search-consult Issue 18 by margaret jaouadi

2004 / ISSUE 18

The International International Executive Executive Search Search Magazine Magazine The

Corporate Governance

Emerging Search Firms AIMS Network with a Difference Technology in Executive Search Is This Network for You?

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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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Editorial Welcome to Issue 18 of search-consult

Corporate Governance and executive compensation have been the focus of media attention for quite some time now and recent corporate scandals ranging from Enron to, more recently Parmalat - keep the topic in the headlines. But what does it mean for the Executive Search industry? Pilar Gumucio’s feature article on page 7 explores the impact of new regulations, such as the Sarbanes-Oxley Act in the US and the Combined Code in the UK, on Board searches across the globe. Raya Mamarbachi, in her article on page 16, examines the role of executive compensation and its effect on Executive Search while David Moyer’s article on page 14 discusses the challenges of a CCO and corporate speechwriter searches. search-consult is committed to covering issues related to both large and small search firms around the world, therefore we would like to bring your attention to the article on Emerging Search Firms by Georgina Tremayne. It examines the motives behind the move and shows how taking a leap from the comfort of a large firm to being your own boss is never easy, but, in many cases, the rewards hugely outweigh the risks. On the other side of the spectrum, Pilar Gumucio’s article gives insight into one of the largest networks in Executive Search - AIMS - and explains why it really presents a different business model than some of its competitors. Is your firm looking to join a network? search-consult receives a great number of queries both from Search firms looking for an international partner and networks looking to add members in various regions. To help Search firms make this difficult decision, we teamed up with Paul McMahon, whose article on page 18 is packed with practical advice on what to take into consideration before taking this all important step. This issue also carries another article from our Technology in Executive Search series, this time on Candidate Management. Jason Starr’s article on page 20 discusses how technology can impact interaction with candidates and staff. Peter Felix closes this issue by commenting on the challenges facing Executive Search in a changing world. We hope you will enjoy this issue of search-consult. Your feedback is greatly appreciated, so please continue to email your comments to editorial@search-consult.com - after all it’s thanks to you that searchconsult enters its fourth successful year of service to the International Executive Search community.

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Emerging Search Firms:

Making the Move from Large Search Firms Quality Boutiques

By Georgina Tremayne here is movement in the Search world. Partners have already left and are continuing to leave large public and private search firms to set up quality boutiques. It looks like this trend will continue to grow. We talked with Partners previously at Korn/Ferry International, Spencer Stuart and Whitehead Mann and posed twelve questions to understand the motives behind the move. Three examples of many new firms who opened their doors in the last year and a half are:

WHAT PROMPTED YOUR DECISION TO SET UP YOUR OWN FIRM? Sam Pettway (BoardWalk Consulting) was previously at Egon Zehnder and then Spencer Stuart. He started as a generalist and became a specialist in NonProfit and Board Governance. While Sam applauds Spencer Stuart, their model was not conducive to focusing on this relatively small sector. He has a

Founded

Search Firm

Website

Previous Firm

October 2002

BoardWalk Consulting

BoardWalkconsulting.com

Spencer Stuart

January 2002

Fiderion Group LLC

Fiderion.com

Korn/Ferry Int’.

October 2003

Bridge Partners LLC

Bridgepartnersllc.com

Whitehead Mann

The challenges and rewards these companies face are generously explained by each of the Founders interviewed, and may offer useful

insights to anyone contemplating a similar move.

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passion for this sector and creating his own specialist boutique has allowed him to offer a search model that gives greater benefits to his clients.

Jim Norton (Fiderion Group LLC) was previously in a boutique environment which he ultimately merged with a London-based international search firm. He spent over ten years in production and management in three large firms, the last being Korn/Ferry’s Financial Services sector, before opening his search boutique. “In the late 90’s the large search firms that went public started going through significant change which impacted both their clients and their employees. The culture focused strictly on growing revenues and expenses versus executing searches and team work. It became a culture driven by transactions versus building and nurturing relationships. The firm did not have the leadership or organizational structure that I felt we needed to support our clients the way we should. They were overly burdened with finding new business opportunities, instead of keeping the focus on the core business. I learned a

lot in ten years and, although it was a great experience, it was clear we were heading for a recession. I felt the time was right to create a new type of search firm: a firm that offered a largefirm level of experience and expertise delivered in a high-touch, resultsoriented boutique.” David Brown, Larry Griffin and Tory Clarke (Bridge Partners LLC) were previously at Whitehead Mann, working within Consumer and Retail with an emphasis on Diversity searches within these sectors. As a boutique, they wanted to reflect their genuine effort and personal belief in presenting an inclusive slate of the best candidates for senior level searches across several sectors.

Fiderion: “Since I had previously started my own firm, I knew what I needed to do in order to hit the ground running. In the beginning the most important thing from my experience is to surround yourself with people who share your vision and want to be a part of building something unique. The other things just fell into place, including: office space, an accounting firm and a law firm. Simultaneously, within the first thirty days, we chose a phone system that would grow with our needs, purchased state-of-the-art technology, established a

DID YOUR DECISION INCLUDE OTHER PARTNERS IN THE VERY EARLY STAGES OR WERE YOU CONSIDERING WORKING AS THE SOLO PARTNER, AT LEAST INITIALLY? BoardWalk: “I am not a loner but I worked solo initially.”

to surround yourself with

Fiderion: “I had no intention of being on my own. I envisioned a firm organized into groups or practices run by its members, not by an office manager looking at the P&L. I prepared detailed business plans based on several variations of my vision.” Bridge Partners: “We were an established team and the team dynamic meant that we wanted to remain together.” WHAT WERE THE MAIN CHALLENGES OF THE FIRST FEW MONTHS? BoardWalk: “I underestimated the technology resource the large search firms offer. Despite due diligence, I initially worked with a tech partner who lost my email service for 2 weeks. I came to realize technology partners are very important. The difference is that I now see them as partners, not vendors.”

“The most important thing is

people who

share your vision and want to be a part of building something unique.” compensation and benefits program and wrote operating procedures.” Bridge Partners: “Building a revenue stream and balancing cash-flow. Establishing our value proposition and defining the kind of assignments that we can best help, and be most effective. Designing our strategy, being selective with regards to the diversity component.” DID YOU HIRE AN INTERNAL RESEARCHER/ EXECUTOR FROM DAY 1? BoardWalk: “I started with external resources and brought someone inside within three months.” Fiderion: “Yes, I hired someone inhouse right away.”

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Bridge Partners: “We outsource some name generation but do our own candidate development and execution, and one of our selling points is the Partners take personal responsibility for the searches.” WHAT ARE THE ADVANTAGES OF THE BOUTIQUE ENVIRONMENT? BoardWalk: “The flexibility to frame a firm that is at one with who I am. To realize a vision, provide a service and to have a bigger impact with my clients. There is now more synergy with my work and my clients’ mission.” Fiderion: “I have always believed in providing a value-added service for our clients. For me the most rewarding element of starting and growing a business is helping to create a great working environment, watching the team grow together and contributing to the success of our clients.” Bridge Partners: “We have personal ownership of the searches. We are externally focused on our clients rather than internally focused. There are fewer constraints and less bureaucracy, we have a great team dynamic and we are all on the same page. The larger risk is balanced by financial incentives.” WHAT DO YOU MISS ABOUT THE LARGE SEARCH FIRM ENVIRONMENT? BoardWalk: “Friends, collegiality, intellectual capital and the database was a real asset.” Fiderion: “I made a lot of friends at the organization and enjoyed working with them.” Bridge Partners: “We have a great environment and culture at Bridge Partners. We do miss the infrastructure of the internal IT support.”

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WOULD YOU EVER CONSIDER REJOINING A LARGE SEARCH FIRM FOR ANY REASON OTHER THAN A LIFE CHANGING FINANCIAL INCENTIVE? Fiderion: “I do not think anyone should ever say never, but the likelihood of the big firms changing their culture and operating model is slim.”

difficult decision was to turn away a client due to workload. I now know this was the right decision as they have since come back to me.”

Bridge Partners: “Absolutely not; we are all very happy with our decision.”

Bridge Partners: “This is our fourth month but, so far, we would not have done anything differently.”

IN HINDSIGHT, IS THERE ANYTHING YOU WOULD HAVE DONE DIFFERENTLY DURING YOUR FIRST 6 MONTHS? BoardWalk: “I would have launched my website sooner as it helps the perception of proving you are here to stay. I had more business more quickly than I expected so it had to wait. A

“It became a culture driven by transactions

versus building and nurturing relationships.”

