2021 Forecast: Up, Up and Away as Executive Recruiters Get Back to Business
April 15, 2021 – Executive recruiters spent the better part of last year resetting expectations – the result of an unprecedented, and completely unexpected, interruption to their business due to COVID-19. But according to search professionals across the spectrum, that disruption has now receded, and business is returning to levels not seen since the waning days of 2019 and first two months of 2020. It is a significant turnaround for a sector that had put itself on pause last spring.
Many executive search firms struggled in 2020. According to the latest Hunt Scanlon Media survey of executive search firms, 29 recruiting providers among the research firm’s ‘Top 50’ – nearly 60 percent – reported declining revenues last year. Each of the five leading SHREK firms reported business declines, with Korn Ferry reporting the steepest dip at 15 percent. That was followed by Heidrick & Struggles, down 13 percent; Russell Reynolds Associates, down eight percent; Spencer Stuart, down seven percent; and Egon Zehnder, which was down three percent. Globally for these top talent providers, the picture was not much better (see table, page 8).
But there were bright spots. True Search, one of the fastest growing search firms of late, had a solid year and topped $100 million in revenue for the first time. “Our business has experienced revenue and headcount growth for the last nine to 10 months,” said co-founders Joe Riggione and Brad Stadler, with each month performing better than the one before. “We are grateful that trend was sufficient for us to record nine percent growth for last year, more than wiping out any pressure applied by early-Covid impact.”
Additionally, Stevenson Group was up 25 percent, Slone Partners was up 40 percent, and The Christopher Group, an HR search specialist with a growing human resource consulting unit, grew its top line by 35 percent – just enough to allow the firm entire to ‘The Top 50’ ranking for the first time.
Fastest Growing
No single executive search firm, however, had the good fortune that Hobbs & Towne enjoyed in 2020. Focused exclusively, and deliberately, on the clean tech, mobility, climate technology, food and agriculture, water, infrastructure, and sustainability markets – Hobbs & Towne took first place in the exclusive Hunt Scanlon ‘Top 25’ rankings as the fastest growing search firm of the year.
Forecasts provided by the firm show unimpeded growth as far as the eye can see. And no wonder: a sector once considered a backwater is now the darling of major private equity and venture capital players, family offices, management consulting behemoths, and wealthy investors seeking to make their mark – and lots of money – on the transformational shift to cleaner, more sustainable living. Among them: Andreessen Horowitz, Khosla Ventures, Bill Gates, Oaktree, Elon Musk, Greentech Capital Advisors, Kleiner Perkins, Jeff Bezos, Clean Energy Venture Fund, and a host of others.
“Since 1997, we have partnered with mission-driven, forward-thinking investors, companies and people who approach decision-making with an ESG framework to drive disruptive solutions that have global impact on climate and sustainability,” said founding partner and CEO Andy Towne. Among the search firm’s notable recent placements: chief science officer of transformational food and beverage company Impossible; chief people officer of solar, storage and energy efficiency company Elevation; chief technology and innovation officer at National Grid; and CEO of innovative electricity technology company Smart Wires.
Over two decades, Mr. Towne and co-founder Bob Hobbs, along with an expanding group of recruiting colleagues, have led a talent revolution across the space, placing over 2,500 leaders into more than 600 companies globally. Now the firm is turning to a major expansion in financial advisory work, playing off an intimate network to provide strategic introductions and capital raise advice, interim management, restructuring counseling, leadership assessment & executive coaching, and culture consulting through its DE&I platform.
Obligation and Opportunity
Truth be told, the search industry generally is poised for greater things ahead. Many recruitment leaders are rife with optimism. Every recruiter seems to want to discuss one thing: the pent-up demand for great business leaders. That, along with the move to hybrid work, workplace flexibility, and a big focus on DE&I and the importance of culture, is making 2021 an adventure in its own right.
“Fourteen months ago, the industry would know with conviction that our industry could not recruit tens of thousands of C-suite executives and board members virtually; it would have been impossible,” said Clarke Murphy, chief executive officer of Russell Reynolds Associates. “And we were wrong. Looking back, we fulfilled those mandates, and more, quite successfully.”
