August 14, 2018 – More companies have been looking outside for new leaders, an indication that hiring an outsider has become more of an intentional leadership choice than a necessity. Outsiders accounted for 22 percent of all CEOs brought in via a planned succession between 2012 and 2017, up from 14 percent in the 2005 to 2007 period, according to a recent PwC report. Price Harding, founding partner of CarterBaldwin Executive Search, recently authored a report on when to consider external candidates to fill a company’s top post.
“In that we are an executive search firm, it may seem fairly self-serving to advocate external hires,” said Mr. Harding. “The obvious truth is that our entire industry goes away if organizations quit recruiting leadership from the outside. And yet, surprisingly, “internal promotions are equally critical” to the success of the executive search business, he said.
“We have found that it is virtually impossible to consistently recruit top talent to an organization that fails to regularly promote from within,” he noted. “In fact, great organizations build sophisticated and valuable succession plans that preserve and perpetuate a desired culture and give employees a sense of security, direction and personal value.”
When an executive opening exists, organizational leaders must first determine if it is a necessary role. Once it is agreed that a position is to be filled, the leadership team must determine whether the organization is best served by turning to an internal candidate or recruiting externally.
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In some instances the best way to fill a position may be a promotion, or perhaps even a lateral move from one function or geographical location to another. But the CarterBaldwin report said that an organization might be justified in looking outside to fill a critical leadership role. Among the reasons to do so:
1. To create greater diversity among your leadership team.“My dad graduated from Georgia Tech in 1952,” said Mr. Harding. “There were four Asians, but no women, no Hispanics and no African-Americans in his graduating class. Such statistics would be unthinkable today….Society is different and Georgia Tech is different.”
Organizations and institutions have a strong desire to reflect their constituents. “In a common reflection of the day, the chief diversity officer at a Fortune 100 company once told me, ‘Diversity isn’t a black/white issue…it’s green!’” said Mr. Harding. “What he meant was that his company was determined to reach all prospective customers and that making certain that those customers felt supported and represented within the senior ranks of the company was a critically strategic component to the executive recruitment function.”
The same is often even more true for many non-profit organizations which recognize that the changing color of America requires a progressive mentality in building diverse executive leadership teams. “In certain areas where minorities have long been under-represented, this creates some challenges from a recruitment standpoint, but unless the organization commits to diverse external recruitment, it has little choice but to perpetuate its current cultural demographics,” said Mr. Harding.
2. To avoid the success endangering variables of relocation.“The relocation of otherwise strongly qualified internal candidates may create risk-producing stress on both the part of the candidate and the organization,” said Dave Sobocinski, founding partner of CarterBaldwin. “From the candidate’s perspective, with a new job and a move they are experiencing simultaneously two of life’s biggest stress factors (with divorce and death of a family member being the other two). This is compounded by the fact that the family may resent the move and the complete social reorientation required by new schools, churches, neighborhood, bank relationships, hair-dresser and even friends.”
These personal stressors often play themselves out exponentially at work. “When a trailing spouse is unable to find meaningful employment or social connectivity, or when the kids make a poor transition into a new school, resentment builds toward the organization that required them to make a move that they would have preferred not to have made,” said managing partner David Clapp. “Note that while I use the term ‘trailing spouse’ to be as inclusive as possible, in many years of executive search we have found that it is actually the wife/mother in a traditional family that has the most influence on family location and lifestyle.”
3. Because the competition really is better.“OK – maybe they are not better, but they are winning in some areas that you’d like to win and they have some extraordinarily talented people that you are weary of hearing about from your customers and prospects,” said Mr. Harding.
He points out four changes that occur when your organization recruits top talent from the competition:
- Your team is strengthened. There is a morale boost that comes from knowing that, all else being equal, a competent and market-knowledgeable leader would rather work with us than with them.
- The competitor’s team is weakened. Some organizations have obvious, strong, direct competition. In a limited market, there is only so much business, customer opportunity, market share, etc., to go around, and when you recruit key leadership from your competitor, your strength increases and the competitor’s position is compromised. Most of us want our customers, clients and partners to win, and are far less enthusiastic about the strength of our competitors, so recruiting their top talent can be a double victory….We grow and they shrink.
- Both companies sense a victor. When one company buys another I am no longer amazed that the buying company almost always says “we acquired them” in regard to the same transaction that the bought company describes as a “merger.” There is something satisfactory about being the buyer and something far less satisfactory, unless you were a significant shareholder, about being the bought. Similarly, when you hire top leadership talent from your direct competitor, there is no ambiguity in regard to who owns the victory.
- The market takes notice. Sometimes customers move immediately with the hire. Sometimes, for reasons of non-competes or contractual timing the move is less immediate, but when you hire top leadership talent from your competitor, you gain inertia in your market and recognition among your industry peer group.
4. To bridge a leadership maturity gap.In many instances the right succession plan and even the right successor are in place but the timing is bad, and the best internal candidate is not quite ready for a role that needs filling imminently. “Often, the best forward move is to identify and recruit an external candidate who, at the right career stage, can lead with wisdom and competency, while simultaneously preparing the internal successor for a seamless future transition,” said Mr. Clapp. “Finding the person, who will support and cherish the culture while preparing the next internal succession candidate for their future leadership role, creates a strong justification for an external hire.”
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5. To support geographical expansion.“If an organization needs expertise that it does not possess internally in order to support or expand in a certain country or geographic region, it will generally recruit beneficially from the outside,” said Mr. Sobocinski.
He points out two ways that this can be accomplished:
- By acquiring a geographically well-situated company or accomplishing a mass hire “lift out” described more fully in No. 7 below.