Fiderion: “I would have started the firm using the name Fiderion instead of my name [initially called James Norton Partners].

HOW HAVE YOUR CLIENTS RESPONDED TO THE NEWS YOU ARE NOW RUNNING A BOUTIQUE? HAS THIS CHANGED THEIR OPINION OF YOU TO DELIVER, EITHER FROM A POSITIVE OR NEGATIVE PERSPECTIVE? BoardWalk: “The market respects people who do their homework. I do my homework and present myself and my firm as a partner, not a vendor.” Fiderion: “The first thing I did after resigning was to inform my clients. I was surprised that they were happy that I was leaving the big firm. Their

GUIDELINE CHECKLIST - Rated most important in the early days BoardWalk Consulting

Fiderion Group

Bridge Partners

Announcements-Phone

Yes

Announcements-Email

After Phone

Announcements-Mail

Later

Office space

Yes

Database

Yes

Website

Yes

Later

Brochures

* Check your phone system and email system. They don’t always work!

enthusiasm, together with the amount of work we received, was astonishing; something, quite frankly, I had not planned on. As a result, we hired ten people over the next several months.” Bridge Partners: “Our clients are very willing to work with a boutique. They feel we are hungrier and will deliver faster as a smaller company. DO YOU CONSIDER AN INTERNATIONAL OFFICE TO BE BENEFICIAL EITHER NOW OR IN THE FUTURE? Fiderion: “We have retained a search firm to find both domestic and international partners for us.” Bridge Partners: “Diversity is not as big an issue internationally as it is in the US, but we do source internationally.” DID YOU SEEK FUNDING TO SET UP YOUR COMPANY? BoardWalk: “No.” Fiderion: “No.” Bridge Partners: “No. We want our biggest obligation to be to our clients and then ourselves.” MOST IMPORTANTLY, ARE YOU HAVING MORE FUN NOW? BoardWalk: “The difference between a vision and a pipeline of business is success. I genuinely feel blessed. I love this work.” Fiderion: “We are having a lot of fun.” Bridge Partners: “Yes, no question about it.”

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Corporate Governance & Board Searches:

Heightening the

Game By Pilar Gumucio nron, WorldCom, Tyco and most recently Parmalat, coupled with lavish executive packages and collapsing stock markets, have raised the awareness of corporate governance issues to very dramatic proportions. Moreover, the globalization of markets and the realization that Boards can be used as a competitive advantage have caused these issues to be debated and discussed in virtually every country and organization, proposing new laws and new codes of conduct. New regulations, such as the Sarbanes-Oxley Act in the US and the Combined Code in the UK, have imposed new responsibilities and procedures on Public Boards. As corporations reflect upon the lessons learnt from corporate scandals, implement new regulations and strategically construct their Board of

David Hoffmann Directors to add value, the duties of the Director - and especially the NonExecutive Director- are expected to be carried out more rigorously than before.

Consequently, the selection of these professionals is also expected to be more rigorous and have a broader reach than before. Within this context it is “Critical for every business that they are seen to be constructing their Board in a way that can give their shareholders and the investing public confidence,” said Richard Boggis-Rolfe, CEO and CoChair of Board Services at Odgers Ray & Berndtson. According to David Hoffmann, who is Chairman, CEO, and Co-Leader of Board Services at DHR International, “We are looking for real expertise and the ability to immediately add value to that business. Although legislation and ethics are one part of it, the real up tick in Board of Directors assignments is that the world has become more

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dynamic and as a result of that, one of the weapons you have is a very strategically positioned and placed Board of Directors that can immediately add value. In fact, we currently have 12 of the Fortune 500 searches and I can tell you that not one of them has to do with the corporate scandals or the Sarbanes-Oxley Act. It has to simply do with obtaining a competitive advantage in the marketplace.” As a result, during the last five years, more companies are turning to search firms to aid them in their assessment of the specific skill sets and talents each Board member brings to the table, focusing more on the process of selecting highly qualified Directors and analyzing the composition of the Board more closely. WHAT TO EXPECT What is expected of a Board and therefore, of its Directors? It is important that an effective Board of Directors acts in the best interests of the company it governs. Each member should add value and exercise leadership, independence and integrity in overseeing the company’s strategy, monitoring and enhancing the corporation’s performance, operating in the best interests of the shareholders, and making sure to comply within the law and guidelines of corporate governance. Roddy Gow, Chairman of Gow & Partners, declared, “What has happened in the New York Stock Exchange has been a big wake up call. People that sit on a Board and do not participate are no longer acceptable. There is a realization by individuals that are members of Boards that they have a significant liability for not carrying out their duties correctly. There is real recognition of the need to find experienced people that are qualified and have the time to take the role seriously.” While each Board member has always had the fiduciary duty to keep him or herself informed, new

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regulations have increased expectations and heightened the levels of responsibility and accountability. For Marilyn Seymann, Founder of the Directors Council, “Although the responsibility and accountability have always been there, individuals were not held to such high standards. The new world of being a Director requires an amazing amount of additional time and diligence.” David Hoffmann indicated that independence has clearly become an important element. “There is much

Richard Boggis-Rolfe more scrutiny on arms length transactions and there is much more emphasis on absolute full disclosure about anything that relates to companies and its Boards of Directors.” Peter Crist, Chairman of Crist Associates, explained, “What we are seeing as a result of this scrutiny are Boards that are reassessing their ranks in order to comply with new legislation, as well as to assuage potential concerns of institutional investors and shareholders who are now very sensitive to the quality of corporate governance. This has all led to an increase in demand for new Directors, which, in turn, has lead to an increase in demand for Board search services.”

THE ARTS OF THE ELDERS Currently what skill sets and talents are most in demand? Corporations require that Non-Executive Directors should depict: a competence in a specialized area (most notably in accounting, finance, marketing, technology, law, and international experience), independence and objectivity, a willingness to probe and challenge prevailing opinion in a productive manner, sound judgment and integrity as well as a good cultural fit with other Board members. Roddy Gow pointed out how there is an interesting debate emerging that “Calls for Directors of Boards of public companies to have some sort of certification to sit on Boards to demonstrate that they have knowledge of company law, and understand how to be a Non-Executive Director.” Marilyn Seymann indicated that if Directors are going to maximize their Board value and effectiveness Board training must be provided as a means of obtaining in-depth knowledge of the company and insightful lessons on Board dynamics and responsibilities. Some of the search consultants interviewed reported that a ‘sitting CEO’ was still one of the top demands clients requested. All the search consultants interviewed reported that financial expertise is among the most important and most sought after skills. Peter Crist elaborated, “Candidates considered financial experts included CEOs who’ve come up through finance, sitting or retired CFOs, as well as retired audit firm partners.” According to Charles King, Head of Board Services at Korn/Ferry International, “If I look back about three years (before Sarbanes-Oxley), about 1 search out of every 10 that we conducted for a Director was targeting financial talent. Today 6 out of every 10 searches are looking for individuals who will satisfy the financial expert requirements of the current legislation.” Marilyn Seymann described how clients are “Looking for skills in

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compensation because that is what is in demand. The amount of attention and the degree of involvement has really changed. It is no longer that the company brings in a compensation consultant for the solvent and the Board defers. The Boards are hiring their own consultants so it is taking time to screen different companies. They are working through the Board versus through the company, which

Roddy Gow means the Board becomes the first line of enquiry and so the amount of time and accountability required has increased as the responsibility for those decisions is not exclusively of the company executives.” Charles King reported, “The increased focus of the legislation and some of the corporate failures have caused many, if not most, Boards and committees to meet more frequently and spend more time doing their jobs. At Korn/Ferry we have just published our 30th Annual Board Study, which found that the time being devoted by Directors has increased dramatically during this past year, up 23% to an average of about 225 hours per year/per Board. We are also finding increased fees for Committee Chairs, particularly Audit Committee Chairs.” As a result, a key challenge search

