Drake Beam Morin survey of 476 companies in 25 countries shows: ● 50% have CEOs who have been in the post less than three years. ● 66% have appointed at least one CEO in the past 5 years with many on their second or third CEO. Similarly, a recent study conducted by Rakesh Khurash, a professor at the Harvard Business School, shows that CEOs appointed after 1985 are three times more likely to be fired. Why the rise of revolving door Chief Executives? Pundits give a variety of reasons having mostly to do with economic uncertainty. The pressure created by hypercompetition is certainly real. However, companies also need to take a closer look at their recruiting, selection, and development practices. It’s not unusual to find disturbing similarities in the pedigree of those in leadership roles.

They are usually graduates of the same institutions of higher education with qualities similar to the incumbent leaders. Tagged as high potentials, these recruits are placed on a fast track to management positions where they tend to perpetuate perspectives consistent with those of existing leadership. They are accelerated through a series of positions at a pace that hardly permits them to learn their jobs well, let alone reap the harvest of the seeds they sow. If that were not bad enough, when the time comes to hire or promote managers many organizations routinely, rely on solid facts customarily found in a CV. Namely, the requisite knowledge, and experience, and a record of accomplishment. However, they fail to investigate the behavioral characteristics of an individual. This can turn out to be a costly mistake. Studies by the Center for Creative Leadership show that executives who later derailed had typically run a string of successes early on, and were

considered technical geniuses or skilled problem solvers. Yet, ultimately they derailed due to problems with interpersonal relationships. More specifically, this research reveals managerial incompetence to be associated with untrustworthiness, over control (micromanagement), exploitation, irritability, unwillingness to use discipline, and an inability to make good staffing and/or business decisions. In the final analysis, the failure to build and maintain an effective team proved disastrous. In order to pick the right Managers the softer qualities of leadership must be assessed. Those responsible for making people decisions need to know for example, if the candidate inspires trust, listens well, delegates important tasks, and is willing to share praise and credit. These kinds of competencies are a function of personality. For example, if one were to ask a hiring manager or job

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incumbent to list the attributes of a good performer in a given job, many characteristics listed would be personality constructs (e.g., reliable, curious, even-tempered, etc.). Management jobs are no exception. Project Globe’s findings indicate that persons all around the world are perceived as leaders to the degree they are trustworthy, forward looking, inspiring, and decisive. Therefore, quite clearly the suitability of a candidate for a management job is more than simply a matter of the candidate’s functional experience or the organizational levels he/she has occupied. The most crucial factors are his or her personality and behavioral style. The good news regarding interpersonal skills is that they can be measured cheaply, efficiently, and accurately. The bad news is the new manager’s interpersonal skills were shaped at an early age and have been a part of the person for most of their life. By the time he or she reaches adulthood, they are as unchangeable as one’s facial features. Therefore, companies would benefit by focusing their energies on selection rather than development of interpersonal competencies. In order to determine suitability, assessing the managerial candidate’s behavioral style is necessary but not sufficient. Regrettably, persons who interview well may also have less attractive interpersonal tendencies, which emerge after prolonged contact or when a person is under pressure. For example, confidence is desirable in all leaders but the overconfident can be opinionated, overbearing, and unwilling to admit mistakes. In time, these selfdefeating behaviors disrupt team performance and even derail an individual’s career. Because these “dark side” characteristics are hard to detect by conventional means (e.g. interviews, assessment centers etc.). It would be prudent to conduct structured interviews with former subordinates or use psychometric instruments designed to identify career-derailing tendencies. Thus far, I have traced the significance

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of interpersonal issues in the management selection process. However, there is another realm unrelated to interpersonal competence and must be assessed separately. I am referring to an individual’s core values. Research shows that the most effective CEOs were those who had been hired based on the similarity between their values and those of the firm - rather than their knowledge of the firm’s industry. This brings forth stronger evidence that there is more to being an effective manager that can be discerned from an impressive record of accomplishment. Moreover, no matter how talented you may be, if your values are at odds with the larger culture, you will not fare well in that organization. Stated differently, people are happiest working in environments that are compatible with their core values. This is so because to the degree that team members’ values are compatible they strive toward the same goal. In conclusion, I have tried to illustrate that personality is a pivotal factor in the selection of managers. Simply put, people do not change very much once they enter the corporate world, and the changes that do occur are mainly a matter of a consolidation of strengths. As for the transferability and/or promotability of executive talent itself, what is vital is compatibility. The interpersonal style and temperament of the manager must be congruent with the character and particular needs of the organization at a particular time. People can be taught certain managerial technologies, but not the fundamental human traits that turn the use of those technologies into organizational results. Occasionally, knowledge of the industry or mastery of particular technologies may be equally important to a successful match. However, if personality and style are out of step with the new situation, nothing can prevent failure. ADDITIONAL RESOURCES: Drake Beam Morin (2001) CEO turnover and job security (website). House, R.J. (1999). Cultural influences on

