Why Companies Turn to Executive Search Professionals

Why Companies Turn to Executive Search Professionals

 

Urs Wuthrich of IIC Partners, discusses why companies turn to professional executive search firms.  MERC Partners, Ireland`s leading executive search consultancy, is the Irish member firm of IIC Partners.


ZURICH —  In the increasingly frenetic, worldwide search for executive talent, more and more companies are turning to search consultants to find senior leaders, says Urs Wüthrich, Zurich-based Chairman of  IIC Partners.  MERC Partners is IIC's Irish member firm.

As a result, revenues of the world's top 20 executive search organizations rose 16 per cent last year, according to Executive Recruiter News, a leading trade publication for the industry devoted to finding and retaining senior corporate managers.

“At IIC Partners, our revenues rose 38 per cent, surpassing $100 million for the first time,” Wüthrich said. “And in the first half of this year the pace of transborder searches — those involving offices in two or more countries — has more than doubled. 

“More companies are using search firms and they’re using them to search more widely for the leadership talent and experience they need,” he said.

Wüthrich said a half dozen major business trends have led more companies to seek specialized help when they need to find executive talent. As leader of the world’s eighth largest executive search organization, with close to 60 offices in more than 35 countries worldwide, he’s well placed to know.

“Economic recovery has finally spread into most of Europe from Asia/Pacific and the Americas and, of course, that always increases the demand for executives,” he said. “But there’s no doubt other factors are combining to force companies to rebuild or expand their leadership teams.

“It’s just a little more than 60 years since the end of the Second World War and that means the first of the baby boom generation are starting to retire — throughout all the leading industrialized nations of the world,” he said. “They’re a big generation, which was followed by two smaller ones, so there are just fewer people to choose from as companies try to replace those who will be retiring in increasing numbers over the next decade. 

“An aging demographic is a problem all up and down the ranks of corporations, but it’s particularly acute in the executive suite and the board room because these are the places with the highest concentrations of senior people,” Wüthrich said. “The problem is most urgent at the top of the house. 

“The very largest corporations have big staffs from which to develop leaders and succession plans to help them cope, but even they’re concerned. As a result, they’re making increasing use of search firms to fill holes in those succession plans,” he said. 

Wüthrich said recent security and compliance shocks have also created a number of pressures that can best be addressed by search consultants. Huge corporate collapses in 2000, new corporate governance requirements typified by the US Sarbanes-Oxley Act, and the 9/11 attacks on New York have all raised priorities around security.

“Since 9/11, companies have repeatedly raised the bar in the area of protecting assets and data from sabotage and theft,” Wüthrich said. “Now many leading companies are seeking to hire chief security officers with deep expertise in law enforcement and related fields. These are rather unknown waters for many companies and the services of a search firm, constantly in the business of hunting talent, can frequently make the whole process more efficient and ultimately more successful.”

He said other companies have been more influenced by corporate governance concerns and have tended to go the route of the chief compliance officer, often supported by new senior positions in the legal and accounting departments. These new roles have further increased the need for search expertise. 

Moreover, Sarbanes-Oxley, the Combined Code in the UK, and a host of similar legislation worldwide, have placed a level of urgency on hiring independent directors, free of any personal connections to the CEO, he said. 

“It’s no longer acceptable to appoint directors straight from the CEO’s rolodex — as some very prominent court cases are demonstrating. The use of a search firm provides the proper degree of insulation and due diligence, as well as a greater chance of finding the new levels of director expertise required by all the new legislation,” Wüthrich said. 

The ongoing globalization of the world economy, in which companies increasingly compete across international borders — or face competition from those who do — has further elevated the role of the search firm, Wüthrich said. 

“Some larger companies can make effective use of internal human resources departments to search out talent at certain levels within their home countries but very few, if any, can realistically expect their HR people to tap into markets in far away countries with any good result,” he said. “Fewer yet can set up competent internal search expertise in several countries.”

Two related developments are adding to this need for international search capabilities, he said.

“The integration of Eastern Europe’s former command economies into the free-market system has led many companies to locate manufacturing and sales operations there, with corresponding needs for country managers and executive teams,” he said.

“For different reasons, the same thing is happening in both India and China, but on an even larger scale,” he said. “Obviously, building a senior management team with the right skills is challenging in a new country. Working with a search firm plugged in to the local economy can provide essential access to talent. But search consultants who’ve worked in that economy all their lives can also help to define the right mix of talents actually required to work effectively in that country.”  

To meet the demands of a genuinely global economy, search firms have built international capabilities. IIC, he said, is an example of a member-owned organization in which several prominent local firms form a jointly-owned company to provide global reach.

“Our model, at IIC, is to provide the best combination of global reach and local knowledge,” Wüthrich said. “Our members are successful firms in their home markets, with long-established access to local business communities, who work together to provide effective international search strength. 

“This year at our Annual General Meeting in Rio de Janeiro, Oct. 4-6, we celebrate 20 years as an international search organization,” he said. 

“The biggest reason for the growth of IIC Partners,” he said, “is that companies are learning that executive search consulting just makes sense. After all, internal human resources departments are facing a huge conflict of interest when it comes to searching for members of the executive team.

“Searching out executive talent is not a core competency for the vast majority of corporations,” Wüthrich said. “But they definitely want to plug in to that core competency when they go looking for a new chief executive or chief financial officer. They want to know that they’ve conducted a really professional search for the right candidate.”