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consultants have to deal with is finding qualified individuals that have the time to devote to Board services, particularly when they are actively employed. Thomas McLane, Vice-Chairman of The Directorship Search Group, stated, “Directors who tend to stay on Boards are those that feel that their opinions and their knowledge are being tapped, that they are having the opportunity to challenge the CEO. I think today’s Board want to spend time constructively and want to be given the opportunity to do so.” FROM THE BEGINNING Richard Boggis-Rolfe remembered that when he started executive search 20 years ago, businesses did not use search firms to recruit Non-Executive Directors. Five years ago some companies began to turn to executive search firms to recruit Board members. Now it has become the norm and is a fundamental part of his search firm’s business. For David Hoffmann, it is the fastest growing practice of DHR International. He explained how in the past, “CEOs had a tendency to pick up the phone and get other members on their Board through personal relationships. Because of the new legislation, the increase in Board exposure and the emphasis that has been placed over the last 3 years on functional expertise, a Board member is now selected on the basis of what that individual can bring to the table.” Richard Boggis-Rolfe reported, “There is a growing need for a wider mix of experience, backgrounds and skills which the ‘old boy networks’ just simply cannot fulfill.” The ‘old boy network’ has proven to be limited in reach, determined by the amount of contacts provided by the CEO, senior executives and other Board members. By definition, it’s a limited universe of people and therefore, you can only get the best known and not necessarily the best qualified candidate for that role. If there is a

personal relationship, then it brings into question whether or not the individuals might be truly independent. The search firm helps alleviate these problems while reaching far and wide to find the most appropriate candidate. Thomas McLane indicated “Using an outside, independent third party to identify Director candidates creates the perception and the reality, of an independent process and that is very important today. Nominating Committees are taking much more of an active and independent role in the recruiting process. In fact, in most cases, our client and principal point of contact is not the Chairman/CEO, it’s

Thomas McLane the Chair of the Nominating Committee and that is a significant shift.” According to Roddy Gow, “The US is a much more litigious environment and there is a real concern in a public company that if you appoint a Director to the Board without going through a process that uses an external consultant you could be open to a lawsuit at worst and criticism at best. So it has become fairly common to use a search firm to look in the market and produce a slate of candidates to supplement the names produced by the

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Nominating Committee.” In the UK, the Higgs Review revealed that only 4% of Directors had a formal interview while almost half reported that they had been recruited to their role through personal contacts. Higgs recommended that companies should follow best practices and appoint Non-Executive Board Directors after a careful assessment of skills, knowledge and experience of existing Board members.

Virginia Bottomley Virginia Bottomley, Chair of the Notfor-Profit Practice and Co-Chair of Board Services at Odgers Ray & Berndtson, applauded the seriousness with which Board appointments were now being considered, and the desire of growing number of companies to follow best practice. “Now there is a real desire to use an independent third party to ensure that there is a proper candidate brief, that the candidates match that specification and that there is a real choice of candidates. Through the process, our clients report a benefit not only in terms of the best possible candidate but in enabling them to think more widely and deeply about how the Board operates to the benefit of the company.”

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INTENSIFYING THE SEARCH Today the process of selecting a qualified Director has become much more formalized, as Boards tend to use search firms more often to locate individuals who are willing and competent to serve in such Board capacities. As a result of the current market environment, the Board search process has changed over the past several years as it has become more intensive. Whereas ten years ago a Board search lasted 45 to 60 days, today, Board searches can last between 90 to 120 days because more overtures need to be made. Clients, as well as candidates, are more selective and are searching more extensively for the perfect match. For David Hoffmann, “We know these people pretty well before we get involved. And given that we are in the marketplace every week talking to potential Board of Directors, we are constantly adding to our list through our network of consultants throughout the world. As a consequence, our Board of Directors searches go relatively quickly compared to a normal search. We typically can fill a Board search in less than 60 days as opposed to a normal search that takes 90120 days.” PREPARING FOR THE ELDERS COUNCIL Roddy Gow explained that,” From the 1st of November of last year, it became a requirement under the Combined Code for British public companies to conduct an evaluation of how the Board functions behind Boardroom doors. From the 1st of July this year, it will be law that all US public companies will certainly be required to conduct an evaluation, as search firms are playing a major role in this process.” Within this context, it is important to realize that a Board search implies more than just filling a Board opening. Search consultants help a company thoroughly assess the current Board situation by conducting a gap analysis

or Board assessment that highlights any gaps in Board skill levels. Charles King reported, “We always do a Board analysis upon engagement. We look at the Board as it’s currently comprised and consider the various skill sets that are represented on the Board. We review issues such as international representation, diversity, financial talent, operating experience, do they have an independent Director with CEO experience and so forth. This often highlights the need for a particular skill set or background. The client may or may not be looking for that, and ultimately the client tells us what they are looking for. We may suggest what they appear to need, but if we both don’t agree we ultimately find what they are looking for.” Virginia Bottomley declared,” Our job is to add value and to do so by really understanding the requirements of the role and not by imposing our ideas on our client. We think carefully and broadly about the clients’ priorities and help them explore how that need can be best met.”

“The key to creating and maintaining a good Board of Directors is

to have a very balanced Board. It is like a portfolio of investments.”

Since each client is different, the needs vary. With some clients, a search consultant might help the Chairman or Nominating Committee look at the candidate brief in a new light that may be critical to the Board appointment. Other clients may require advice on: governance practices; Director compensation packages; a change in the Board’s size, structure or composition, or simply how to handle a

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dysfunctional group of people to work better together. What always remains the same is that the search consultant finds the most competent and qualified person in the most efficient, discreet and trustworthy way possible. As a result, researching, sourcing, referencing and interviewing a candidate are vital elements in this search process. Thomas McLane stated, “We always conduct a very thorough assessment of a candidate. This is particularly important because it points out the behavioral aspects that are so important to get the right fit. We do this with detailed reference checks by interviewing fellow Directors of the candidate serving on other boards and by talking to associates of the candidate in his or her organization.” According to Charles King, “We do a

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great deal of due diligence. In most cases, it is fairly obvious if candidates meet the specifications, or not, in terms of their background, their credentials, and the jobs they have held in the past. Perhaps the most critical issue in placing a Director on a Board is getting the chemistry and cultural fit right. That is something we attempt to confirm while we are interviewing candidates.” Marilyn Seymann recalled the Enron case. “You had 6-7 highly qualified individuals, but the culture did not lend itself to question, insight, and oversight - and that is the missing piece we focus on. We try to identify a personality and not a just a skill set. For instance, I can give four candidates, all of who are women and CFOs. 4 out of 5 perhaps would have a personality that would not work with the personality dynamic of the CEO or the rest of the Board.

They have the skill set, but not the experiential diversity. We spend a lot of time really getting to know every single candidate we recommend. In fact, every single person is not just a name on a database; we speak to each and every one of them personally. As a result, we have an ability to understand these women and find a good fit.” THE ELDERS COUNCIL Boards of Directors are being recruited at unprecedented rates. The fact that legislation has reduced the number of CEOs that can sit on a Board and increased the responsibilities required, the current supply of CEOs is limited. Thomas McLane described how “The supply of Directors who are CEOs appears to be limited because of the reduction in the number of CEOS

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available. It is not because there are any fewer CEOs, only that they are now limited to sitting on one or two Boards where before they may have sat on three to four Boards.” Moreover, as the time needed to sit on the boards has increased with the responsibilities, accountability and scrutiny required, Directors are more vigilant and selective about sitting on a Board.

Peter Crist Peter Crist explained, “Potential directors are certainly more prone to decline overtures given the time constraints and increased liability issues faced by today’s Boards.” At the same time, there has been a realization that a Board of Directors composed of the same skill set is not fruitful. Roddy Gow revealed, “There has been a growing realization over the past 5 years that the makeup and composition of Boards, particularly in public companies, has been unsatisfactory from the shareholders stand point.” Virginia Bottomley explained that the dynamic pace of business and the importance of transparency and independence have affected the recruitment of Board members. “Individuals traditionally would appoint Directors in their own image. Yet it was

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seen that a mono-clone team would lead to mono-clone solutions. You don’t only want to look at a mirror you want to look through a window as diversity is now a crucial element in business.” Charles King reported that the limits are placed by one’s imagination. For example, in the financial arena there is a great demand for financial talent. Before the Sarbanes-Oxley Act, CFOs and retired audit partners from the big accounting firms were categories of individuals that were not highly sought after. Today they are. This opens up a new universe of candidates that are willing to serve on Boards.” As a result, companies are widening their scope to look for skills and experiences that they don’t already possess. These may include women, minorities, retired executives as well as younger, less experienced yet highly qualified executives. They may include individuals from Academia, Public Sector, Not-for-Profit Sector, a certain regional experience, as the candidate pools are endless. Roddy Gow stated, “Companies need Boards to reflect the businesses that they are doing. For instance, one of our specialties is assisting in building International Boards. We analyze the percentage of revenues that a company is generating outside its home market and then ask the question to what extent the Board reflects that sort of mix of interests. Does the Board of Directors possess the ability to make assessments about the markets into which the company may be selling or from which it may be sourcing raw materials? Depending on the answers, you define and bring in those with the right skills or national backgrounds.” Charles King explained, “The key to creating and maintaining a good Board of Directors is to have a very balanced Board. It is like a portfolio of investments; you want people who bring a variety of skill sets and experiences to the table. The goal is to have a Board that brings these diverse backgrounds and who

can help management from a strategic standpoint.” The composition of Boards affect how a company responds to, as well as how it is perceived, by customers, competitors, and employees. Boards that make an effort to attract people with a wider range of experiences are more likely to have the competitive edge. Virginia Bottomley indicated, “Our clients will want diversity, but they will also want reassurance that the successful candidate will complement other members on the team.” Within this context, Marilyn Seymann explained the importance of convincing clients of the benefits of using a diversified candidate pool, such as women and minorities, reassuring them that their diversity will not be a hindrance to the team, but an asset.

