European Executive Search Market: Dynamic & Increasingly Unpredictable
March 1, 2023 – The way work is delivered continues to change; so does the negotiating relationship between organizations and candidates, particularly executives, according to a new report from Global Executive Search’s Portugal partner Pedro Branco. Organizations are being asked to find the best solutions to secure the best talent to achieve their objectives, the study said.
Europe — truly the “old continent” — has increasing population aging rates. Countries such as Italy, Germany, and Portugal have the highest average ages, not only in Europe but also in the world, according to Mr. Branco. “Indicators suggest that the problem will become more acute in the years to come,” he said. “Europe will inevitably have to open its borders strategically.”
Pandemic and War in Europe
If the pandemic did not have the economic fallout that was expected, Mr. Branco says that the war in Ukraine turned out to be more impactful, particularly allied to the crisis of raw materials and components that have so affected industry — namely automotive.
“Inflation reached record levels of 10 percent in Portugal, with the economy forecast to grow by 0.7 percent in 2023 — the average in the European Union is expected to be 0.3 percent over the same period,” Mr. Branco said. “Consumer confidence indices will most likely fall, consequently slowing the economy and creating added challenges for organizations.”
In 2021, records were set for job changes all over the world, and in 2022 a very significant percentage of workers remain open to new professional opportunities, according to the report. All these circumstances bring opportunities and challenges to the executive search business, and it is uncertain whether the balance will be more positive or negative. “If, on the one hand, technology has made work provision more flexible and if the great dynamic in the market has brought new opportunities, the economic challenges — particularly inflation — may cause consumer confidence indices to fall, reducing consumption and, consequently, slowing down the economy,” said Mr. Branco.
Trends in Europe
We may not know how the economy will behave (impacts and duration), but Mr. Branco notes that there are some clear trends that will certainly impact the labor market as well as the success and the way executive search operates:
1. Flexibility in the provision of work is no longer a benefit, a good to have, but a mandatory requirement for those seeking new professional challenges; in fact, most executive candidates do not give it up, according to Mr. Branco. In addition to attracting talent, this factor will be determinant in retaining it. For example, Mr. Branco explains that being able to work four days, in a hybrid or remote way and by objectives will have a significant impact on executives’ decisions regarding new opportunities.
2. Technology will have an increasingly significant dissemination and importance; inevitably, professionals who do not master it will
see their potential market shrink significantly. “As far as executive search consultancies are concerned, although they will have to know how to evaluate these competences, they will also have to possess them, from the perspective of executing processes that are increasingly more evolved and digital,” said Mr. Branco.
3. Risk aversion. Despite the growth of internal recruitment teams, supported by increasingly robust and efficient technology,
the best organizations will continue to rely on competent consultancies specialized in the executive segment, according to Mr. Branco. “These teams are usually more inexperienced, and the impact on the business is too significant,” he said.
4. More women. Mr. Branco notes that the percentage of male students in higher education continues to decrease a little all over the world (down to 46 percent in Portugal, in 2022, and there are countries where it is even well below 40 percent), gradually and positively impacting the number of women in the executive segment. “Although studies show that men are more power oriented, the increasing number of women in middle and top management positions will certainly balance the representation,” he said.
5. The candidate’s experience will be increasingly determinant in his/her decision to accept a new challenge. “In the demanding executive segment, in which the best candidates are highly sought after for new professional challenges, experience will start right from the relationship with the executive search consultancy and will have an impact — even if unconsciously — on the candidate’s decision,” Mr. Branco said. “A good candidate experience with the head hunter will create more favorable conditions to say yes.”
“These are only five of the main trends in executive search for 2023-25,” said Mr. Branco. “Many others will exist, but perhaps with less significant impact or significance. It is also true that the market is very dynamic and increasingly unpredictable — not least because of the associated human factor.”
Goran Jansson, founder of JP Cornerstone and Cornerstone’s regional chair for EMEA, is currently seeing a jigsaw of different outlooks for business and executive search across Europe. “In general terms, there is uncertainty about how much the war in Ukraine and the effects energy prices, inflation, etc. will have on the economy,” he said. “Most economists predict a recession in 2023 but do not agree on how deep it will be and if we are back in a growing economy already by 2024. Having said that, some European countries are still stable, and we have offices that will have a record revenue this year. But even those offices are planning for the recession that is believed to come.”
