Trusting the poacher

By MARK STORY

Imagine hiring a search firm to find a top executive scientist, only to discover the high-flyer it headhunted for you did time for trying to murder his wife.

United States medical device giant Becton Dickinson found itself in this predicament two years ago, and local incidents like the John Davy scandal at Maori TV have tarnished the image of headhunters' most marketed service - the indispensable search.

Established in the US to sell returning World War II servicemen into businesses, the search industry today gets paid handsomely to act as glorified introduction agencies for multinationals wanting to poach another company's top talent.

Client companies have historically paid big bucks to headhunters for their search grunt, regional and global networks and their ability to forge relationships with top executives worldwide, says Glen Petersen, HR director with Fonterra.

But Petersen believes the Davy affair served as a timely reminder to search firms that they work for the client company, not the candidate. In response to this reality check and shrinking revenue, Petersen has witnessed core headhunting firms add value to their search through better assessment techniques and more consulting services.

John Peebles, principal with leading local search firm John Peebles and Associates, admits that "resume inflation" is rampant. His recent surveys suggest 28 per cent of top executives lie about their degree qualifications. This sad revelation, he says, puts the onus on headhunters to ruthlessly verify who they're putting up for top appointments.

What's unfairly stained the credibility of search, argues Peebles, is the general recruitment firms and one-man bands that pay only lip service to search and verify.

Until recently, the demarcation lines between headhunting and general recruitment were reasonably clear. While general recruiters cast wide nets to find candidates through advertising, headhunters discreetly snared high flyers for top jobs.

But with New Zealand progressively becoming a branch office of Australia, fewer top jobs are on offer. The global shakeout since September 11, Sars and currency falls resulted in revenue for the world's 20 largest global search practices dropping 16 per cent last year and 29 per cent the year before. Not surprisingly, headhunters who relied solely on search have diversified, and local players have followed suit.

So how does searching work? Most global search firms are paid from 25-38 per cent of the first-year base salary of the person they're commissioned to find. With the average US chief executive job worth around US$10.4 million ($16.7 million), revelations that top search consultants earn between US$781,000 and US$1 million ($1.25 million to $1.6 million) are no surprise.

By comparison, local search firms tend to work on either a fixed-fee or lower percentage basis. Peebles says remuneration has been falling since the highest fee paid locally, $500,000, was recorded four years ago.

It's rare for search firms to work on appointments where the executive's base salary is under $200,000.

Typically a third of the fee is paid up front and another third on completion of the shortlist. The last third often depends on the executive meeting certain targets in year one. Telecom's group general manager (HR) Trisha McEwan says search firms now spend more time ensuring the executive's potential is maximised within the organisation.

How does the search begin? It's the search firm's job, says Peebles, to identify people who aren't currently available. "If four of the 10 candidates on the search firm's shortlist were already known to them, they're not doing search properly," he says.

But with search firms providing what recruitment consultant David Doyle regards as a soft landing for many executives, he questions how many headhunter-commissioned placements resulted from a truly extensive search. The alacrity with which executives get knocked from one search list to another suggests to Doyle that some "searches" are little more than cursory glances over who is available.

Search is all about hunting high and low for the right people. But the recycling of executives that Doyle sees suggests many shoulder-taps are already on the agency's books and require little in the way of searching. He cites the former managing director of New Zealand Milk, Chris Moller - who, after being knocked off the shortlist for Fonterra's top job, surfaced as NZRFU boss within short order - as a case in point.

"It would be interesting to find out the number of search assignments where the initial job offer was made to someone who was never looking for a job," says Doyle, principal of Chamberlin Doyle.

With the internet meaning search firms can shrink the world cost-effectively, Doyle also questions whether headhunters need elaborate search resources, especially as a lot of searching is done by outside contractors.

How long does the typical search take? A headhunter will usually spend two weeks trawling the internet and global databases to identify up to 20 people holding similar positions within like organisations or industries. The hard part, explains Maurice Ellett, managing director of local search firm Signium International, is getting the handful who make the shortlist interested in listening.

Ellett reckons a search firm would do well to make an offer from a final shortlist within three to four months. But McEwan says it usually takes considerably longer. It took Telecom seven months to find, then entice, expatriate Aussie Jon Stretch out of a job in Paris into the top job of its Australian operation, AAPT. After several false starts, Fonterra took 15 months to find and appoint an HR specialist from New York.

How does a firm like Fonterra decide which search firm to use? Out of 12 searches the company did last year, half were done using New Zealand-based search companies for local-based appointments. The other half were global searches, initiated in Australia, for jobs outside New Zealand.

"There's a lot more comfort doing global searches from Australia due to added credibility, capability and search resources," says Petersen.

Off-limit arrangements, which prevent headhunters from approaching people within rival companies, mean firms like Telecom may work with up to three search firms. But with local search firms like Peebles, TMP Search and Signium International being so well connected, Petersen believe's there's little incentive for the global players to establish themselves locally.

While only one of the world's top five search firms, Korn Ferry, has offices locally, the remaining four - Egon Zhender, Spencer Stewart, Russell Reynolds, and Heidrick & Struggles - all work from offices in Australia.

Around 20 per cent of the 60 searches Peebles handled last year were briefed out of Australia.

With around 14 of the world's largest search firms competing from across the Tasman with local firms for around 300 local searches a year, Ellett says its unlikely top executives will escape a headhunter's phone call for long. So what should they do when they're shoulder-tapped?

First of all, he says, it's indiscreet for senior executives to tell them to get lost - after all, they may need them one day. "I suggest executives approached by a headhunter arrange a convenient time to talk, listen to what's being said and explore the value proposition without commitment," says Ellett, who handled the last two Reserve Bank governor appointments.

There's no need to be intimidated by headhunters, advises McEwan, but she warns executives, especially in-house HR professionals, to be wary of unsolicited calls.

"It's not uncommon for headhunters to call seemingly pitching a job brief, when all they're really trying to do is get free referrals," says McEwan. They know the role isn't really for you, but hope you'll be able to suggest some suitable candidates they can follow up.

"They all know how to chat and sell, and with the barrier to entry so low, requiring little more than a phone and a PC, you have to be wary of who you use and what you buy."