June 11, 2012 | last updated June 11, 2012 5:37 pm
Talking Points

In executive search, avoid the big mistake

Stanley H. Davis

When a company approaches the need for new capital equipment, the acquisition is most often viewed as an investment, rather than a cost. Ultimately, the organization will measure the new equipment not in terms of outlay, but by its return on investment.

Without meaning to be rudimentary, hiring great leadership is not unlike buying a piece of capital equipment. If a business is going to hire a new executive at $200,000, it seems only logical to evaluate, "What's the return?"

As an example, a $25-million-company looks to hire a lead executive with an annual salary of around $200,000. The one-time costs involved in recruitment and acclimating the new executive and the organization, plus other expenses, may approach a one-time investment of $100,000. However, this company expects that, as a result of engaging the best leadership to innovate and implement operational and strategic changes, annualized sales should conservatively improve by $2.5 million — and that is a mere 10 percent increase.

In this conservative scenario, with a return on sales of 8 percent, the payback period on the one-time investment is six months. And after the first year, continuing improvements in sales and operations should accelerate and compound these returns.

But what if the organization has chosen the wrong leader? What if, at six months, the new leader is not coming up to speed?

The right integration and change management disciplines will recognize issues long before this point, chaperone the process, and facilitate ongoing adjustments. Without these disciplines, the company could easily be upside-down on its investment — in our example, $300,000 (or a $500,000 swing from where they should be).

Where does this $300,000 come from? The sunk $100,000 in acquisition and integration costs; $100,000 for six months (or more) of salary; and incidental costs, unrealized sales and efficiencies — the costs of a termination add up quickly. And the recruitment process must now start anew — and absent a guarantee, that's not free.

But executive searches are successfully completed every day. And the historical 40 percent failure rate of new executives can be averted.

For starters, the recruitment pool for executives must not be artificially limited. The odds readily tell us that you'll find more great candidates in a 1,000-mile-range than in a 100-mile-range. And if you're looking only at active or casual job seekers, who make up about 30 percent of potential candidates, you're missing the 70 percent of talented potential candidates who may not be looking. This 70 percent does need to be identified, engaged and attracted, but you're looking for the best executives, not just an okay candidate that you can find easily.

Secondly, if your organization is already a $10-million-business targeting growth to $20 million, don't bring in $10-million-talent. Look for someone who will grow the business based on their track record, and who through the right experience knows what a $20-million-business needs to look like, and what it will take to get there.

Along these same lines, make sure to learn more about a potential executive's prior performance than what is simply stated on his or her resume. What opportunities have they had, what actions did they specifically take and how did these impact their company's results?

Don't succumb to a common tendency in both larger and smaller firms to rely on a known candidate, or one referred by an acquaintance, as a quick or easy route to selection. Without disciplined scrutiny, the results with these candidates are often abysmal; evaluation is short cut and "gut feel" is ignored.

Where a selected candidate's talent, knowledge and prior success is a good fit, but they're a cultural mismatch, their hiring is highly likely to produce a destructive organizational outcome. By taking the initiative to understand your company culture upfront, this most common of recruiting mistakes can be avoided.

Executive placements can succeed, and for good reasons. The vetting has to be disciplined and detailed, the onboarding effective, and the follow-through to assure the new executive's success should be well planned and executed.

The business challenges from customers and competitors won't allow for a recruiting result that's "good enough." The best leader will achieve a company's aggressive objectives — operational, strategic, cultural — and will produce a solid return on the recruitment investment.

Stanley H. Davis is founding principal of Standish Executive Search, a Boston-based executive search firm advising mid-size and smaller companies.

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