As a result, he said, “our industry will never be the same again. We have all learned to harness technology and flexibility to recruit for our clients.” But its more than that. Mr. Murphy said there are systemic changes underway. The explosive need for transformational leadership is one of them. “That mandate presents a very different dynamic for the potential of our industry,” he said. At Russell Reynolds Associates, the use of Leadership Span – the firm’s C-suite assessment framework which is a psychological diagnostic testing tool combined with the firm’s recruiting experience – is laying the groundwork for a business which prepares its clients for leadership change rather than having to do a search if leadership change doesn’t work. “That was what we did for five decades,” said Mr. Murphy.
“So, you have two very different shifts in our industry that have yielded this enormous amount of business activity right now,” he said. “The first: business transformation needs different leadership attributes. The second: we’re helping our clients prepare for leadership changes. So, helping them pick the internals is significant.”
But there is a third shift and that surrounds the obligation that the search industry has around candidate and talent diversity, said Mr. Murphy. “The industry creates the long lists. Our clients then go to short list and they choose who to recruit. But what we’ve learned in this last year is the obligation and the opportunity to create incredibly authentic and powerful leadership teams. And we cannot forget that we have an industry obligation to create the long list that may change the world. And that’s not about how one firm performs better than another or why someone’s revenues are up or down. We have learned as an industry that we have both an obligation and an opportunity to improve the way the world is led. And many search firms are stepping up while others are trying to still figure it out in a positive way.”
Six years ago, Russell Reynolds Associates came to envision a search business that would become much more advisory in nature as the business matured. “We made a fundamental shift as we created a stronger advisory business for our firm,” he said. “Starting in 2015, we recruited different DNA into the firm, recruiting over 100 people over four years that had advisory training and boardroom training.”
It is a safe bet that the shift to more advisory work has contributed to a healthy business expansion at Russell Reynolds Associates and most of the search firm’s rivals over the past half decade. “Our clients are busier than any period in history on a relative basis in needing new leaders to join their companies,” he noted. “And our industry, generally, has risen to the occasion.”
Evolving and Innovating
Steve Potter, chief executive officer for Odgers Berndtson US, says that 2020 closed out “much, much, much better” that he expected when the pandemic began early last spring. “But an awful lot of that was the fourth quarter,” ackowledged Mr. Potter. “Some firms were down 50 percent; most were down probably 40. Just look at the Hunt Scanlon tables.”
For its part, Odgers Berndtson was down 14 percent on the year. All things considered, said Mr. Potter, “we got through it.” The firm was profitable. “But if the year ended in August, we probably would have been down closer to 20 percent.” It was a healthy fourth quarter that saved the year, he said. “In fact, the fourth quarter was better than the fourth quarter the year before. So, we finished up very strong; we added some partners; we pruned some fat; we did the things that people do when you’re having a down year; and the firm came through it really quite well.”
Like Russell Reynolds Associates, and indeed many of the firms that entered this year with good prospects for the year ahead, Odgers Berndtson has continued to evolve and innovate. “Some of the new things that we did during this past year have really changed the way we look at the business and the way we’re operating as a firm,” Mr. Potter said. “We basically opened four new lines of businesses in the last 14-month period. We’ve added interim solutions. We’ve added a mid-market product. We’ve added an AI technology business. We’ve added an HR consulting business.” These new offerings are expected to add 20 to 25 percent of new revenue in 2021, a figure Mr. Potter said might inch closer to 50 percent by the end of 2022.
Snatching Up Talent
Larry Hartmann, CEO of ZRG, said that his firm in large part met the challenge of the pandemic, coming out of 2020 stronger and more centered. “We were fortunate,” said Mr. Hartmann. “We went into the pandemic with life sciences as our biggest sector. And that was the one sector that outperformed every other sector during the last 12 months. So that was our anchor.” Mr. Hartmann also had fresh capital from private equity sponsor RFE Investments. “I always believed that we needed capital for growth, but I also knew we needed it for a potential downturn,” he admitted. That money allowed ZRG to go on a bit of offense, culminating in its important acquisition of Turnkey Search towards the end of 2020. For its part, ZRG started the pandemic year with 200 people and ended it with 250. “Where the big firms cut by 20 percent, we grew by almost 25 percent, in terms of just people we invested in for the future.”
