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What are Retained Executive Search Firms?

Retained executive search firms can be expensive, often charging as much of 33% of total executive compensation. Given there are so many more cost-effective ways to hire, what is retained executive search and why would you use a retained executive search firm?

Cost isn’t everything, but let’s start by looking at this factor. Estimates suggest that the “cost of a bad hire” can equate to 2.5 times the salary of the individual concerned. Senior-level executives can earn a significant package, and so a bad hire in the C-Suite is expensive in terms of direct costs.

Executive hiring is difficult – Executive search can improve the odds of a successful hire

At senior levels, the real cost of a bad hire is the damage done. Strategic damage. Reputational damage. Cultural damage. CEOs and senior executives are paid to make impactful decisions. Just six months of poor leadership can have an impact on an organization that can be hard to quantify. However, a bad hire given more time can cause real damage. Take George Shaheen who joined Webvan when it was one of the most exciting stars of the Dot-com bubble, spent $1.5 billion and, 18 months later, saw the business go into Chapter 11.

So bad hires can be expensive, and while no recruitment process can guarantee a successful hire, a retained executive search process is designed to increase the odds of success.

What are retained executive search firms?

A retained executive search firm is  “retained” on an exclusive basis to go out and recruit the best candidate for a specific position on behalf of a client.  This service is delivered through extensive research designed to identify all of the potential candidates for a role and to approach and appoint the best possible fit.

The client commits to pay a fee for this service – placement or not. This is not the case with contingency based recruiters where payment is only due if and when the candidate is hired.

This fee structure allows the search firm the time to map the market and approach the best candidates and not just the lowest hanging fruit. Search firms will generally guarantee a hire, however, and will typically repeat the search for free if the candidate leaves within an agreed period.

Passive versus active candidates

Place an advert on LinkedIn. Search through resumes on Indeed. A recruiter can access millions of candidates in minutes. Why would she need more?

Because each candidate who applies to an ad, and each candidate who uploads a resume, is actively looking for a new job.

And there is nothing wrong with that.

However, by limiting your candidate pool to so-called “Active Candidates,” you are excluding an awful lot of potential candidates. Candidates who may not be posting resumes because they are busy driving growth at your direct competitor. Or a candidate who doesn’t see the ad because she’s on a business trip.

Identifying the problem

Of course, a larger candidate pool doesn’t equate to a better candidate pool. It’s about quality rather than quantity. That’s where the other side of executive search comes in – Executive search is consultative in nature. When you search a job board, the candidates you find will be those that meet your criteria – where your criteria are defined literally as the words you type into the search screen.

The problem, of course, is that the challenge that the hiring organization is seeking to solve may not be easily boiled down to a simple boolean string. A CFO able to prepare the business for a floatation. A country manager in China with a proven ability to establish a brand. Not criteria that appear on the average search screen!

And, of course, not every Chief Executive is the same. Nor every CFO. Would you hire an executive from a fast-growing tech business to turnaround a manufacturing business? What about a leader proven from the banking sector for a role in the technology space?

Perhaps not…. However, you should at least be open to it. It might be that such an executive would have the vital transferrable skills and a fresh perspective that might make all the difference. Jeff Bezos switched from Investment Banking to create Amazon and didn’t do too badly, after all. A creative search consultant will help the client look beyond the obvious and consider all of these options.

Retained executive search firms are management consultants.

A good executive search consultant is precisely that – a consultant. She will begin by working with the client to produce both a job specification and the candidate profile. These documents will help both parties understand the requirements of the role, and what a successful candidate will need to achieve.

So, let’s discuss the research process

Once this is complete, the recruit will identify a longlist of potential candidates who may be able to deliver the leadership required by the client. In some cases, more than 100 potential candidates will be identified – although in some cases, the list may be far shorter.

Retained executive search firms follow a research methodology designed to identify all the potential candidates for a role. This doesn’t just mean a quick search of Linkedin. Unquestionably, Linkedin Recruiter will play a part, but a broader combination of online research, telephone sourcing and old fashioned networking will all be utilized.

LinkedIn is available to anyone, but the public nature of the site means that senior executives are unlikely to be comfortable sharing the type of information that they might on a more private platform such as GatedTalent. An experienced recruiter may also have access to a significant internal database containing information which is not more widely available.

Approaching the executives

The challenge, however, has only just begun. If the retained executive search firm aims to identify both active and passive candidates, then it stands to reason that some of the candidates who are considered will not actively be looking for a new role.

The job of the recruiter is to change that. The skill here is to get past the gatekeepers and then pitch the opportunity on behalf of the client. Recruiters typically have extensive networks and will often turn to this as a way of opening doors. A personal introduction can often open doors that would otherwise be slammed shut.

Essentially, therefore, the service offered by the retained search firm is to help the client understand and scope out the role, to identify and then to approach potential candidates. Once a shortlist is drawn up, the search firm will be on hand to help with the assessment process and will typically deliver detailed reports discussing the relative merits of the final candidates.

The drawbacks associated with using retained executive search firms

It should be said, however, that all forms of recruitment have drawbacks and retained executive search is no different. As alluded to earlier, a retainer is expensive – fee structures will vary from firm to firm, but 33% of total executive compensation is not unusual. Larger search firms can also suffer from issues associated with “off-limits.” One of the benefits of using a retained executive search firm is that it will, over time, build a detailed understanding of the strategy, culture and leadership at any particular client.

Of course, organizations are generally nervous about sharing this type of information with recruiters! As a result, most recruiting firms that enjoy an ongoing relationship with a client will agree not to recruit talent from it. What this means is that many of the best-known search firms will be blocked from recruiting talent our of the best-known organizations.

The other issue, of course, is that all of the above takes time. A quick search on indeed will deliver a roster of potential candidates in minutes; a retained search firm will not manage that! A CEO search, for example, might take 90 days to complete. A board search might close more quickly, but – equally – there are many cases of executive searches that have dragged on. Recent examples include the searches for new CEOs for Intel and The Premier League.

When should an executive search firm be used?

The general perception is that search firms tend to be called in primarily for C-Suite and board appointments on behalf of major companies. There is no question that much search takes place in this environment – but it is far from the only use case for executive search. At GatedTalent our client roster ranges from global search firms who cover pretty much every sector, through to boutiques specializing in search within academia. From private equity specialists to nonprofit and mission-based organizations. From multinationals to privately owned or new startups.

In conclusion, the recruiting organization needs to weigh up a host of factors when deciding on a recruitment strategy, with the primary criteria including maximizing the chance of hiring the best candidate, the cost of hire and the time taken to complete the process. There is no one size fits all answer – but, generally, speaking, the more senior the position, the more impactful the role and the less the availability of talent, the more likely that a business will turn to a retained executive search firm.

About GatedTalent

GatedTalent is a service used by retained executive search firms to identify and engage with senior-level executives. Executive Search firms from more than 30 countries subscribe to the platform, while executives from more than 100 countries have created profiles, sharing achievement, aspirational and availability information with the recruiters. Search firms wishing to trial the service should apply here – executives wanting to get on the radar of our clients are invited to create a free profile.

About the author

Jason Starr is CEO of Dillistone Group plc, the publicly traded parent company of GatedTalent. Jason also serves on the board of Pcipal Plc, the fintech firm.

It might be that these executives have the vital transferrable skills and a fresh perspective that might make all the difference. Jeff Bezos switched from Investment Banking to form Amazon and didn't do too badly, after all. A creative search consultant will help the client look beyond the obvious and consider all of these options.