- By hiring leadership personnel who have already established an expertise in the geographical region that aligns with your business plan. Sometimes there are language and/or cultural barriers, but just as frequently, the value comes with the knowledge of regionally situated customers and prospects or the recognized niche that some geographies have developed. If you need someone to lead your call center in India, for instance, it is better to recruit someone with that expertise than to transfer your best inside salesperson from Des Moines.
6. To gain expertise in a market, product, technology or service offering. Perhaps the single best reason to recruit from outside of your current organization, said Mr. Harding, comes with the recognition that there are many opportunities for improvement to be accomplished internally and the team in charge has been unable to take full advantage of those opportunities. “Sometimes the best talent is not only lacking within your company, it may not even be within your industry,” said Mr. Harding. “As technology continues to shape operational culture of virtually every organization, more and more executive-level positions are being filled with external leaders who have developed a certain skill-set rather than internal leaders that have developed a specific product or industry knowledge.”
When an organization looks to recruit outside of its industry, it is usually looking for a leader who can bring a “best practices” mentality to the organization. “Sometimes specific issues like execution or institutionalization of processes become critical,” Mr. Harding said. “On other occasions, there is a desire to expand into markets where the organization has little or no experience.”
7. Instead of buying a company, take their talent!In many instances a small company that aggressively desires to grow, or a larger company that is looking to accentuate a niche area within their business, may contemplate the acquisition of a business to meet that need. Acquisitions can be very costly in terms of both time and dollars, but there is an alternative.
“Oftentimes, a small team within a larger company may feel like they are not fully appreciated, or that their relatively small scale keeps them from playing a significant role in the large company,” said Mr. Clapp. “Sometimes an entire small company may not have the resources to grow or the visibility to compete in a national marketplace. In both instances, they enjoy working together, but all of them collectively feel a bit overlooked and unknown in either a large company environment or in a national market where their presence goes unnoticed.”
“The idea of recruiting a leader and his/her team in a mass recruiting project is known as a lift-out and can be deftly accomplished in certain situations,” he said. In general, a lift-out can be the least expensive, most productive way to “bolt on” a business unit or to quickly expand into a new market, industry, geography or product offering.
8. To redirect your company culture.So many times when a company is recruiting, the leadership team works to identify candidates who will be a strong cultural match. But what if the company has a culture that it does not want to perpetuate? What if the culture is broken?
“There is no better time than when hiring a senior executive and no better means than hiring a senior executive to begin shifting company culture,” said Mr. Sobocinski. “If a current culture does not allow the company to hold itself accountable for reaching critical corporate goals, the board can hire a CEO that will change that culture. If the CFO has built an environment that is marked by low morale and employee turnover, the CEO can hire a CFO who can improve that culture.”
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“Cultural alignment is the most critical component to the overall hiring strategy,” Mr. Sobocinski said. “Every company has a culture and that culture will be either set intentionally by the leadership team or unintentionally by the strong personalities randomly placed within the organization. Wise leadership develops a model for future cultural expectations and then intentionally works to recruit leaders who will become the champions of that model.”
9. To create senior succession options.“Nothing works against my executive search industry more than great succession planning and yet there are few corporate initiatives for which I have a deeper respect,” said Mr. Harding. “To see a CEO retire and to know that the board and the team have already spent, perhaps, years preparing the next CEO for this occasion, is a thing of beauty to all observers; to shareholders especially, for it assures a stable transition and the likely perpetuation of all that is good in the organization. For a succession plan to succeed, it must be embraced at the highest levels of an organization, it must be strategically intentional and it must allow for variables.”
Any succession plan that allows for only one successor, however, is fatally flawed. “Along any corporate or organizational career trajectory, variables and barriers are encountered that may prevent the likely succession from occurring,” said Mr. Harding. “Personal or family health factors may come into play. Moral turpitude has removed more than one likely successor from otherwise stellar career prospects and even an unforeseen shift in market conditions may change the direction that an organization takes with its leadership plan.”
Great organizations recognize the value of bench strength. “That is having the right executives on the team to lead the company even if the executive we thought would lead the company is not able or is disqualified,” Mr. Clapp explained. “Great organizational leadership recognizes the importance of recruiting succession candidates into meaningful leadership roles where they are also ready to stand-in, when necessary, as the organization finds its often circuitous trajectory into the future.”
10. To maintain an accurate benchmark for internal candidates. Based upon all of the discussion around the value of great succession plans one could argue that great organizations rarely recruit from the outside. “Interestingly and somewhat conversely, I would also venture, that the least talented of leadership teams are often those who never recruit from the outside,” said Mr. Harding. “I have, on occasion, encountered management teams where everyone has 20 years of seniority, everyone is equally overpaid by market standards, and everyone basically performs at a level that would make them virtually unemployable elsewhere.”
Said Mr. Sobocinski: “Although I greatly dislike the term fresh blood, we have all heard it said in regard to new leadership. An organization that is content to only understand the ways it sees things and only operate in accordance with its own best practices misses the growth opportunities that come from a more diverse management team with a broader set of organizational and career experiences. It is only in comparison with a representative external field that an internal candidate for hire truly be considered the best available.”
As any organization develops its succession plan and begins to conceive the impact that likely successors will have upon its future, it will need to simultaneously support that plan by strategically recruiting competent leaders. “As various options are considered in filling its most critical senior leadership roles, the effective leader should take both internal and external candidates into full consideration,” said Mr. Clapp.
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; Stephen Sawicki, Managing Editor; and Andrew W. Mitchell, Managing Editor – Hunt Scanlon Media