Snatching up talent that might have been unavailable in better times served to further strengthen ZRG in some key verticals. “What it’s done is it’s set the table for this year to be just a great year,” he said. Mr. Hartmann said he has a plan to drive revenue past the $100 million mark in 2021. “And we’ve got the team in place to do that without any more external growth. We were able to bring on producers from many of the Big Five, recruiters from boutiques, even people that had worked at one of the large firms then had their own firm and just felt like they needed to be in a platform. We were able to pull really good search talent from all three areas. Our whole platform is really hitting on all cylinders right now,” he said.
Winnowing Effect
Mike Myatt, founder and chairman of N2Growth, said that the pandemic has had a “winnowing effect” on the executive search industry. He pointed out that many recruiting firms suffered reductions in revenue and staff, and many firms shut down. “The pandemic hasn’t discriminated – it’s hit large firms, small firms and those in between without prejudice,” said Mr. Myatt. “The pandemic simply revealed the weakness of search firms, who on one end of the spectrum were carrying too much bloat, or on the other end of the spectrum were under-resourced and hanging on by a thread.”
Still, Mr. Myatt remains optimistic. “Even though the search industry is clearly still being affected by the pandemic on a daily basis, I view the markets as being nearly, if not altogether, stabilized,” he said. “I’m not suggesting that the pandemic is behind us, but with multiple vaccine options being aggressively rolled out, hospitalizations and deaths trending down, travel coming back online, and businesses figuring out their pivots, I believe 2021 has moved us into the next phase of the new normal.”
N2Growth was one of the lucky firms, he said. “We grew in both revenue and headcount through the pandemic. I think this had more to do with clients seeing us as a value-added thought partner who could aid in their transitions and pivots than anything else. It was a testament to the quality of our people and our commitment to client success. I continue to be optimistic about 2021 and for the future of search in general with respect to the pandemic.” The industry, he said, will see revenue growth this year as recruiters help clients resource new innovations and changes in their business models.
Indeed, the pandemic has contributed to significant change in the search industry. “Firms who survived 2020 are more lean and agile than they were coming into the pandemic,” said Mr. Myatt. “They are helping clients problem solve with greater speed and efficiency. Bottom line – we are all much more connected to our clients. The search industry was populated by too many firms slinging resumes for a living.” Transitioning through the pandemic, he said, clients are looking for more sophisticated thought partners “that clients view as an accelerant to accomplishing strategic imperatives.”
The old “normal,” Mr. Myatt said, is a thing of the past. “We won’t get back to normal, and firms looking to go back will simply cease to exist,” he said. “Our clients don’t want to go back. They’ve already made massive pivots and big investments in their organizational and operational models and rhythms to move their companies forward.”
Normal as we knew it is gone forever, said Mr. Myatt. “Growing, scaling and sustainable businesses are always built with next-level talent and a future-focused orientation. Our job as talent advisors is to help our clients achieve their future state aspirations. We’ve had a record Q1 at N2Growth by helping our clients look forward – I certainly don’t want to ‘go back to normal.’”
Incredibly Busy Market
Jason Hanold, chief executive officer of Hanold Associates HR & Diversity Executive Search in Chicago, said that his firm’s focus on key HR and diversity functions rather than specific business sectors allowed his firm to sidestep most of the vicissitudes that some recruiters have suffered this past year. “When the pandemic first hit, we had several retail or consumer brand organizations that maybe had to pause searches, but for every one of those that paused we had calls, from Zoom for instance, to do a CHRO successor search. Or we had the call from the Federal Reserve Bank of New York to do their chief diversity officer search. And, so, we maintained the same level of business throughout. And then after the murder of George Floyd and the civil unrest that ensued, that elevated the level of DEI leadership searches that we were doing to the point where we were doing as many DEI leadership searches as we were HR officer searches, and we were busy with both. And that has continued.”
“As for the state of what we’re seeing now, January was at all all-time high for us,” said Mr. Hanold. “February was stronger yet. And March was strong. So, we’re experiencing an incredibly busy market right now. There’s more pressure on us to continue expanding the firm with talent to ensure that we’re serving our clients well from a quality of execution perspective.”