Charles King Many of the search consultants interviewed explained that this process requires educating the client as well as the potential candidate of all the benefits of this match. In fact, according to Marilyn Seymann, “The Directors Council was recently established to tap into, develop and position a new diverse generation of Directors, drawn

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primarily from largely untapped pool of talented women and minorities who have the qualifications, experience and interest to serve, but are rarely found in the established circles from which Directors are typically recruited. “ For Roddy Gow, as an executive search firm and corporate governance consultancy, “We have built an extensive database of people that normally wouldn’t have been on the radar screen. These people may be at or just below Board level in an executive role at a major public company who are being encouraged to take on Board positions by their CEO to gain experience, they may be Academics, leaders from the Not-forProfit Sector, they may be people who have had very successful professional careers and have taken early retirement and want to pursue a portfolio existence going forward; in all cases, they are men and women who have thought very carefully and realized the dangers and risks associated with going on a public company Board but feel very strongly that they have something to offer.” Other search consultants report that operating in various different industry and functional sectors extends one’s reach for Board searches.

“We have to produce people that make a difference

and that means encouraging individuals to take on roles that will enhance their careers.” According to Richard Boggis-Rolfe, “It gives you access to a very broad level of senior level individuals, enabling our firm to look at a broad range of candidates to see how they match the

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Marilyn Seymann specifications required by our clients.” David Hoffman also described the advantage that, “Practice group expertise in certain functional areas has allowed his firm to develop a cadre of high profile candidates. Moreover, his firm has started an in-house CEO Academy that meets twice a year and discusses issues of interest to the existing and retired CEOs.” Peter Crist stated that a key advantage is remaining “In touch and abreast with the new corporate governance issues and trends.” He also explained “The importance of cultivating key relationships with proven leaders and appropriately advising clients on corporate governance issues and particularly how this translates to recruiting market conditions.” THE ELDERS PREPARE THE GROUNDWORK As companies demand Directors to be more involved, spend more time and be more accountable, candidates are asking more questions and are doing more due diligence. Candidates are carefully checking out the company, its management, its accounting policies, its ethical behavior, the culture, company Directors and policies that support the Board in doing its job effectively as they try to ensure all the facts before they join.

Virginia Bottomley described how, “Candidates welcome a challenge so long as they are confident that there is an underlying integrity in the Boardroom.” According to David Hoffmann, “Candidates have to believe in the vision of the CEO. They have to be assured that the fundamentals are in place: the company is solid and financially sound, there is proper D and O insurance and that they can meet the expectation level of the CEO, the shareholders and other Board of Directors.” Richard Boggis-Rolfe explained, “Ultimately our business depends on adding value. We have to produce people that make a difference and that means encouraging individuals to take on roles that will enhance their careers. We need to strike a delicate balance between really encouraging people to take what we think is right for them and the client.” LOOKING TOWARDS THE NEXT COUNCIL In sum, there are major changes taking place in corporate governance as corporations are strategically constructing their Board of Directors to add value. The process of selecting a qualified Director has become much more formalized, as Boards are turning to search firms to locate individuals who are willing and competent to serve in such Board capacities. Broader, more rigorous searches are taking place, fostering greater diversity in knowledge, skills, experience, gender, race, nationality and age of Board members. The ones that take advantage will be the ‘wiser’ as search firms compete to find the right fit and select the most qualified Director to join the Elders Council.

www.search-consult.com

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

ISSUE 18 2004 search-consult

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Corporate Governance & CommunicationsThe Power to Change Perceptions By David S. Moyer here was once a time when banks, anxious to reassure their depositors that they were sound, conservative institutions likely to stand the test of time, built their headquarters, and even branches, of dignified limestone and heavy marble, with Doric columns supporting their roofs and subliminally, their reputations. We went from that, to drive-through banks, to ATMs mounted on casters, to banks with no physical infrastructure at all. What supported reputation went from architecture to advertising to buzz. Luckily, Wingspan Bank is gone, along with a lot of other companies that were supported by - well, they had no visible means of support. Now substantially changed, Enron, Worldcom, Tyco and other pillars of the Fortune 500 turned out to be made not of stone but sand (probably from Cayman Island beaches). These largest corporate scandals seem

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to be “all over but the shouting.” Elliot Spitzer can hound mutual fund companies and the NYSE can pester Grasso to return part of his bonus. Europe can work through an Enron of its own - Parmalat. And the US Congress passed and can now fiddle with the Sarbanes-Oxley Act. While the immediate crisis may have passed, clearly there is residual anger over the scandals, and a sense that CEO pay packages may change, but probably won’t become any fairer. When something like mad cow pops up in the US, it’s easy for Americans to roll their eyes and say “what did you expect, it’s just more of the same from another greedy corporation/industry/business?” Clearly, corporations need stronger foundations if they want to build their growth more organically and honestly in the wake of the scandals. How can investors, employees, customers and communities believe what corporate

managements tell them? And if trust isn’t restored, how can companies market and sell their products, hire and manage employees, build or expand in communities and ensure fair treatment in the courts and legislatures? Many important changes in corporate governance have already been effected. But at the end of the day, the public may not connect these measures with any real change in their lives. It isn’t the composition of the board of the New York Stock Exchange that makes headlines it’s the US$140 million comp package to its head. Boards have been reconstituted, financial reporting revamped, but the impact of these changes has to be communicated effectively and the public persuaded that the changes are real if companies want to do business in a climate of trust rather than cynicism. In order to do this, corporations have been reexamining their corporate

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communications. Through the 1990s, many corporate affairs departments were reduced in size and the quality of their senior management sometimes slipped. Corporations that thought they could build relationships with automated telephone menus 6-options long, poorly organized websites and a skeleton staff of overworked corporate affairs people without the resources to really connect with the public were kidding themselves worse than Milan auditors. Companies with weak public affairs programs were particularly prone to damage by scandals, and corporations responding strongly to the current climate want to address this. They have learned that when crises hit, strong in-house departments with experienced professionals can respond effectively. They have been upgrading their media relations and crisis communications capabilities to be better prepared should they become caught up in such difficulties. More importantly, they want these departments to be run not by PR Directors but by Chief Communications Officers (CCO) who have seats at the table with the rest of the corporate leadership, and are in positions to head off scandals by affecting the practices and behavior of corporations and their chairmen. These CCOs are able to advise on the public policy implications of company actions before they become the subject of negative stories in the press, and that is invaluable to both multinationals and smaller companies. Searches for CCOs tap into those currently holding such titles and SVPs and VPs of Communications who are ready to move up. The searches can be difficult, however, because many communications executives have incomplete understandings of the operational side of their corporations’ businesses. On top of that, issues of corporate culture and personal style are all the more critical in the function, and the best communicator in one company may be the worst choice for another one. In some cases, the new CCO will have to argue against a management’s approach to an issue or its public pronouncements

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on a new initiative. This is always a daunting task, but especially so for a newcomer. Recently-hired CCOs have to bring authority through personal presence and a concrete track record in order to win over skeptical colleagues. The field has a high turnover, and discerning whether a short-lived CCO failed because of personal shortcomings or an unreceptive Chairman or Board can be hard to fathom. The field requires special expertise for accurate evaluation of candidates and astute consideration of the possibilities for success in a given company environment and with a particular CEO.

