Dateline London: Optimism Persists as Growth Sectors Emerge in the Hunt for Talent

December 18, 2020 – For all the challenges that 2020 has brought to the executive search industry in London – from COVID-19, a global economy under pressure, and continuing worries over Brexit – recruiters are looking ahead to the new year with a certain degree of optimism and even confidence. Playing off their strengths and opportunities, and never forgetting London’s place as a world financial capital, search firms here seem to be adapting well as they navigate new ways forward.

The damage caused by COVID-19 has been significant. And yet, there has been much for recruiters to pin their hopes on. At the top of the list: Highly effective vaccines for the coronavirus, including one recently announced by AstraZeneca and the University of Oxford, should be widely available in the months ahead, which means that a glimmer of light can finally be seen for the end of the pandemic. No one can deny, meanwhile, that the U.K.’s pending departure from the EU has produced its share of hesitancy about the future of doing business in London and for executives considering relocating there. Others are fearful that Brexit will derail the progress being made to boost diversity

Double Whammy

Still, search leaders are positive. The pandemic has increased the need for interim leaders, for one, as companies move to part time leaders to fill important C-suite gaps until more of the future is known. The technology sector is thriving as London, and the world, adapts; remote work and virtual interviews seem here to stay – and that means big costs savings across the professional services sector, including recruiting. The intersection of healthcare, biopharma, life sciences, genomics, laboratory testing, precision medicine, telehealth, and diagnostics, as one might expect, is faring well – and interim leaders appear to be highly sought after here as well. And demand for top financial leaders with an eye on digitization, private equity, and consumer and professional services are all on the upswing.

“Despite the disruption around us, London continues to be a strong market and the global hub for talent,” said James Roome, Russell Reynolds Associates’ country manager for the U.K. “Companies have inevitably delayed some decision-making and are more cautious and some sectors are really struggling. There is a clear divide between the companies who are on the ‘right side’ of the shifts in the market and those that are on the wrong side of them.” It’s very difficult to disentangle the chaos created by COVID-19 and Brexit, Mr. Roome said. “However, prior to the COVID-19 crisis hitting, executives were starting to become more wary about a relocation to the U.K. Brexit uncertainty puts doubts in the mind of leaders who might be considering London as a home – the personal factors are often as important, or more important, than the professional factors.”

“The slowdown in the London top-end executive search market has not been as dramatic as for the recruitment of middle management positions,” said Edouard Thoumyre, managing partner at ACCUR RECRUITING SERVICES. “Executive search remained active and almost stable in most essential industries,” he said, during much of 2020.

“The U.K. is a large exporter of spirits, which is a strong specialty of ours; and in that market, even though Brexit is adding complexity, it hasn’t affected the business too much as the industry is used to dealing all over the world with specific and restorative regulations,” Mr. Thoumyre said. “Additionally, the U.K.’s spirits offering is unique enough to face these types of challenges better than other industries.”

“Like many other industries, COVID-19 has directly and indirectly altered the outlook for executive search in London,” said Peter Linas, executive vice president of corporate development & international at Bullhorn. “While many firms are still experiencing economic hardship as a result, a sizable number are optimistic about the future. Firms specializing in healthcare and IT, for instance, continue to observe more stable performance, while those servicing marketing, engineering, and finance professionals continue to experience some instability.”

“Managing relationships remains the top priority for executive search professionals, with client relationships taking center-stage,” said Mr. Linas, who was responsible for the launch of Bullhorn in the U.K. in 2009. “There is also growing demand for consultancy services, as employers look to executive search firms for guidance in navigating the current landscape.” As a result, many agencies are refocusing their business models to include offerings like assessment, recruitment process outsourcing, onboarding, board & CEO advisory, DE&I consulting, and culture shaping.

According to a recent Bullhorn survey of executive search professionals, 72 percent of the respondents said they believe remote work is here to stay even after COVID-19. And while most firms have introduced or expedited remote strategies into their business models, the largest shift has been in clients starting to hire for a greater number of remote roles. Again, the nod here goes to interim leaders as stop-gap talent choices.