leadership and organizations: Project globe. Advances in Global Leadership, Vol. 1. Greenwich, Ct.: JAI Press. Khurana, R. (1999) Open and closed positions: An examination of CEO turnover, 1980-1996 (unpublished manuscript). Rajagopalan, N., and Datta, D. K (1996). CEO characteristics: Does industry matter? Academy of Management Journal, 39, 197-215. Van Velsor, E. and Leslie, J.B. (1996) A Look at Derailment Today: North America and Europe. Greensboro, NC: Center for Creative Leadership.

Jorge E. Fernández Mr. Jorge E. Fernández is President and owner of CIMA & ASSOCIATES, INC. He is a graduate of the University of West Florida, where he earned a Master’s degree in Psychology with a specialization in organizational development. Before founding Cima, Mr. Fernández was an internal consultant for American Airlines and United Healthcare in the field of human resources development. Additionally, Mr. Fernández served on the faculty of Florida International University, Johnson & Wales University, Nova South Eastern University and MiamiDade Community College. In conclusion, Mr. Fernández has consulted for such companies as Bausch & Lomb-Latin America, US Postal Service-Miami District and American Airlines.

www.search-consult.com

For more information, contact: Web: www.cimainc.cc

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Ke y m o v e s i n E xe c u t i v e S e a r c h following

the UK and enhance collaboration with the

announcements. Stephen P. Mader is named

appointments: William M. Pastore, the former

Korn/Ferry offices throughout the European and

President and Co-CEO, alongside existing CEO and

President of CIGNA HealthCare, will replace the

global communities. Leslie Hortum is promoted to

Chairman Jeff Christian. Carrie Pryor is named as

departing Jim Treacey as COO. Dan Dumitrescu has

Office Managing Director of Korn/Ferry’s Washington

Partner

been named President of Executive Search, Asia

D.C. and Tysons Corner offices as she lead the firm’s

Entertainment Practice. Prior to this appointment, Ms.

Pacific, responsible for expanding TMP’s presence in

growth in Federal/Association/Non-Profit markets.

Pryor worked at Spencer Stuart focusing on Media,

that region. Mr. Dumitrescu had worked for

Meanwhile,

Korn/Ferry

Telecommunications and Technology. Prior to that,

Korn/Ferry International for seven years and until

International as a Senior Client Partner in Financial

Ms. Pryor was a Senior Partner/Practice Leader with

recently, had served as Vice President, Asia Pacific.

Services. Previously, Mr. Magsig served as a Partner

TMP Worldwide and LAI/Ward Howell. Meanwhile,

Fallya Petrakopoulou joins as Pharmaceuticals and

in the New York office of Heidrick & Struggles,

Michael A. Wellman becomes Managing Partner of

Biotechnology Practice Leader, and as a member of

where he specialized in the Insurance Practice.

the firm’s New York and Stamford offices and will

the New York office. Previously Dr. Petrakopoulou

Spencer Stuart adds Mike Kirkman as Office

handle executive search assignments in the

worked at Korn/Ferry International as Managing

Manager for the firm’s Washington D.C. office. He

Technology, Telecommunications, Financial Services,

Director in the Healthcare Practice as well as Global

brings more than 22 years of experience in a wide

Consumer Markets, Manufactured Goods, Natural

Director for New Products and Services for Healthcare

variety of senior-level search assignments across a

Resources and Professional Services Industries. Cyrill

Products. Brad Holden is welcomed as Managing

range of industries and functions. These include

Haas joins as a Principal, operating in the firm’s

Partner of the Chicago office. Earlier this year, he had

Board

Education,

London office and with the EMEA (Europe, Middle-

been one of the Founding Partners at Leaders Trust

Government Relations, Financial Services and

East and Asia) team. Mr. Haas most recently worked

International. Prior to that appointment, Mr. Holden

Professional Services. Mr. Kirkman comes from

at Heidrick & Struggles in London and New York,

had

Korn/Ferry

Korn/Ferry International, where he was Office

where he focused on international and cross-border

International, where he most recently had served as

Managing Director and Head of the Federal, Non-

executive assignments for the firm’s Industrial and

President of the Global Industrial Practice and

Profit and Public Policy Practice for the Washington

International Technology Practices.

