Searching for a Corporate Saviour 7/10

Sep 07, 2020

Part 6.

The Go-Betweens: The Role of the Executive Search Firm

Very often even if the firm knows the candidate from previous relationships with them, the firm would still go to an ESF (exec search firm) to facilitate the search. Partially it’s because while the parties are known to each other, their needs are not made readily known as CEO search is a very intimate process.
ESFs work best where inter-firm mobility is high (i.e. people move between jobs).
Internal HR departments stopped looking for senior execs and left this search to outside firms due to the perceived low-status nature of the HR department. [MK: in 2020 there’s a finally a loud call for Boards to hire Directors with HR backgrounds for a more balanced view on the organization.]
Anti-discrimination laws don’t allow HR personnel asking candidates many personal questions; ESFs are in a position to ask any questions for the benefits of their clients.
The rise of MBAs (generalists with decent theoretical knowledge about many functions and some industries), especially blessed by reputable schools’ credentials, has created a new class of mobile top managers (vs “company men”).

Common criticism: ESFs encourage job-hopping and spiralling exec comp packages.
ESFs have their own issues: a large % of staff are ex-investment bankers and ex-consulting firms who failed to become partners and ex-executives; they can be lured to a competitor with ease (and money), and their credentials are usually no match for the firm’s advisors’ credentials.
“Few things betray social insecurity as pointedly as name-dropping, a practice in which search consultants engage quite overtly” (quote from the book, just loved it) I.e. the behaviour is targeted towards creating an impression in the candidate about the consultant’s belonging to a higher circle.
ESF’s offices look like corporate boardrooms (with matching decors) to create an impression of “serious business”.
Historically, the middlemen came from marginalized stratas and people, and whether ESFs are an example of it or not – it’s up to you to decide. The objective is buffering elites from the hostility of those they dominate by having someone else do the dirty job. (with the necessary status repercussions)
But intermediaries have an advantage of not having to play by the existing rules, hence many new and innovative practices originate with them. And after these practices prove successful, they get legitimized by the broader society.

A shootout is the beauty contest of ESFs, each promising to find the best candidate. Even if the outcome of this contest is already known (imitation of a fair process).
The firms, however, are substantially similar, their staff having had the same backgrounds and coming from the same candidate pool; the processes are standardized, too, through inter-firm cross-pollination.
Not surprisingly, Boards choose the ESFs they have worked with before.
But this all doesn’t matter much, because a shootout is just “the first act in the elaborate drama designed to disguise the social nature of the external CEO search process and dress it up as objective and market based“ (quote).

ESFs in the beginning ask the Directors for the list of candidates to run quick checks (salary expectations, background check, “untouchable”, etc.) to sift out the obvious misfits.
Directors also do the background checks through their networks.
Important: ESFs are not for finding the right candidates, they’re for making said candidates seriously consider the opportunity. It’s the Board’s job to choose the right candidate.
Candidates also use ESFs for updating their info on the job market realities, salaries and demand.
ESFs engage into intermediation, not info brokering, by: a) coordinating the Board’s activities to get to the desired candidate’s specs faster and get buy-in; b) slowly build commitment of both parties without exposing them to risks; c) legitimizing the process by emphasizing the fair process dealings.

ESFs have more resources and experience in managing the admin tasks (and much more).
Lots of stakeholders in the process —> ESFs help Boards keep their act together.
A big risk (bordering breach of trust) is when a Director approaches a candidate directly thus raising concerns about the actual secrecy of the process —> the safest way for a candidate to safe face is to publicly reaffirm their commitment to the existing firm.
Boards also can have factions that need managing in order to get a single Board voice in the end.

ESFs bridge the human actors together – people with insecurities, egos and career concerns. Whose greatest asset is their reputation.
ESFs ensure the candidates are not aware of each other and do their best to physically separate the times and places of candidate meetings.
ESFs need to ensure all parties in the exchange are serious about their intentions to reduce potential threats. If the Board publicly states they want an external candidate, but actually want an internal one – ESFs will only run a superficial search.
Getting all the intentions of the parties is key. And even a verbal “yes” is an oath.
ESFs are facilitating the status gamble by: a) limiting direct contact between the candidate and the searching firm. This allows maintaining anonymity if there’s no interest on any side; b) throughout the process candidates fall off as not all of them are really into changing scenery at that very moment, so the firm only gets to talk to 3-4 candidates.
The face-to-face interview is a very fragile process: Directors criticize the previous (incumbent?) CEO, while the candidate shows disloyalty to his/her current employer at the same time facing a chance of rejection. At this stage the candidates can technically refuse an offer but statistically won’t.

As mentioned above, the process must look objective and proper. Especially in the age of shareholder activism demanding fair process (which is good).
The brand of the ESF is a stamp of quality —> lowering public concerns.
Using an intermediary looks not like “poaching”, but rather as very acceptable workings of a free labour market. For a CEO taking a call from an ESF is entirely different from taking a call from a competitor. The benefit for them is information exchange.
The theory goes that ESFs can manage the interests of direct and indirect participants —> objective quality.
The entire search process has a theatrical nature to it (seize attention from candidates, deflect criticism from others, create attitudes about the search within the firm and outside it).
But some Directors take it seriously and later on blame ESFs to deflect criticism pointed at themselves, as if it wasn’t the Board that got enchanted by that star CEO they chose collectively.

Part 8.