“Because of the nature of the work we do in the HR space we tend to be right at the center of the conversation with HR officers who are crafting out what the return-to-work policy may look like,” said Mr. Hanold. “So, for instance with Ford Motor Company we put in their chief talent officer and their CEO recently. And just recently Ford announced that they decided to have 30,000 workers be fully remote or have the option of being fully remote. We went through the same conversations with The New York Times as they were sorting that out while we were serving them. We tend to have this vantage point of having these conversations around how they’re going to redefine the workforce of the future and what that footprint may look like. It’s been a fascinating time. These are conversations that have never really been explored in-depth like this. But there is this feeling of strong optimism that is pervasive in the market right now across industries, which is terrific.”
For Mr. Hanold’s firm, the dual forces of the pandemic and last summer’s civil unrest produced a surge of calls for new leaders across the business world. “First of all, the pandemic created such an eye-opening moment for a lot of CEOs,” said Mr. Hanold. “Most decisions for an organization were going between the HR leader and the CEO because everything was about talent, not broader business outcomes. Now you had on one hand CEOs either realizing that, ‘Wow, I knew I had a great HR leader and this just proved it,’ or more often than not you had CEOs realizing, ‘I don’t have a big enough leader in that role, and we need to invest differently.’ And, so, there is that demand coming where organizations are realizing maybe they need a better or different leader in that HR leadership post. And for those that weren’t already on board with how critical that role is, they’ve now come on board.”
After the civil unrest, meanwhile, a similar realization occurred with the chief diversity, equity and inclusion officer role. Too many companies realized that they lacked or were under-invested in leaders who could provide the guidance and communication that was needed in light of the upheaval. “Maybe they had someone who was facilitating ERG groups but they weren’t a senior enough leader for what they needed now and going forward in the role, and so they’ve decided to upgrade the capability,” said Mr. Hanold. “We’ve also had chief diversity officers who have been in these roles having conversations with us and saying, ‘I’m exhausted, I’m tired of dealing with cyclical stupidity, I want to do something else. Maybe I want to go into corporate social responsibility roles. Maybe I want to go into larger HR roles. But, I’m tired of feeling that we’re going around in circles around the DEI conversation, and now this has just been cathartic for me to made me realize I don’t want to do this anymore.’
And so those that are leaving the function have created demand. And then, too, you have the organizations that never invested in or had a DE&I leader, and said, ‘You know what, we’re behind, we need one.’ Some are doing it for optics because they think from a public relations standpoint they ought to. But for others it’s accelerated their readiness, and they realized that, ‘We need this role, this function, this capability now and forever.’ And so those three to four buckets have fueled this big significant demand for DE&I officers. And in more cases, we’re seeing that organizations are thinking about conjoining the role, making these roles both the people and chief diversity for an organization. We saw that with our client at Major League Baseball. We just did the same thing for the Big Ten Conference.”
Hiring Quickly and Decisively
At ON Partners, based in Hudson, OH, partner Jake Espenlaub said the market is as active as ON Partners has ever seen it. “Growth and private equity funds have continued to deploy capital at record-setting levels, and as a result it’s never been harder to acquire tier-one talent,” he said. “The companies that are hiring leading executives are getting creative, moving quickly and decisively, and stretching on compensation.” The year ahead, he adds, looks bright. “Throughout the tech sector, we don’t expect a slowdown,” said Mr. Espenlaub. “Outside of certain verticals, SaaS and E-commerce businesses continue to thrive.”
Tindall Sewell, also a partner at ON Partners, agreed that technology recruiting is in high demand. “Private equity firms are deploying capital like we’ve never seen before, and the need for key executives to lead these companies are crucial. 2020 was a year of ‘not rocking the boat,’” she said. “The pace of searches has also picked up given the use of video.”
“We are not seeing any signs of slowed growth for 2021 and beyond,” Ms. Sewell said. “Companies like Uber, Slack and Cloudera began after the 2008 recession, so I bet new companies will continue to build and innovate as the world adjusts to remote work and a post-pandemic era.” For the year ahead, Ms. Swell expects to see growth in roles like revenue operations. “As companies continue to scale,” she said, “key executives will be needed to make sure the operations keep up with growth across the go-to-market functions.” Search firms will continue to scale as a result.