More Expensive Talent, Higher Fees

“One area of marked impact is the hastened adoption of technology, as resources become increasingly limited,” Mr. Linas said. “We’ve seen an uptick in the use of analytics since the rise of COVID-19 as executive staffing professionals seek accurate data to make smart decisions about where to invest their time, and future resources. With a thinner margin for error than before, automation and AI have proved vital in speeding up time-consuming manual tasks, and freeing up time so that executive staffing professionals can focus on making the relationship-building elements of their role more human-centric.”

Mr. Linas said he believes executive talent will become more critical, and expensive, to hire after Brexit. The silver lining for executive recruiters? More searches and, arguably, higher fees. “As the talent pool in the U.K. inevitably shrinks, the remaining candidates will be in a position to command higher salaries,” he said. “Companies that recruit from Europe and further afield will need to be prepared to pay in order to lure talent and have provision for sponsorship.”

It is also important that companies consider the impact Brexit may have on the diversity of their teams, especially at the board level, said Mr. Linas. “Brexit threatens to upend recent gains in diversity – and we must be careful to ensure that progress in this area continues.”

While it is difficult to say with certainty what impact Brexit will have, the fact that it has been in progress for the past four years suggests that London-based companies may want to hedge their bets and expand access to talent pools that extend beyond the U.K., he said. “U.S. expansion is a relatively straightforward way to access a very large labor market.”

“I would say that overall executive recruitment levels are lower than pre-COVID-19, but the sentiment is bullish,” said Erin Callaghan, partner at Wilton & Bain. “I was speaking to a FTSE 100 business today, and they are operating at about two-thirds of the volume of executive hires than they were this time last year – but the hires they’re making are the transformational and business critical ones. More work is being pushed to in-house executive recruiters and there is a heavy focus on cost.”

That dynamic is repeating itself from the last major economic downtown, known as the Great Recession. Then, companies pulled back on their reliance on external search partners. Now, global talent shortages are unlikely to be a catalyst to turn inwards. In fact, just the opposite is likely to occur as 2021 unfolds.

“To talk of the executive search industry ‘in London’ is something of a category error,” said Tom Weinberg, global head, new knowledge economies and joint managing partner, U.K., at Perrett Laver. “London is a global city, and despite the uncertainties of the current context the city’s pull as a cosmopolitan center continues to attract talent from around the world. While overall the sector has seen a downturn, the best recruitment firms have continued to be trusted with critical searches. We are fortunate that our clients have trusted us to support their process and have been bold despite the challenges of the pandemic. Seizing this opportunity has allowed them to make some remarkable appointments.”

Brexit was central to business planning last year, but in 2020 it has been pushed into second place by COVID-19. “All one can say with confidence is that it will affect different sectors differently – uncertainty can only delay activity for so long before organizations must move forward – albeit with a lot more scenario planning than usual,” he noted.

Huge Market Opportunity

While London is considered home base to any number of top-flight executive search firms, the lure and appeal of launching a base in the U.S. remains strong. “There’s huge market opportunity in the U.S. and it doesn’t have the same language and cultural barriers as expanding into similarly sized countries like Russia, China or Brazil may pose,” said Ms. Callaghan. “Also, there’s the cachet and appeal of cracking the U.S. market. It’s the American dream.” Many search firms had that dream thwarted by the pandemic, but many of them remain optimistic about a large rebound in 2021, whether it be in Silicon Valley, Austin, or New York.

Then there is the rising call for interim leaders, globally. “Interims have been a key and valuable resource for clients experiencing unprecedented change as a result of the COVID-19 crisis,” said  Lisa Farmer, managing partner U.K. and Ireland, and global leader for interim management at Boyden. “What has been interesting is the blend of both tactical (crisis and growth related) and strategic (organizations proactively changing their senior teams) to ensure they are fit for purpose for 2021 and beyond,” she said.

“We have seen interims engaged at pace to transform business in areas such as infrastructure and supply chain as a result of significant growth (directly related to goods being produced locally in the U.K. and Ireland), turnaround due to poor performance impacted by the reduction in consumer confidence and lockdown measures, and finally those brought in to deliver fresh leadership due to an incumbents’ fatigue or poor performance,” Ms. Farmer said.

A research study commissioned by PROPHET, a U.K. based executive profiling company, assessed 166 of Boyden’s international stable of interim executives. “It concluded that the majority of interims lead through the use of values, ideas and intentions, providing a clear narrative on what success looks like, influencing and inspiring teams to achieve a goal by motivating their people,” said Ms. Farmer. “These core attributes are vital during times of crisis and change to ensure focus and delivery of results.”