One trend, and that is a global trend, that Mr. Jansson points to is that many private equity owned companies are readjusting their strategy. “From a full focus on growth just six months ago, they are now focusing on bottom-line results and positive cash flow,” he said. “The price for ‘new money’ has gone up considerably, and in many cases there is simply no more now money to get. This has affected the search industry, and primarily search in the tech sector in a negative way.”
The war in Ukraine has, indirectly, had a significant impact on business, according to Mr. Jansson. “Almost all consumer related businesses are affected by consumers rising energy costs and food prices in the wake of the war,” he said. “And uncertainty — the worst parameter of them all to the economy — is prevailing. Economists say that the European economy was close to a period of recession anyway, after the huge monetary contributions from governments during the pandemic, and on the high level of debt in states, business, and population, but the war has accelerated the process.”
“Inflation, and the struggle from national banks to push it down, is also very present right now,” Mr. Jansson said. “Interest rates are going up and will probably get even higher until mid-2023. This will have a huge impact on, in particular, consumer spending, economists say, but also on businesses that have a high exposure on interest rates.”
Positions in High Demand
At the moment, Mr. Jansson says he is seeing that CFOs are in high demand. “In an expected recession this is usually the case, and we can see it already now,” said Mr. Jansson. “More growth orientated positions are fewer since expansion is not top of mindat the moment. Companies are still looking to executive search if they need to replace a management position, in general, but it takes longer to make a decision whether to start a search or wait. Since there is so much uncertainty out there, it is a little more difficult to understand the relevant search profile in a recruitment and what the long-term need will be. We see an increased interest in senior interim roles in the market for that reason.”
The E.U. Economy
Mr. Jansson notes that Russia’s war of aggression against Ukraine continues to negatively affect the E.U. economy, setting it on a path of lower growth and higher inflation. Economists say that growth in the euro area is expected at 1.4 percent in 2023. Annual average inflation was projected to peak at historical highs in 2022, at 8.3 percent before easing in 2023 to 4.6 percent.
“The E.U. economy remains particularly vulnerable to developments in energy markets due to its high reliance on Russian fossil fuels, and weakening global growth detracts from external demand,” said Mr. Jansson. “Overall, still, the E.U. economy is set to continue expanding, but at a significantly slower pace than expected in the spring 2022 forecast.”
“Risks to the forecast for economic activity and inflation are heavily dependent on the evolution of the war and in particular its implications for gas supply to Europe,”
Mr. Jansson said. “New increases of gas prices could further drive up inflation and stifle growth. Second round effects could in turn amplify inflationary forces and lead to a sharper tightening of financial conditions that would not only weigh on growth, but also come with increased risks for financial stability. The possibility that the resurging pandemic in the E.U. brings renewed disruptions to the economy cannot be excluded.”
“At the same time, recent downward tendencies of oil and other commodity prices could intensify, bringing about a faster decline in inflation than currently expected,” he said. “Moreover, thanks to a strong labour market, private consumption could prove more resilient to increasing prices if households were to use more of their accumulated savings.”
The European market today is totally candidate driven, according to Jens Friedrich, CEO of SpenglerFox. “Talent shortages are evident in almost every sector and at every functional level. Due to this, companies who want to attract talent have had to significantly alter their selection and onboarding processes. Due to high demand, and many available opportunities to choose from, companies can no longer afford a drawn-out interview process with multiple interviews with different stakeholders. Agility has become one of the key drivers in the selection process, and companies who are able to offer a compelling value proposition, a rapid selection process, and a bespoke onboarding program, tend to have a better success in attracting the right talent.”
Mr. Friedrich says that even though the pandemic is diminishing across Europe, it left the business world with the need of workers to have flexible working conditions. “Work from home or work from anywhere remains the norm,” he said. “Whilst some companies across Europe have tried hard, and mostly succeeded to have many employees return to the office, hybrid working has become a standard. The positive spin-off from this is reduced office space requirement, and access to remote talent. The latter is an important one, because one of our clients, with an office space fit for 1,500 employees, can now employ 3,000 people, since half of their employees are either working from home, or from remote locations.”
Another trend Mr. Friedrich is seeing is that companies demand overlapping services from recruitment firms, such as the combination of executive search, leadership advisory, and RPO. Sometimes they take talent acquisition in house, but still need an RPO solution to cover one-off needs.