David S. Moyer While these factors are challenging in the CCO search, they are greatly magnified in searches for corporate speechwriters. The CEO’s speechwriter is arguably the strangest position in the corporation. He or she may travel with the Chairman, toss ideas around with him after hours in informal settings, drag out her true thoughts on issues and coach him on his speaking style. A good speechwriter adapts his writing to the cadence of a good speaker’s delivery, with copy thought to be the Chairman’s own musings, and all from behind the scenes in what a newsletter that covers the field calls “The Silent Profession.” This is how someone who has zero P&L responsibility ends up getting more of the Chairman’s time than someone running a billion-dollar division! Our searches in this area involve not

only the usual interviews and assessments, but the laborious task of reading writing samples from prospects and targets, watching videos of corporate speeches and examining the context of these messages. A good speech, even a great one, must be given in the right forum and with complimentary positioning, to have an impact. Again, these are searches where experience counts mightily. Their particular nature, the sensitivities surrounding their outcome, and the degree of acumen required for competent evaluation of candidates demands a high level of commitment to, and familiarity with, the function. Companies that really want to grow know the danger of cutting beyond fat into muscle and bone. This is a time of reassessment of a lot of financial illusions. Not all of them have to do with posting bogus sales and moving debt off the balance sheet. Much of the reckoning that is now before CEOs is about what it really takes to run a corporation, the things you can’t cut if you actually have a going concern. A solid relation with the public is one of them, one that “just PR” can’t replace. Companies that build effective, on-going relations with the general public and their employees, customers, investors, reporters, legislators and communities will find themselves in hot water less often than their competitors, and with milder, shorter-lived criticism when they do. That’s what those building strong communications functions and a clear corporate voice are creating. David Moyer is President of Moyer, Sherwood Associates, Inc., an AESC-member search firm based in New York, working nationally specializing in corporate communications / public relations.

www.search-consult.com

For more information, contact: Web: www.moyersherwood.com

ISSUE 18 2004 search-consult

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The Role of Executive Compensation & Executive Search By Raya Mamarbachi ominating newswires both here and in the US have seen several highprofile corporate scandals, Enron, WorldCom, GlaxoSmithKline and Cadbury. These scandals have contributed to bringing executive compensation into the headlines. Investors, shareholders, and the public at large are concerned that public companies with a duty to their shareholders, are increasingly overpaying board directors and senior executives for average or poor performance and then, when, damage is done, rewarding these senior executives with multi-million pound pay-offs. What set this almost farcical scene? What are the issues surrounding executive compensation? How does executive compensation impact the global search profession?

EXECUTIVE COMPENSATION - THE ISSUES: This article will explore the following issues: public discontent over excessive pay, the role of corporate governance and the role of executive compensation within executive search. Pharmaceutical giant GlaxoSmithKline (GSK) is one of the many examples in a long list of corporate scandals in Britain to have suffered an unprecedented defeat over compensation packages. Shareholders at its annual general meeting voted against ostentatious pay deals for executives, a first in Britain. Investors voiced their anger against the pay package received by Chief Executive Jean-Pierre Garnier. The revolt was seen as a possible end to corporate greed. The decision taken by shareholders should have far-

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reaching implications for both small and large companies in years to come, or is it an unfortunate example of a backlash and will this tightening over executive compensation fade like the French corruption scandals. GSK are not alone, shareholders are revolting against the terms of contracts for Simon Wolfson, Chief Executive of Next, and Mr Stitzer at Cadbury Schweppes. In addition, institutional investors and the public are very concerned with the large money paid out to executives who leave their job either before their contract is completed or worse still, ‘paid off’ after destroying shareholder value. Similar stories dominate the news in the US. Richard Grasso, the man that ran the New York Stock Exchange for 36 years, was awarded a compensation package of US$140m in cash. Controversy surrounding the justification of such a package by the board that was responsible for setting it still dominates the news. Were his contributions in line with his performance and role in running the New York Stock Exchange? Without such compensation packages would the NYSE be able to attract such talent? While both shareholders and Boards are showing less tolerance for poor performance, in today’s pressurised and demanding world CEOs and senior executives have an average of only a year to prove themselves in a job. Corporate scandals or not, compensation levels must be enormous to attract and compensate for the pressure and expectations to perform. The latest mean basic salary for top executives by the Management Pay Review was £567,500. It can be argued that many of these talented

executives could earn this compensation owning/running a medium size business which they should easily be capable of running. When looking at CEO compensation levels, Europeans are paid just over half of what their counterparts receive in America. These differences in pay are partly cultural, steeped in history. Europeans are embarrassed by what they see as excessive pay while Americans believe in the ‘American dream’ of unlimited earning potential and being rewarded for success. Europe has traditionally been based on an egalitarian society, even socialist where paying an individual such large sums of money is perceived as unfair. One only needs to remember Britain during the pre-Thatcher years. However, we now work in a more American style culture where it’s expected that senior executives should be compensated within their global context of remuneration. My belief is that executive compensation will continue to rise. The supply of executives with exceptional talent, knowledge and global experience will be in short supply in the decade ahead. Good news for both the executive profession and Internet job sites specialising in senior level recruitment. However, the golden ‘handcuffs’ I believe will be reviewed and we will see more flexibility in contracts without excessive compensation. Today nearly all companies are reexamining their compensation packages. Debates continue to rage on how much to pay executives so that salaries are in alignment with the wishes of shareholders, directors

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and companies alike. Nowadays, the trend for executive compensation is towards more cash compensation and less stock option. This reflects the idea that stock options focus heavily on short-term results. Investors are more concerned with the long-term interests of the company. Motivation and retention are still big worries. Option packages, once seen as the norm in recruiting top executives to a position, have now become a headache when discussing salary negotiations. The average remuneration packages offered by companies to executive directors include a mix of basic salary, performance-related remuneration, deferred bonus (given to the executive if he/she is still employed by the company after a certain number of years) and long-term incentives (equity comprising of share options, incentive shares and retention shares). Quite rightly, companies from SMEâ&#x20AC;&#x2122;s to multinationals are evaluating their compensation plans and routinely questioning whether director compensation reflects performance. Corporate scandals of fraud and deception have demanded transparency and accountability consequently the creation of the Sarbanes-Oxley Act in the US and the Higgs Report in the UK. The increasing onus on directors while in situ is going to cost companies huge cash. Why would talented chief executives put themselves in a situation where they can be put in prison for something fraudulent or otherwise kept from them. After all, how many directors of their companies are aware of Internet, telephone, and property misuse and abuse (often illegal) that could bring their company down? Understandably, the Higgs report on corporate governance was received with mixed feelings by corporate UK. The report puts greater pressure on businesses to formalise the role of non-executives through training and the compliance of the Combined Code. Concerns voiced against the report included the idea that such compliance and additional costs would damage shareholder wealth, that responsibility and duties for the Chairman would be made too difficult if not untenable. The Sarbanes-Oxley Act of 2002 is the single most important piece of legislation

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affecting corporate governance in the US. Companies have legal responsibility to disclose all flows of financial information. The introduction of this act hopes to avoid further corporate meltdowns. HOW SEARCH CONSULTANTS CAN HELP SENIOR EXECUTIVES? These are complex and difficult times for the search profession. The job market is in shambles due to the War in Iraq, the stock market decline and the last 36 months have seen laying-off staff in record numbers. Search firms have had to find new streams of revenue to make up for the slump in their

Raya Mamarbachi core business (recruitment). Many companies have diversified into offering new services such as career coaching, mentoring and human resource consulting. One area that has potential for growth is advising executives on compensation packages. Executives are not always well informed on remuneration packages and when given a new job can be blinded by the basic salary and opportunity. Executive recruiters can help advise them on whether they are making bad or good decisions. Either the executive or the company can pay for this consultancy. Equilar, based in California, is an executive-compensation software provider. It regularly updates compensation data from statements filed with the Securities and

Exchange Commission and allows executive recruiters to compare information on how much an individual should be paid and therefore advise executives on salary and option packages when negotiating salaries. The UK is not as far ahead as the US in executive compensation software but niche websites catering to the senior management market such as Goldjobs, can provide a general idea of base salaries across industries in the UK and mainland Europe, as well as some insight into compensation packages. Standard practice in advising executives on compensation benefits is carried out by HR compensation managers and corporate lawyers. Legal teams however are not experts in industry practices or in contractual issues surrounding industry benchmark practices. Few executive search firms and Internet based websites have the depth and understanding of the executive compensation global benchmarks, but why should they not begin to train themselves up and use this as another revenue stream? After carrying out a word search on a number of search engines, I can safely say very little information is open to the public in Europe on compensation packages. An information website providing newsworthy and up-to-date information on such a topic is very much in need. Recruiters can play a role in helping senior executives to evaluate their expectations, and provide a compensation package for the position, and executives would be prepared to invest in this information. One of the greatest challenges facing directors today is reconciling and justifying the compensation packages to themselves, shareholders and the public at large. Search consultants need to be kept abreast of executive pay packages especially as shareholders themselves are looking for ways to control executive compensation through a change in corporate governance rules. The search profession can and should look into helping executives more.

www.search-consult.com

For more information, contact: Web: www.goldjobs.com

ISSUE 18 2004 search-consult

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Is This Network

for You? By Paul McMahon ntil a client asks if you can help in Moscow, Madrid, Mumbai or Minneapolis, most search firms do not seriously consider joining a network. The fear of losing that valued client to a competitor who can help your client is a powerful motivator to explore network membership. How do you know which network is right for your firm? Reviewing websites and glossy brochures, search networks appear similar. All give the impression of a solid, established worldwide organization. Some are just that. Most networks have undergone substantial change. Acquisition of network members fueled much of the growth of TMP, Heidrick & Struggles and Korn/Ferry and these members must be replaced. Many networks are struggling with branding. And every network will continue to evolve. That is their nature. Networks are always looking for new members. Each network will have their questions about your clients and the level at which you work. Most will insist on meeting you and your key staff. But you need to do your own due diligence. I suggest firms ask the following questions: • What will it cost? • What is the legal constitution? • How stable is the network? • What are their members like?

