Executive Search

How many top executives would deny the need for high standards of corporate governance? Or reject calls for greater corporate sustainability? Very few. But when it comes to recruiting and retaining senior leaders, finding a company with a professional and sustainable culture in this field can be tough. Some may argue that a recession is a time to focus exclusively on urgent issues directly impacting the company’s bottom line, and to put topics like talent management on the back-burner. But when you study the past – and the last recession was less than a decade ago – the opposite turns out to be true. Based on this evidence, those companies that manage talent effectively now will be best-equipped to grow fast when the economy picks up again.

So will most companies be ready for the next economic upswing in terms of executive talent? Not if they continue to follow their present unstructured and ineffective approach to recruitment. Indeed, an article written by Harvard professors Boris Groysberg and Nitin Nohria and myself, published in the May edition of the Harvard Business Review, highlights that the future success for the vast majority of companies depends on a complete overhaul of their current recruiting practices. We definitely need a culture of professional recruitment and retention, in good and bad times, but especially in bad ones.

Our extensive research into recruiting talent at the very top three tiers of an organization’s management - collectively referred to as the “top-x group” - shows that reference checks are rare and many recruiters are heavily influenced by gut reactions when judging the qualifications and cultural fit of potential candidates. Surprisingly, only half of the top managers recruited by the companies studied were interviewed by a senior executive in the C-suite.

A poor culture of talent management

Although it is widely acknowledged that top leaders exercise the greatest controllable influence over corporate value, our research reveals that recruiting for a senior position is often seen as an emergency situation. Some CEOs are even ignorant of the recruitment outlook within their own company and unaware of the leadership talent shortfalls on the horizon as their baby-boomers head for retirement. In other words, while most CEOs have no trouble forecasting their short-term revenues, very few can provide similar information on their strategic talent requirements.

The net result of such poor, inconsistent recruitment practices at most companies is that almost a third of promising new hires depart within three years of joining an organization. Clearly, top executives need to start taking a more serious approach to talent management if they hope to position their company strongly for the next upturn.

7 steps towards establishing a professional culture of talent management

So how should leaders tackle the challenges and opportunities presented by talent management in the future? We offer a 7 step definitive guide to recruiting and retaining top performers. Based on our own extensive research, which acknowledges the interdependencies between recruiting and long-term corporate performance, these best practices include:

• Anticipate the need for new hires: companies need to transform vague desires for a broader diversity of nationality, gender and entrepreneurial experience in their senior leadership team into concrete, proactive hiring plans that complement their short and long-term strategic business goals.
• Specify the job: hiring high-level executives with generic leadership skills and a strong track record does not guarantee future success. Instead companies should focus on identifying the specific capabilities required by a job in the next 3-5 years, the team-based competencies needed by potential candidates and their cultural fit into the organization.
• Develop the candidate pool: many firms still fail to talk to enough prospective candidates when recruiting for the top job. One important and often neglected pool of potential candidates are “insider-outsiders,” namely internal candidates who have a more objective view of the company thanks to a link outside the company’s main field or their experience at an international branch.
• Assess the candidates: evaluate potential candidates effectively by using the right interviewers, an appropriate number of interviewers and the right interview techniques. Exposing finalists to a few key stakeholders who are familiar with the requirements of the position is another good strategy.
• Close the deal: in many cases securing the right candidate is not merely a question of financial compensation. Our research suggests that a personal show of commitment by the CEO and a realistic analysis of the positive and negative aspects of a job also determine whether top candidates accept job offers.
• Integrate the newcomer: many C-level new hires fail to meet company expectations and depart within 2 years of joining an organization due to their lack of integration in the corporate culture. This can be avoided by assigning newcomers a veteran mentor who can help them build relationships and provide valuable insights into how a company works.
• Audit and review all hiring decisions: mistakes happen, even when companies follow the best recruiting and integration processes. To limit the damage done by bad people decisions, firms should regularly review the performance of executive newcomers and act quickly – within the first year – to remove bad hires.

Companies desperately need to devote more time, energy and resources to improving their recruitment and retention of leadership talent. Our research shows that companies can boost their annual profits and market value by around a third by adopting a rigorous, disciplined approach to succession planning, for example. Looking to the future, we firmly believe that firms which focus on hiring the best talent available and holding on to their star performers will enjoy a significant competitive edge.

This is an executive summary of an article recently published by Claudio Fernández-Aráoz, Boris Groysberg and Nitin Nohria in the Harvard Business Review entitled “The Definitive Guide to Recruiting in Good Times and Bad” (May 2009).

For further insight, check out the HBR audiocast with Claudio Fernández-Aráoz (alternative itunes-link here). The HBR Editor’s blog also points to the site’s “Recruiting Practices Self-Assessment Tool” which offers individuals the opportunity to respond to a few multiple choice questions and get feedback on the strength of their company’s recruitment practices.

Note: Claudio Fernández-Aráoz joined Egon Zehnder International 23 years ago and has been a member of its Global Executive Committee for over 10 years. He is currently a Senior Adviser to the firm and author of the book Great People Decisions.