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EGON ZEHNDER INTERNATIONAL - CULTURE
All for one, one for all
Daniel Goleman
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In his book Working with Emotional Intelligence (1998) US psychologist and author Daniel Goleman looks into how far the concept of emotional intelligence, which he first formulated, can be applied as a guiding principle for global corporate players. One of the companies that he analyzes in detail and sets out as an example of emotionally intelligent management is Egon Zehnder International. What impressed Goleman most was the firm’s long-established practice of putting the success of the team before the success of each individual; a practice which not only sets Egon Zehnder International’s corporate culture apart from the competition but also makes the firm far more productive than others in the industry.
Victor Loewenstein had a dilemma – a global dilemma. Asked by the World Bank to locate a candidate for a newly opened vice presidency, he was told to search the world for the right person. It had to be someone with sophisticated financial expertise, of course – and because the World Bank was trying to diversify, preferably not an American, a nationality over-represented in the bank’s ranks. And Loewenstein, managing partner of the New York City office of Egon Zehnder International, was planted squarely in midtown Manhattan.
Undaunted, he called into action the firm’s worldwide offices. “I sent a memo to about twenty different offices in the countries most likely to have pools of people with the required high level of expertise in finance – mostly in Europe, but also in Hong Kong, Japan, Singapore, and Australia.”
From these offices Loewenstein received 20 profiles of possible candidates; he asked that the eight he saw as most promising be interviewed by people in those offices to see if they indeed had the requisite technical competence. This eliminated two more.
“Beyond professional qualifications,” says Loewenstein, “the person needed personal qualities and competencies that would mesh with the unique environment of the World Bank – and as the one who had dealt with the bank, only I could make that final determination.” So with the field win-nowed to six, Loewenstein himself crisscrossed the globe to visit the remaining candidates. The ultimate choice, from the Netherlands, was a senior partner of a major auditing firm. Had he been on his own, Loewenstein might well have never found him – but by calling on his worldwide web of connections, the search was a success.
The story typifies the operations of Egon Zehnder International, which has knit its farflung partners into a single global working team, fluidly sharing contacts and leads. Perhaps the key reason why Egon Zehnder International can operate so smoothly as a worldwide collaborative team lies in an innovation made early on in its history: It treats the global firm as a single team, with everyone paid on the basis of overall performance. The hundred or so partners share a pool of profits distributed according to a uniform formula. A person’s share is calculated the same way whether their contribution to the firm’s earnings that year was great or little. The entire firm operates as a single profit center.
Most search firms tie compensation to a mix of firmwide, office, and individual performance; stars usually earn a direct percentage of the fees they generate. But this is not the case at Egon Zehnder International. Says CEO Daniel Meiland: “The strength of our firm is that we do not have a ‘star’ concept.”
From this equality in earnings and power stems an all-for-one, one-for-all spirit. This stands in contrast to the industry as a whole, where “head-hunters” live up to their nickname by operating on a bounty system, with the recruiter receiving a proportion of the salary of the post filled. As one executive at another search firm put it to me, “I hoard my information and contacts, because I get compensated on the basis of my listings. I don’t even know if I’ll be working with the same company in another year – why should I give away my resources?”
At Egon Zehnder International, people of 39 different nationalities and eight religions in 48 offices spread across 39 countries operate as a single unit. “The fundamental difference between our firm and others is that we find ourselves all on the same ship,” says Loewenstein. “The more we collaborate, the more efficient we are.”
The compensation model was a radical departure for its industry when Egon Zehnder instituted it. Also, the firm is owned equally and entirely by its partners (consultants typically are elevated to partnership after about six years). Even Zehnder himself, who at one time owned the firm entirely, now holds just one share, like every other partner. “I understood that if I did that, I could retain the best partners,” Zehnder tells me. “It made us all entrepreneurs together. How do we work so well together? Because we’ve decoupled individual performance from money.”
That team approach pays off; Egon Zehnder International’s performance as a business is extraordinary. As an executive search firm that specializes in finding CEOs and others in the top tiers of the corporate ranks, it is the most profitable search firm per capita in the world. According to the Economist Intelligence Unit, in 1995 the average net revenue per consultant for the top 20 such firms worldwide was $577,000. For Egon Zehnder International, however, the equivalent figure was $908,000 – making the company about 60 percent more productive than the industry average for top firms.