Managing Partner of the firm’s Chicago office.

D.C. and Tysons Corner offices. Prior to that, Mr.

Thomas A. Rowe is named Global Insurance Practice

Kirkman had co-founded the Washington, D.C.-based

Heidrick & Struggles International add Timothy C.

Co-Leader, Global Property & Casualty Practice

boutique firm Kirkman/Searing in 1984, which

Hicks as a Partner in the firm’s Chicago office,

Leader, and a Partner in the firm’s Executive Search

Korn/Ferry later acquired in 1997.

focusing on executive search assignments for the

TMP

Worldwide

spent

nearly

announces

years

the

Mike

Services,

Magsig

joins

Not-for-Profit,

and

Co-Leader

the

Media

and

Automotive Industry. Until this appointment, Mr. Hicks

New York office. Mr. Rowe had previously served as Managing Director in Korn/Ferry International’s

DHR International announces the following

had spent the past 10 years with Korn/ Ferry

Financial Services Practice, where he led the firm’s

appointments. Michael D. Boxberger, former CEO of

International, most recently serving as a Partner in

Global Insurance Practice. Darren G. Romano is

Korn/Ferry International, joins the Board of

the firm’s Chicago office.

appointed Global Human Resources Practice Leader

Directors of DHR as Vice Chairman. Subsequent to his tenure as CEO of Korn/Ferry, he most recently served

Mary Helen Dunn joins Russell Reynolds Associates

and a Partner in the firm’s Executive Search Stamford

as Co-Chairman of Leaders Trust International. In

as a Partner in the firm’s Atlanta office where she will

office. Most recently, Mr. Romano worked at

addition to Mr. Boxberger’s position on DHR’s Board,

serve clients in the Global Banking and Financial

Korn/Ferry International as Managing Director of

he will also lead the Global Board of Directors Practice

Services Sectors. Ms. Dunn recently joined the firm

the firm’s Global Human Resources Practice, where he was responsible for conducting executive search

Group and have involvement in company operations.

assignments across all industry practices.

after a 15-year career at Ray & Berndston, where she was a Partner and senior member of the Financial

Christian & Timbers has made the following

Services Practice.

Korn/Ferry International has made the following management changes. Nels Olson is promoted to Managing Director of the firm’s newly created Global External Practice. Mr. Olson had previously served as a Senior Partner in Korn/Ferry’s Washington, D.C. office. Sergio Averbach becomes Regional Managing Director for South America, based in Sao Paulo and overseeing operations in Argentina, Brazil, Chile, Colombia, Peru and Venezuela. Previously, Mr. Averbach had been Director of Consumer Products

AVAILABLE NOW ! Region-specific Search industry news, delivered by e-mail!

and Life Sciences practices for Egon Zehnder. Giles Crewdson is named Office Managing Director of the firm’s London office. Until this promotion, Mr. Crewdson had been a Senior Partner in the firm’s London office, specializing in Financial Services. Mr.

Crewdson will continue to build the firm’s position in

Keep us up to date with any corporate announcements! Email editorial@search-consult.com

ISSUE 14 2002 search-consult

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CAREER OPPORTUNITIES

search-talent More Information at:

www.search-consult.com/talent 1. BOOKMARK this site. 2. Click on Current Opportunities (on left) 3. Enter Reference Number (or select a Region or other criteria) CAREER OPPORTUNITIES These are just a sample of our weekly Search opportunities, selected from our global client base. To register your interest or view other opportunities simply email us. We will contact you for a confidential discussion. talent@search-consult.com Further Details www.search-consult.com/talent SEARCH PROFESSIONAL PROFILES A selection of experienced Search professionals from around the globe available for career moves. If any of these profiles complement your company’s expansion plans please email your interest for a confidential discussion. talent@search-consult.com Further Details www.search-consult.com/talent STRATEGIC SEARCH ALLIANCES If you see the benefit of increasing your clients’ perception of your firm by forming an international Search alliance, we encourage you to contact us to register your interest. All confidentiality will be maintained. TheBusinessLab@search-consult.com Further Details www.search-consult.com/TheBusinessLab

Partner Ref 1026 US - Multiple Locations Consumer-Retail, Healthcare & Defense Our client is considered one of the top retained Executive Search firms in the US and has over 10 offices worldwide. Focusing on senior level positions in a broad range of sectors, with excellent in-house research and recruiting capabilities. We are most interested in speaking with toplevel partners possessing substantial track records in any of the above specific sectors. Email - talent@search-consult.com