There has, therefore, been little surprise in the demand for this business-critical option. “As we begin to look at exiting the crisis during 2021 it is clear that this flexible resource will be ever more in demand as organizations focus on fixed versus variable cost,” she noted.

“Traditional search firms have shied away from interim seeing it as brand dilutive or a service which may cannibalize their search business,” said Michael Brennan, group CEO of the Norman Broadbent Group. “This is nonsense. Clients have needs for high-impact senior interims, particularly at a time of change or transformation, i.e., now! Having an interim offering helps us meet client needs more effectively.”

“Interim management opportunities have significantly increased for three main reasons,” he says: Increased change and transformation due to the impact of COVID-19, decreased permanent hiring due to business uncertainty, and accelerated growth in high tech software companies especially those involved in cybersecurity due to increase consumer activity online.

“From a functional perspective there has been huge uptake in hiring interim CFOs as organizations look to counteract the impact of declining business opportunity in areas of retail, hospitality and leisure, and maximize cash flow, treasury performance as well as create more meaningful impact in areas such as financial planning,” Mr. Brennan said. “Organizations have exited their technocrats in favor of commercially astute CFOs able to demonstrate broader business acumen.”

“The COVID-19 pandemic has caused many organizations to question their infrastructure and business models,” said Kester Scrope, CEO of Odgers Berndtson, which claims London as its global headquarters. “Many organizations have found their leadership teams lacking the skills and expertise required to navigate their way out of a crisis and have turned to experienced interim managers to assist them in transforming how they operate.” At Odgers Interim, he said, “we are experiencing increased demand from such organizations for individuals who can provide expertise and deliver change across a broad range of functions.”

Driving the Talent Agenda

Another growth area has been the broad life sciences sector. “The life sciences sector in the U.K. continues to see growth across the board and not only in the major hubs of London, Cambridge and Oxford,” said Joe Coulter, COO of London-based Coulter Partners. “Strong leadership to make an impact in this innovative industry continues to be in huge demand and we do not predict this will change in the foreseeable future. The sector has adapted like others to remote work practices and recruitment continues apace, with virtual onboarding just one of the many innovations that have been adopted.”

Coulter Partners recently formed a partnership with the BioInnovation Institute (BII), the international incubator in Denmark for research-based innovation and entrepreneurship. The search firm will provide support for BII across three workstreams – providing assessment, coaching, and development for the CEOs of start-up businesses in BII’s portfolio. It is a new alliance that is expected to pay big dividends to Coulter and its global team.

“We have seen increased demand for top talent across all our geographies, with the U.K. and the U.S. being particularly strong, and we are expecting to maintain our rate of growth this financial year,” Mr. Coulter said

“Competitive and buoyant, the life sciences is a booming sector under normal conditions and the COVID-19 pandemic is driving an acceleration across the sector and especially within those organizations that are developing vaccines,” said Dafydd Wright, managing partner at Horton International UK. “Other firms operating within infectious diseases are front and center, as are businesses that will form part of the eventual vaccine supply chain in delivering therapeutics to a U.K. and global population,” he said. In a number of key cases, he added, companies are accelerating their growth plans, building new sites and increasing overall production capacity. “This is driving the agenda for key talent and hiring has a massive sense of urgency behind all of this.”

“That’s not to forget those organizations developing future medicines that have little to do with responding to COVID-19 itself,” said Mr. Wright. “Such businesses continue to have a vital role in addressing near term and future unmet medical needs, and businesses in these sectors continue to successfully raise and deploy finance despite of the current conditions. They are typically young companies, running fast with tight deadlines to operate to, and often a limited cash runway.” For them, he said, hiring top talent can be the difference between a drug candidate making it past the next hurdle or not.

“We are seeing an increasing demand for senior executives in the digital and technology, private equity, financial services, healthcare, consumer and professional services sectors,” said Tim Robson, global managing partner at H.I. Executive Consulting (HIEC). “My partner colleagues and I are also experiencing a higher volume of requests to move from executives who feel they have steered their organization through COVID-19 and may now seek out a new challenge in an executive role or a non-executive role to run alongside their current commitment. Diversification of both business and talent is key now, so if you were a single sector focused executive search firm before COVID-19 the chances are you will be seeking to adopt a more agile model going forward unless you specialize in one of the busy markets like PE or digital.”