Zehnder himself was instrumental in introducing the executive search industry to Europe, where his company is still the leading executive search firm. In the 1950s, shortly after he finished his MBA at Harvard, Zehnder joined the American search firm Spencer Stuart, setting up offices for them first in Zurich, then London, Frankfurt, and Paris.
Integrity is a hallmark of the firm’s culture, a value reflected, for instance, in the change Zehnder made in how he charged clients after he left Spencer Stuart to start his own firm in 1964. “I didn’t like the system where you were paid a percentage of the current salary of the person you were searching for, and only got paid if you found someone the client hired,” Zehnder explains. “That created a pressure to only ‘find’ people who would demand the highest salary, whether or not they happened to be the most qualified, so you’d get the biggest fee.”
Zehnder restructured compensation to make sure a candidate’s fitness for the job was the only criterion. From the beginning Egon Zehnder International has charged clients only a flat fee calculated up front on the basis of the complexity of the search. Zehnder’s fixed fees free its consultants to search for the most qualified candidate rather than the highest-paid one. Their fees also mean that, at times, they “leave money on the table,” getting less than the client would ordinarily pay for a given search done by another firm. For CEO Daniel Meiland, that loss of revenue pays back in client trust. It also pays back in repeat business and long-term ties with clients.
The firm balances its quest for profit with contributions to society. Partners are encouraged to do pro bono searches for charitable groups, hospitals, universities, and governments. As Egon Zehnder points out, “Nothing is more important for attracting new clients than to see top talent like ours contributing unselfishly.”
Loyalty marks the relationship between Egon Zehnder International’s people and the firm itself. The company has yet to close an office where earnings lag. In the early 1990s, for example, some smaller offices were underperforming, but the company kept them going as part of its general policy of not laying people off – a stark contrast to the rest of the industry.
With security comes obligation. There is, of course, a danger in the combination of what amounts to job tenure and a compensation system that rewards everyone regardless of their specific efforts. That’s why loafing is a cardinal sin. As Zehnder tells me, “The system only works if all of us give our all. The crime is freeloading, not lack of success if you’re working hard.”
Because people join the firm to stay, there is a palpable sense of the company as a family. As one partner put it, “We know we will be working together for many years, and so we are prepared to invest time and effort into building relationships.”
The firm’s egalitarian approach to salary works only if everyone acts with both integrity and conscientiousness. Its very business, finding just the right person for a company, demands skill at empathy, intuitive accuracy, and organizational awareness. And nurturing long-term relations with clients demands a continued orientation to their needs. Small wonder Daniel Meiland tells me, “In what we do, emotional intelligence is essential.”
How does the explicit focus on emotional intelligence look in operation? Consider how the firm goes about hiring people. Its business centers on gauging the chemistry between an organization and a prospective consultant. And the care they put into assessing prospective employees offers an exemplar for taking emotional intelligence into account in hiring.
While search firms typically put a premium on recruiting people from other search firms who can bring in business from the start, for Egon Zehnder International this is irrelevant: They never recruit people who have worked for search firms. Typically, a prospective consultant is interviewed by 20, and sometimes as many as 40, of the firm’s one hundred or so partners, in up to five different countries. “We need a radar in this business, but that only develops with experience,” Zehnder observes. Each partner who meets with prospective consultants evaluates them on four major dimensions. The first is purely cognitive – abilities like problem solving, logical reasoning, and analytic capability. But the other three reflect emotional intelligence. These include:
- Building working relationships: Being a team player; having self-confidence, presence, and style; being empathic and a good listener; having the ability to sell an idea; maturity and integrity.
- Getting things done: Being a self-starter, with drive, energy, and a sense of urgency that gets results; showing judgment and common sense; being independent, entrepreneurial, and imaginative; having leadership potential.
- Personal fit: Having the qualities of a friend, colleague, and partner; being honest and adhering to one’s values; being motivated; being sociable, with “sparkle” and a sense of humor; modesty; having a full personal life and outside interests; understanding the firm and its values.
The bar here is high. Egon Zehnder is blunt: “We only have places in our ranks for zealous family members.” That is not hollow rhetoric; the record suggests that about 90 percent of those hired as consultants go on to become partners. The number of those who leave is around 3 percent, compared to about 30 percent for the rest of the industry.
Adapted from WORKING WITH EMOTIONAL INTELLIGENCE by Daniel Goleman, copyright © 1998 by Daniel Goleman. By kind permission of Bantam Books, a division of Random House, Inc.
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