Senior Players US - Multiple Locations Generalist or Specialist

Ref 1130

Our client is one of the worlds most respected and long established Search firms. Operating at Board/ senior management level, they are looking for unique, inspirational leaders. If you’re looking for a new change from a major international Search firm OR from a very strong boutique after having worked for a major Search firm previously, please email to discuss this on-going expansion opportunity in more detail. Email - talent@search-consult.com

Consultants ASIA - KL, Malaysia Technology

Ref 1122

Part of an International Network, our client is a retained Executive Search firm, committed to providing a select, demanding client base with “A” level, executive talent. They require to expand the Malaysian office with experienced and entrepreneurial consultants capable of delivering innovative and knowledge-based solutions for clients. Email - talent@search-consult.com

Managing Partner EUROPE - Munich, Germany Technology

Ref 1129

Young Search firm with a good track record of delivery in the Technology arena. Candidates required with strong track record of winning and delivering search assignments in Germany at a senior level for technology companies, management consultancies, systems integrators and/or strategy houses. Email - talent@search-consult.com

If you represent a Search firm and would like to highlight your Internal Opportunities on this page or discuss how Search-Talent can assist in your hiring strategy, please email to arrange a confidential discussion. talent@search-consult.com

SEARCH PROFESSIONAL PROFILES New York, US - Senior Partner Legal

Ref SP151

Established and respected search professional with thirty years experience, billing $1M + offices in Manhattan and interested in joining a search firm with need for a legal Search division in New York City or a search firm where their corporate client base is underserved in the legal area.

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Ref SP157

Independent biotech/life sciences search professional interested in joining any size search firm, domestic or international. Own office space. Billed $1.4M in 2001. Average Search fee $70k. Needs support! Will not relocate.

Pacific Region Senior Consultant/Partner IT/Telecom

Ref SP152

Twelve years Search experience. Currently with boutique Energy search specialists. Lived and worked in South East Asia with Search firms for ten years. Strong contact network and specialization in IT&T. Interest in relocating back to Far East (except HK) for right opportunity.

London, UK - European VP Pharma/Biotech/Consumer

Ref SP148

Five years exp in Executive Search, eleven years prior in Global Human Resources. P/L responsibility to $3.5M, ten direct reports within Europe. Seeks consultative role within top-level search firm to be based in London.

London, UK - Managing Director Technology

Ref SP149

Sixteen years exp in Executive Search & Selection, five years developing own International Search & Selection firm. Seeks Director role in London to develop a new Technology Practice for an established firm. Will not relocate.

Scandinavia - Senior Partner/Director Ref SP150 Generalist/ Board level Sixteen years exp. in Executive Search, focussed on International Board level search within Technology, Industry and Consumer. Exp of running own boutique coupled with top 10 Search firm pedigree. Seeks to further develop a new Office in Scandinavia for growing UK, EU or US search firm. Fluent Danish, English, German and French. Will re-locate within Europe. For a confidential discussion on these and other profiles please email: talent@search-consult.com

STRATEGIC SEARCH ALLIANCES Switzerland Finance & Pharmaceutical

Ref SA154

An established Swiss based Search & Selection firm with a blue chip international client base is looking for an alliance with a similar or complementary international search firm based in Germany, UK or US.

London, UK Boston, US - Consultant/Partner Biotech/Life Sciences

Ref SA156

Seeking Alliances in Europe and the US- A fast growing boutique Search firm with an HR consultancy arm and a growing number of European clients is seeking strategic alliances with specialists and generalists in Europe and the US.

US & Pacific Region Generalist or Specialist

Ref SA158

Large International Search network with an International client base is looking to grow its network considerably in 2003. Interest is sought from established search firms now with a solid client base.

Pacific Region Ref SA153 Financial Services, Consumer and Telco A long established successful boutique Search firm currently seeks a larger, international, strong brand with a specialist focus on similar industries and blue chip client base. Ideal alliances will be based in US or Europe.

London, UK Ref SA146 Technology, Media, Finance, Consumer An ambitious, fast growing London based medium sized Search and Selection firm, (ÂŁ3m+) is seeking to partner with an experienced and connected Search firm that can help add bench strength at Board level mandates to Technology and other companies. Alliances must be US West Coast based.

Alliance Partners Wanted We would like to hear from Search firms in all regions and areas of specialization looking for strategic alliances that will extend their global reach but enable them to maintain their independence. Confidential enquiries to: TheBusinessLab@search-consult.com www.search-consult.com/thebusinesslab

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FILEFINDER software is designed for Executive Search and is supported by people who understand Executive Search. To find out how YOUR business can benefit, book your FREE demonstration TODAY!

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