Mr. Robson, who has nearly 20 years of experience in recruiting in the London market, also said that post-COVID-19 doing business will never be the same again. Many executives who spent their life on a flight have suggested that there is no way back to that moment in time. “In many ways, COVID-19 has brought some efficiencies to the way business is conducted, reduced time to hire, less travel and overall cost reduction to name a few benefits,” he said. “The leadership profile for a post COVID-19 market will also require a more present leadership style as well as someone who can develop company culture and values that are digital proof. Perhaps the biggest concern for most businesses is how they acquire new customers without the ability to meet face to face, and while some remain cautiously optimistic others are concerned about the first half of 2021 as governments withdraw their financial support.”

The Vast Private Equity Sector

“Private equity funds who have had their portfolios impacted negatively by the COVID-19 pandemic have not been hiring in this period,” said Emma Halls, co-founder and partner at Stem7 Executive Search, a London-based search firm focused on the PE sector. The focus, rather, has been on the management of the portfolio companies, restructuring and cost cutting.

“The logistical issues relating to lockdown have also made life harder for London-based PE firms to perform their due diligence on potential targets in Europe, and that has delayed deals,” she said. “Logistical implications of lockdown caused many firms to put their hiring on hold. But there is now an increasing acceptance that hiring must continue.” Some PE firms have even said they will be hiring additional headcount in 2021, on top of their normal growth strategy just to catch up.

“There is definitely an appetite from certain funds to take advantage of current market conditions and hunt for good value in the market,” Ms. Halls said. “Those that raised funds before the pandemic have been looking at investment opportunities given their commitments to investors. We are seeing many of the larger funds in London develop their growth equity strategies, and we are seeing a demand for hiring in growth equity. Increased interest in certain sectors has been heightened as a result of the COVID-19 pandemic such as healthcare and TMT, digital infrastructure, fibre, innovation and services,” she said.

“The pandemic has had a wide-ranging impact on private equity firms and their portfolio companies over the last nine months,” said Kevin Elderfield, senior partner at London-based Erevena. Initially, there was a significant focus on stabilizing portfolio companies hard-hit by COVID-19; this either entailed cost-cutting with a view to battening down the hatches and riding out the storm or further investment in pivoting those businesses viewed as potential longer-term survivors, he said.

“While sectors such as banking and travel / hospitality have been hit particularly hard, other sectors including software, healthcare/ biotech and some retail (e-commerce) have been responding to market trends (low-touch operational models, the increased digitization of customer channels, etc.) and have received additional funding to accelerate growth,” Mr. Elderfield said. “While opinions seem divided as to whether investment levels in the first half of 2021 will flatten or decrease (few seem to think they will increase dramatically), right now, the majority of PE firms seem to be extra-ordinarily busy sourcing and executing new investments and bolt-ons for existing assets, though it would be fair to say they are being very selective.”

“While we saw an abrupt slowdown in PE hiring in London at the immediate onset of COVID-19 lock-downs, there’s been a rapid rebound,” said Richard W. Herman, managing partner, global private equity practice leader at ZRG Partners. “Clients have returned to hiring for internal teams, with an emerging emphasis on the evolving operating role to support value creation across the portfolio.”

Overall, hiring into PE operating teams in Europe has been relatively robust, as the need to drive value from assets has continued to be pressing and the opportunities to deliver this with these teams has continued to show positive results, said Siwan Jones and David Alty of ZRG’s Holker/Watkin group in London. “We have recently seen some of our PE clients look to strengthen the bench with functional experts, bringing deep industry experience in procurement, technology, and sales & marketing combined with a consulting background.”

The impact of COVID-19 has redirected some of the PE hiring in portfolio companies towards interim talent. Private equity clients value the flexibility, control, and cost management opportunities of interim resources, and have successfully brought in interim strategy and transformation talent to drive value creation, lead a PMO, or deliver functional expertise within their assets. “We started to see this type of hiring pre-COVID-19, as a reaction to Brexit, and the challenge of hiring Europeans to London when there was so much uncertainty,” they noted. Now it is continuing as we head into a post-pandemic era.

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