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• • • •

How many assignments are referred? How does governance work? How are disputes handled? What happens if you want to leave?

MEMBERSHIP COSTS There is no such thing as a free lunch. Even the most informal network incurs central costs. The more assistance offered with branding, marketing, industry groups, the more costs to share. Usually one of the following methods, or a combination, is used to allocate costs: • Headcount • Percent of revenues • Commissions on referred work • License fees for name use, etc. You don’t want to join and be surprised later by a significant increase in costs. Ask to see the financial statements: • Review the budgets of at least 3 years, compare these to actual expenditures and obtain satisfactory explanations for major variances; • Review the estimated budget for next year and satisfy yourself that it is a sound budget; • Enquire about programs under discussion which may change the budget; • Ask both smaller and larger firms if they feel the allocation of costs is fair. If there is a concern about cost

sharing, this can lead to unrest and eventually to the loss of members. • Obtain a commitment on your own costs for 24 months. The final question you must ask: “Are they financially sound?” Ask for the most recent audited financial statement and the management letter. Have your accountant read these. Determine if the organization has adequate funds to sustain operations should members leave. You do not want to be surprised by an unexpected call for additional capital. LEGAL STATUS If you wanted to read the corporate charter and by-laws, you would have gone to law school. Do not skip this step. It has significant potential liabilities for your firm. If you don’t want to read them yourself, have your lawyer read them. Then discuss: • What type of legal entity is this? • Where are they incorporated and why? • What legal liabilities does membership bring? • What is their tax status? • When was the last audit? • Are there any outstanding issues? If so, what is the maximum potential liability? • Does their tax status and country of

domicile create any problems for your firm? Your tax advisor is best prepared to answer this. Should you find no formal legal organization, seek professional advice to determine if the group holding itself out as an entity constitutes a common law partnership. This is very serious and might imply unlimited liability for you as a member. STABLE MEMBERSHIP OR REVOLVING DOOR? Substantial turnover in membership can signal unrest and deeper problems. Don’t accept the excuse that members were acquired. Yes, this happened to many networks, but has largely stopped. Continued turnover needs to be explained. Ask: • Who resigned in the past three years and why? • Who joined? What other networks did they consider? • Talk directly with firms who left and who joined and probe for the real reasons they made their decisions. • Review the existing members. Are there any members you might not want to be associated with? • Enquire if any members are considering leaving? • Every organization working together has service problems. Ask where there have been problems, and what has been done to overcome them? Eventually we are all judged by the company we keep. Are you comfortable your clients would work with these members? CLIENT REFERRALS Hoping for assignments referred to you by other members of the network is not a good reason to join. Most networks eagerly provide examples of client assignments transferred from one member to another, but what is unspoken is that both parties generally formed a relationship prior to a client being transferred. Developing those relationships is time consuming and expensive, but often worthwhile if you

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have the patience to let these relationships develop. What you must ask about client referrals: • Does the network actively promote client referrals through a target client program or industry committees? • Are there referral fees, and if so how much? When are these paid? When the assignment is booked or the fee paid? What happens to the referral fee if the client is dissatisfied or the search unsuccessful? • Ask to see a list of referred client assignments for the past three years. Is there a pattern of a few countries exporting work, or a particular consultant responsible for the majority of the assignments? Are those responsible (clients, member firms, consultants) for the majority of the work still with the network? GOVERNANCE AND MANAGEMENT Even the most informal network has to have a leader. Most networks have evolved to a formal system of governance. A few have full-time staff. While asking these questions, envision your firm’s role: • Who is on the Board or Executive Committee and what are their terms? • Are both large and small firms involved in governance? • Is regional representation logical? • Can a region or a single member hold up progress? • Who actually does the work? • Volunteers, or someone you pay whom you can hold accountable? • If paid, do they understand your profession? Be wary if an individual or a country has held the Chairman role for several years. This could indicate a lack of leadership in the network, or dominance of the network by an individual or a country.

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informally. Like any relationship differences of opinion must be worked out if the Network is to survive. Think about the worst scenario. Due diligence is complete; you join but conclude months later you must leave. Ask if you can be a trial member for one year. If you do decide to leave, what are the exit penalties? Do you have any ongoing liabilities after you submit your resignation? MY SUGGESTIONS: • Put in writing why you will join this network. Be specific about the amount of time you will invest, the maximum amount of money to be spent (including your travel expenses) and what you expect to receive in return. • Review it with your partners and obtain their written agreement. • Discuss this with the Network Chairman and provide him/her a copy. Ask them to acknowledge receipt. • Review it 12 to 18 months later, first with your partners, then with the Network Chairman. ONE FINAL THOUGHT A friend who started a specialized international legal network says her final question is always “Are they interesting to have dinner with?” Her point is very serious. If this isn’t going to be fun, why do it? Paul works exclusively with international networks of professional firms. Prior to launching NetworkJourney.com, he was COO of Amrop Hever and held a similar position as Executive Partner, Ernst & Young International. Paul has resided in Asia, Europe and North America and has consulted with professional firms in over 50 countries.

www.search-consult.com

PRE-NUPTIAL AGREEMENT No amount of due diligence, will foresee all problems. Ask how disputes are resolved, both formally and

For more information, contact: Web: www.networkjourney.com

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Candidate Management By Jason Starr n the last issue of search-consult magazine, we looked at how many search firms are using client-facing technologies to generate a competitive advantage. In this issue, we look at how technology can impact on interaction with candidates and staff. Senior executives do not register on websites. That is the widely held perception and one which, at the highest level, probably holds some truth. Despite that, all of the top 5 Global search firms have developed websites to allow candidates to do precisely that. Essentially there are three levels of candidate side interaction that a search firm may wish to employ. In describing them, we will use Dillistone Systems’ FILEFINDER terminology (it should be pointed out that search-consult magazine is published by Dillistone Systems, and that the writer of this article is President of the Dillistone Systems Group).

Model

Candidate Forms

Assignment Listings

$FF-Standard

•

FF-Advanced

•

FF-Enterprise

•

Username & Password

•

Table 1

The “Candidate Forms” approach is favoured by the vast majority of search firms. It’s quick, simple and allows a candidate to enter his or her information online in a format that can then be easily

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validated by the Database Administrator prior to automatic insertion into the main database. Validation is the key point here: the vast majority of search firms consider database value in terms of quality and not quantity. The cost savings associated with candidate web forms (primarily associated with data entry) are pointless if the forms lead to a devaluing of the quality of data within the database system. To ensure that quality control is maintained, validation must work at both the “person” and “company” level. In other words, every incoming person must be checked against existing people data. Every incoming company must be checked against existing company data. If an incoming person already exists on the database (as will often be the case, when a search firm has approached the candidate directly), incoming information must be combined with the existing information (for example, existing “evaluative” information on the database must be merged with the incoming “factual” information). Similarly, if a person is applying from XYZ Corp, then it is important that the person record is linked to any existing XYZ Corp record on the database (assuming, of course, that it is the correct XYZ Corp record!). Some search firms go one stage further and offer candidates the ability to peruse a subset of currently open

projects. This approach is often favoured by firms that operate within niche markets, and particularly by firms serving the public sector. Again, at the level that most search firms work, confidentiality is key and so it will be entirely inappropriate that currently open positions are listed on a website. Consequently, the selection of “published” assignments will be controlled by the Database Administrator since the information is publishable, it may not be appropriate to name the client, for example). The most advanced level of candidate interaction was that originally developed by Korn/Ferry’s international division, Futurestep. The idea behind this approach is that the firm moves away from a transactional relationship with the candidate and, instead, encourages him or her to build a relationship with the search firm, returning to the website regularly and constantly updating career and personal information. Implementing this approach does take slightly more thought than do the two more basic models. In essence, when a candidate completes a “basic” form and clicks “submit”, that data can be sent directly to the Database Administrator of the search firm (using, for example, email). These basic models do not need the data to be stored in a location that can be accessed by the website.