“Political events and the war in Ukraine are taking a toll on businesses across Europe,” Mr. Friedrich said. “Firstly, from a pure economic perspective, the current energy crises across Europe has dramatically increased costs for businesses. Inflation is rising steeply, the consequences of which are evident to all. Manufacturing companies that consume large amounts of energy are the losers here.” One such example Mr. Friedrich points to is Tungsram. Established over a century ago, the Hungary-based manufacturing company was known for its light bulbs and electronics. “With the largest glass melting furnace in Europe, they simply could not sustain the dramatic rise in energy costs, and they had to declare bankruptcy this year after operating for over 120 years,” he said.
Energy prices have also exposed several governments that were pushed into a corner by the green energy lobby groups, forcing them to re-think the long-term strategy on how to secure a constant and sustainable supply of energy in the future, says Mr. Friedrich. “This means that the renewable energy sector is booming, which
is good for our business as there is literally no talent existing in
this new energy segment,” he said. “Despite all the above, most companies are still hiring, although businesses are preparing much more conservative budgets for next year. On the other hand, there has been a positive impact for companies operating in the military and defense businesses. Their businesses are booming and perhaps not really interested in seeing the end of the war anytime soon.”
“Listed companies appear to suffer most, whilst PE-owned and family-owned businesses are doing well depending on the sector. R&D, mechatronics, and electrical engineering roles are high in demand,” said Mr. Friedrich. “So too are finance, digital, and any other transformation roles. The pharmaceutical sector is doing very well, not just because of high investments during the pandemic,
but also due to pent-up demand in areas that were put on hold when the sector devoted the bulk of their research and spending on developing COVID vaccines. Having said that, the pharma produc- tion sector is certainly feeling the impact of rising energy costs. As for the automotive and electronics sectors, these are still hampered by semiconductor shortages.”
“There seems to be business as usual at first glance,” said Julia Zdrahal-Urbanek, founder and managing partner at ALTO Executive Search / AltoPartners Austria. “Finding the perfect fit with efficient professionally managed executive search processes seem to be more important than ever. Awareness of the need for smooth hiring processes becomes even greater in times of crisis, and zero tolerance policies are adopted with regard to risky staffing.”
“So why not give the search to the experts right away,” she said. “Long-established partnerships count, and companies seem to stick to their long-standing executive search partner who already knows them. It’s much easier to know exactly which personalities fit to the company and culture if you have been doing business together for a long time.”
Know-how and experience are still important in the selection of senior executives, while personality is becoming even more important, according to Ms. Zdrahal-Urbanek. “It is always about bringing more leadership competence as well as business proximity and sparring partner skills into the company — regardless of whether a board member or a director is being sought,” she said. “The briefings our clients give us always contain: Find a manager who understands the business, supports the business, is able to align with people, someone who is passionate and makes others passionate about work as well. Usually we look for managers who do not build hierarchies but work together in a very uncomplicated, lean way. They challenge and support each other — no matter which management level they are in. Hierarchies are past.”
Ms. Zdrahal-Urbanek added that in Europe “supervisory boards are becoming even more diverse — they are considering the challenges the company faces and looking for the right skills for the board.”
A Look Across Europe
According to IIC German member firm Marlière & Gerstlauer, the demand for search services is decreasing as employers prepare for a potential recession. “However, there is still strong demand for smaller positions below an annual salary of 85K,” the firm said. “Large organizations are trying to complete searches first with in-house resources before engaging a search firm.”
In medtech, pharma, and biotech there is high demand up to the director/VP level to fill the retirement wave of Baby Boomers, according to member firm Ingeniam. “There is also strong demand for transformation managers to help fill the post-pandemic supply shortage,” the firm said.
Eblinger & Partner, meanwhile, notes that in Austria the demand for search services is high, not just for the senior level, where head hunters have always been requested, but also for mid-management and specialists. “Even blue-collar positions and entry-level positions are hard to fill,” the firm said. “Managers are desperate and ask us (by mistake) for help. As an executive search firm, we recommend contingency recruiting agencies for these lower-level positions.”
Level Consulting explains that the demand for search services remains strong as Switzerland continues to be in a growth market: two percent, according to the Swiss State Secretariat for Economic Affairs, with the inflation rate of three percent being low compared to other European countries. “The shortage of skilled workers has been observed for some time, especially in healthcare, IT, industrial, and finance, and is leading to high demand for executive search as well as interim management solutions,” the firm said.
IIC member firm Teamconsult says that there is an above-average demand for executive search services in Slovakia, especially at the top management level. In the Czech Republic, the demand is more on an average level, mostly focusing on senior specialist and mid-management positions.
Marlière & Gerstlauer says in Germany that branch managers, middle management, and plant managers in the industrial sector are currently in high demand.