Executive Search is an Art…..

and a Science

TeamFit, distributed by Dillistone Systems, provides scientific validation to addressing the question of Corporate Culture Match. Based on academic research from the University of California at Berkeley, Stanford and Santa Clara, TeamFit empowers users to objectively measure person-organization fit. Successfully used for over 13 years, the TeamFit methodology has been applied to Corporate Selection and Retention, Mergers and Acquisitions and Business Strategy and Change. Dillistone Systems, the leading global supplier of technology to the search industry is proud to represent TeamFit for Executive Search. Contact teamfit@dillistone.com for further information. View your candidates as dots on a radar, empowering you to quickly identify the best fit to your client’s organization.

teamfit@dillistone.com www.dillistone.com/teamfit

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Under the “FF-Enterprise” model, candidates are encouraged to return. To allow this, the system has to store the data in a database to which the web forms may be connected. There are a variety of ways in which this may be done. For a search firm with the technical prowess to host both a Database Server and a Web Server (and a router, and a firewall, and…!) it becomes very simple. In most cases, however, this is not something that the search firm will consider realistic and so some form of “hosting” will be required. There are a number of advantages and disadvantages associated with server hosting but, in this case, the key point is that the Database Server can sit right next to the Web Server, and so the Enterprise model may be setup very simply. Around these three basic models, a spectrum of other options may be added. Virus checking software, for example, can ensure that all incoming résumés are clean. “Shopping Cart Technology” allows candidates to review, and apply for, multiple positions. When the industry majors first implemented models like those described above, the industry was abuzz with rumours of “millions” of dollars being invested in development. Times do indeed change and, today, a FILEFINDER user is able to ‘bolt on’ these facilities for typically US$5,000 to US$25,000. Online candidate functionality is primarily of value to those firms that have either a very large brand, operate within specialist niches or receive large numbers of incoming résumés. The reason for this is simple - If you visit www.google.com and do a search for “executive search firm” you will find over 2,000,000 pages! The fact is that if your firm is listed on page 17, you are not going to receive much in the way of “passing trade”. The overwhelming majority of forms are completed by candidates who already know something about the firm. Even if a candidate does visit your site, he or she is unlikely to spend the time

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completing a form unless given good reason. Putting it simply, a candidate may be prepared to put the time into updating his or her record with two or three firms, but is unlikely to go much further than that. The good news, however, is that technology offers other ways of reducing the administrative cost associated with candidate management. The benefit of the “online web form” is that it pushes the “re-key cost” back to the candidate. Résumé Extraction technology goes one step further - it takes a large proportion of the cost out of the equation. In simple terms, Résumé Extraction technologies “reads” a candidate’s résumé and then endeavours to extract the key information from that document and insert it into the database system. This means that all the data entry person needs to do is check the extraction for errors and validate to prevent duplicates. Success varies from résumé to résumé and country to country, but a “standard” English language résumé can be imported into your database in as little as a minute with very good success rates. It is now possible to combine the extraction technology outlined above

Question

with your website. In essence, this means that a candidate needs simply browse to his or her résumé, upload it to your site and then, after a couple of seconds, see the form “magically” filled in. It is beyond impressive! Putting a value on all of this is possible using the following simplistic, but thought provoking, form - TABLE 2 Of course, any evaluation of this sort is simplistic. However, with software systems including extraction technology costing around US$5,000 for a single user, the numbers are certainly thought provoking! In the next issue of search-consult, we will look at how search firms are using technology to change the ways in which all levels of employees work. Jason Starr is President of Dillistone Systems Group. Further information on Dillistone Systems and its products and services may be found at www.dillistone.com or through sales@dillistone.com. Jason may be contacted at jason@dillistone.com and would be delighted to hear your thoughts on either of this series of articles or technology and search in general.

Answer

Example

How many résumés do you receive and add to your Database per day?

How long does it take you to evaluate a résumé and, should you decide to add it to your Database , to undertake the data entry? (In minutes)

Total time spent on résumés, per day?

A* B

150 minutes

Total time spent on résumés, per annum (Assuming 260 working days)

C*260

39,000 minutes or 650 hours

What is the hourly cost of employment for the person undertaking the data entry

The annual cost of data entry is

TABLE 2

15 minutes

US$20 (Salary divided by 1820 – equating to 260 working days, 7 hours per day) D (Hours) * E

US$13,000

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AIMS Offers Alternative Approach to Clients

By Pilar Gumucio s the global economy continues to recover, businesses are analyzing how to optimize resources as human development becomes fundamental to lead and manage organizations. Within this context, Daniel Yolleck, President of AIMS (Association International Management Search) explains to search-consult why he believes that his search association really does present a different business model than its competitors. Yolleck explains, “Recruiters are adapting poorly. They have been very transactional in the way they approach business and they are going to need to learn to add value to their clients in different ways then they have in the past. They are going to need to create better commercial arrangements with

their clients; as many are not happy with what they are paying, with the results that they are obtaining and with the relationships that are being established. It is incumbent for search firms to understand that they need to react to the marketplace in different ways.” In fact, during this global recession where a lot of companies have failed or have had really difficult moments in the past 2 years, AIMS has grown by 450%. During the last year alone AIMS has grown by 125%, illustrating the success rate of this network’s alternative offer. AIMS was established in the early 1990s and since, has grown into a leading international network of search firms represented in 41 countries around the world. All AIMS

members are medium-sized companies, which are economically independent, but that have chosen to adopt the AIMS brand as a means of distinguishing their business, ethics and philosophy from their competitors. AIMS offers extensive executive search and consulting services based on a mosaic of quality practices and knowledge of local markets that aims to leverage every client’s ability to secure top talent. Because of AIMS’ informal and flexible structure, this approach can suit any business. There are clients that are looking for niche markets and there are clients that prefer a more-well rounded generalist approach. “AIMS is aware of these differences and our organization is structured to reflect this reality.” This approach allows “Our partners

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to provide thought leadership to effectively manage the search process” as each focuses on the client, provides effective results and performs high standards of quality at reasonable rates. In turn, the client relies on AIMS’ all-round Human Resources expertise and the partner’s ability to present tailor-made solutions to them. “AIMS is about quality leadership”, and that implies hiring the best consultants around the world to provide clients with all their HR requirements. These consultants must be “Respected leaders in their own countries, with an in-depth understanding of their own country’s local recruitment market as well as have an international perspective”. According to the AIMS President, it is the perfect balance that allows clients to have their HR needs fully met while allowing this network to continuously develop complementary services that meet these specific HR needs. THE PHILOSOPHER’S STONE Yolleck explains that the last three years have been aimed at effectively developing AIMS’ infrastructure and philosophy. “We have worked very hard to create a mutual philosophy among the members of how we operate in order to play globally, but to be local in constitution we need to really work on relationships and how individual players work together in order to service and be effective on a global basis.” The main areas AIMS has dedicated its efforts is to increase the amount of new quality members being incorporated, to increment the amount of business that is generated among partners and to strongly commit to exploring other HR services as a way to develop business and in order to create more broad-based added value services to clients. To become a partner within AIMS, “There is a series of criteria that have to be met in terms of the firm’s size, years in the business, finance and a

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review of the integrity of the owner. Moreover, there is a statute of governance, standards of membership, a quality handbook that all the members must agree to and maintain, and then there is an outside audit facility to make sure all these qualities have, and are, continuously met.” In fact, the members of AIMS are committed to a process of continual review and monitoring of quality standards, as several members are ISO 9002 certified or meet the highest standards of quality in their countries. Yolleck points out that quality is never an issue as it may be with large search

Dan Yolleck corporations that may differ in different areas, “Our quality is always high in every area because it is run by a local entrepreneur”. AIMS commitment to the development of leadership begins with its own organization, as “We often have to work with firms to help them adopt our philosophy. One of the benefits of joining AIMS is that we are not a stagnant organization. We look very much at the development of the members and the development of the leadership we expect them to carry in the countries they represent”. The premise of this approach is based on the partner’s contributions

and as such, running such an organization can be complex since all decisions have to be discussed and reconciled. Taking into account that members operate in different markets and thus, have a spectrum of perspectives and issues they may choose to discuss, coordination is fundamental. “We have created the necessary infrastructure so that during the year and between meetings we continue to be focused on the development of AIMS”. As a result, AIMS strives to keep the communication lines permanently open between members as Yolleck describes how the network operates: annual international meetings, 5-6 regional meetings in different regions during the year, monthly teleconferences within regions throughout the year, a regional board to deal with the various and specific issues that arise in Europe (which is one of this organization’s strongest footholds). THE IDEAL CLIENT Although the AIMS approach is designed to work for every company, regardless of the industry, function and geographic location, Yolleck explains, “I don’t believe that all companies should use us. We are targeting two types of businesses: 1) the company that absolutely has a specific cross border need, which we can fill since we have such a strong local and domestic market understanding, and 2) there are international clients that have previously spent massive amounts on fees and have been dissatisfied with the poor results other firms have provided them. We provide them with an alternative.” Yolleck later added, “There are some companies that globally work very well with our philosophy and those are the clients we want to continue to establish a long-term relationship.” EXTENDING & EXPANDING SERVICES At the moment, AIMS is targeting being No. 1 in Europe in terms of the

number of offices. “We are looking to retain that situation and we are probably going to grow somewhat in the Baltic’s in the next year and in Scandinavia.” Our target market will be Latin America and the Pacific Rim. We are also looking to increase our membership slightly in the United States, based on certain markets and issues.” Moreover, “AIMS is working to think through ways to approach the clients in a different level than in the past” as this organization is widening its services to include more HR services. “We are a human resource provider that is looking at ways to add value to our clients, and we are growing from our search and selection basis to offer other value added services to our clients,” explains the President of AIMS. An example of AIMS’ commitment to diversifying its services is in assessment. “We are developing a standard for assessment that will work

for clients across all countries around the world.” Yolleck explains that it is not an assessment tool, but a standard methodology, a process that helps the client work with AIMS to resolve their specific needs. At the moment, all AIMS members offer assessment. Another venue that is currently being explored is coaching. Any value-added service that AIMS offers is properly investigated, thoughtfully analyzed and discussed. “Once a very rigorous set of criteria and methodology have been set, it is introduced gradually, very controlled and in a specific way over a period of time, and only when we are totally confident in our ability to introduce it with the highest level of quality” can AIMS guarantee this service to its clients. The AIMS President cautions that although some search firms have seen diversification as a means to tap into other revenue streams, AIMS believes that do so is a “disservice to clients. He

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is keen to explain the difference between what he sees as providing complementary services as a means of understanding and effectively solving clients HR needs and simply converting a firm into a “delivery system that is looking for a new revenue source.” Yolleck believes this is transactional and therefore, recruiters who are only business driven lack the proper ethics, integrity and understanding of the client’s needs to service them adequately. In turn, clients are dissatisfied and look for an organization that will put their HR interests first, design a way to solve these problems and do it as quickly and as cost effective as possible. In other words, argues Yolleck, they are looking for AIMS to handle their HR needs.

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By Peter M. Felix n most western economies the Executive Search profession today is recognized as a permanent part of the management scene. A key management tool, perhaps one of the most significant available to the leadership of the modern organization, executive search is the one professional service that directly impacts organizational performance. The right people are today more a determinant of a corporationâ&#x20AC;&#x2122;s success than the uniqueness of a product or its financial foundations. Executive talent is the one of the few resources that has an internal multiplier capable of infinite leverage. As we move definitively to the knowledge-based service economy the quality of human resources will become an even greater factor in corporate performance and differentiation. The growth of the retained executive search consulting business in the last fifty years has been directly linked to the development of more objective and professional management practices by corporations pursuing the dynamics and culture of the Anglo-Saxon corporate model. It is no surprise that executive search should have developed most rapidly in the United States and United

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Kingdom, where management openness has been encouraged and where barriers to change have been the first to fall. Indeed executive search has followed the reach and growth of leading international corporations from these countries into many markets around the world. The leading firms in the search business now operate in as many as 70 countries around the globe. While the Continental European, Asian and Latin American corporate models have taken longer to respond to this form of management consulting service, nevertheless in recent years German, French and Italian companies have become greater users of the process. It is still, however, less used by traditional Asian or Latin American corporations and by those in the less developed regions of Europe. The reasons for the inclination to use executive search by western organizations are perhaps obvious. As economies and societies move from traditional, closed and regulated models to more open and transparent environments so competition increases and the focus on performance and quality of management becomes more pressing. Established and sometimes protected industries operating in predictable

economic environments do not feel the pressure to recruit the best. But the fresh wind of competition and injection of new talent can revitalize even formerly moribund organizations. Add to this the disappearance of traditional barriers between industry sectors and we see powerful forces at work that will increase the need to find and retain the best managers. In the more traditional economies and cultures such as those of Continental Europe this transformation is beginning to gain momentum and can be expected to have a significant impact on the executive talent market in the years to come. The bringing of family-owned companies to the public markets in countries such as Germany, the deregulation and privatization of major industries such as telecommunications throughout Europe, and the creation of Euro-organizations to meet the market demands of new Europe are all contributing to a build-up in the demand for talented executives to lead these businesses in the future. Not least will be the demand for the Euro-CEO, now in very short supply. Liberation and deregulation of an economic environment is thus a major accelerator in the use of executive search and we may perhaps have seen

only the beginning of such growth when we take a world-wide view. There is still a huge amount of economic reform and liberation to be achieved in major markets around the world - one might say that we have only just begun the process when one looks at China, Russia, and the countries of Africa and Latin America. But these economic forces are not the only ones that have contrived to serve the executive search profession well. Other forces have been at work in the western economies that have increased mobility in the executive talent market. Some of these forces were unleashed during the major re-engineering processes of the 80’s and 90’s, again particularly in the US and UK economies. Down-sizing, right-sizing, outplacement - all were facets of a process that marked the final death throes of lifetime employment and corporate loyalty. All had a vast effect upon the ranks not only of the senior executives who lost their positions, but perhaps more importantly upon succeeding generations whose attitudes towards employment and careers have changed dramatically. Thus the so-called X generation has an in-built mobility: a finite, rather than infinite, view of any career move. Treating a new job more as a project than a lifetime career, the new executive talent has become empowered not just by its education and employability but by its changed perception of its own responsibility in career planning and in finding satisfying and rewarding work. The flood of young executives into entrepreneurial ventures surrounding the growth of the Internet was in itself a prime example of how the executive employment infrastructure is changing. Finally demographic changes, particularly in the United States, suggest that for at least the next fifteen to twenty years an executive shortage will add a further potent multiplier to the equation.

The worldwide retained executive search business is today estimated at around $8billion in fee revenues. Of this around $2billion, or roughly 25%, is achieved by the 20 largest global firms and networks. Several thousand smaller retained executive search firms around the world account for the remainder. Some had predicted the demise of the executive search profession with the development of Internet recruiting services. I believe the opposite to be true. For key appointments an experienced and knowledgeable search consultant will always be able to add value in terms of judgment, comparative assessment, time saved and project

Peter M. Felix closure. By-products of the search consultant’s work such as market research, compensation advice and organizational consulting are also highly regarded and valued by sophisticated clients. But the new technology is having a significant impact on executive search, not just in terms of more advanced software to run databases, but by providing tools that make the search process more efficient and less time consuming. Thus, use of the Internet for research, employment of e-mail for communication with clients and candidates, the development of

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restricted access extranets for individual searches, and the use of videoconferencing for candidate screening are helping enormously to reduce cycle time and increase efficiency. Nevertheless, mechanisms such as these can never substitute for the human element required to assess candidates, consult the client and act as the trusted intermediary in a highly confidential and sensitive process. The Association of Executive Search Consultants (AESC) is working to not only promote the highest standards in executive search around the world but to promote the use of search as a powerful consulting service that can make a crucial difference to the future of an organization. Members of the Association subscribe to strict professional standards and meet regularly to update their professional knowledge and understanding of the management environment. In Europe the Association is represented by a European Council, which was established in 1997. The Council’s mandate is to establish standards for executive search in the new Europe and to help focus attention on key issues affecting the recruitment and retention of talent. I am optimistic that the next ten years will see an even greater use of executive search services in countries around the world as we move out of recession and into the next phase of global economic development. The Association of Executive Search Consultants is the worldwide professional association for retained executive search and has offices in New York and Brussels. To find out more about the AESC’s Code of Ethics and Professional Practice Guidelines, visit www.aesc.org.

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For more information, contact: Web: www.aesc.org

ISSUE 18 2004 search-consult

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