“In medtech, pharma, and biotech, the functions most in demand are marketing and sales, business development, and research and development,” Ingeniam said. “However, successful candidates must show experience in transformation.” Eblinger & Partner notes that in Austria finance and IT positions are most in demand and very hard to fill.
Level Consulting says it is much the same with Switzerland. The industries and functions most in demand there are healthcare (board, C-suite, medical staff), IT (CIO, head digital officer, IT project leaders), finance, and industrial (digitalization, quality management, and sales),” the firm said. “Across industries, we are seeing more demand for head of HR/business partner positions and for roles that manage compensation and benefits and digitalization in HR, which requires new skills. There is also an increasing demand for interim management.”
Teamconsult, for its part, says that in the Czech Republic and Slovakia there is strong demand from the professional services industry, especially for senior lawyers and tax advisors. “Manufacturing companies are looking for supply chain and quality managers, as well as plant managers and CEOs,” the firm said.
Marlière & Gerstlauer notes that in Germany salaries have risen significantly across all sectors. “But for some time now, we have seen this trend stagnating due to companies attempting to slow the continual rise,” the firm said. “Despite this situation, candidates are demanding higher and higher salaries due to the current inflation. This naturally impacts passive candidates’ willingness to change roles if employers cannot meet their expectations.”
“There is a substantial increase in middle management salaries,” Ingeniam said. “However, we are also hearing from many job seekers who would love to sacrifice part of their salary for more freedom and work-life balance.”
Salary expectations are increasing, and for positions in high demand, increases are reaching up to 40 percent in Austria, according to Eblinger & Partner. “High competition for talent is providing candidates with multiple competing offers, and there seems to be no limit to requests for higher compensation,” the firm said. “Secondly, there appears to be a generational shift where Gen Y and Z are very confident in asking for higher income or four-day workweeks for the same salary.”
Level Consulting says that in Switzerland in general, salary increases due to inflation have become very common and a tight market for talent is boosting salary expectations. “We expect this to peak in the first half of 2023,” the firm said. “In healthcare, non-medical management positions have been on a continual upward trend due to backlog demand, which is now flattening.”
Salaries in the second quarter of 2022 in the Czech Republic rose by 4.4 percent, but real wages dropped in the same period by
10 percent due to inflation. “Inflation has continued to grow and reached 17 percent in September,” Teamconsult said. “Pressure on employers to further increase salaries is therefore very high.”
Marlière & Gerstlauer notes that in Germany employees want more free time with the same salary and are increasingly demanding permanent 100 percent remote working, as is common in the IT sector.
Ingeniam says that in medtech, pharma, and biotech, HR teams are increasingly using recruitment process outsourcing for middle management positions, and there is a higher demand for interim management.
“There is an increase within Austrian positions that offer four-day workweeks for the same salary as five days, and there are more 100 percent remote roles,” said Eblinger & Partner.
Level Consulting in Switzerland said: “The development of an employee market continues, and companies must consider how they can remain attractive to applicants and stand out. That includes more flexible working models in less rigid structures, remote work, four-day weeks, and working in project organizations.”
In the Czech Republic and Slovakia there is more demand for coaching services, including for employees below the top management level, according to Teamconsult. “Companies are hiring for more project-related positions, offering only limited contracts, and interim management is in high demand,” the firm said. “Remote working has become standard practice after the pandemic.”
“We see continued demand within Germany for smaller positions while demand for C-suite and senior management will decline,” said Marlière & Gerstlauer. “And should a recession occur, we will see a decrease in vacant jobs. In addition, both candidates and clients are becoming more selective in their requirements, making it harder to complete searches.”
Ingeniam added: “Very high demand for people who do the groundwork (blue collar) and a restrained market for management and C-level positions if economic and geopolitical circumstances do not improve.”
“In Austria, we expect the search market to continue to be in high demand as there is no solution on the horizon to increase the number of participants in the labor market,” said Eblinger & Partner. “Only a recession could decrease the number of vacant jobs.”
“Within Switzerland. we expect the demand for search services to remain high and the shortage of skilled workers to become more acute,” said Level Consulting. “Furthermore, digitization and other triggers for transformation lead to more complex skillsets
and candidates are expected to have a large intersection of technological and people management skills. In addition, clients are seeking more diversity and gender equity at the executive level. As a result, they require a better representation of women in candidate pipelines. Demand for career coaching services and interim management solutions continues to increase.