Growing Canadian Search Market Continues to Help Reshape Business

March 21, 2023 – The executive search industry in Canada is a highly competitive and rapidly evolving sector that has experienced significant changes in recent years. With the Canadian job market becoming increasingly competitive, companies are relying more heavily on executive search firms to find top talent for their most senior positions. As a result, executive search firms have become crucial to identifying and recruiting executives with the necessary skills, experience, and leadership qualities to drive organizational success.

The industry has adapted to new technologies and shifting demographics, including the rise of remote work and the changing expectations of younger workers. Firms are now leveraging digital platforms, social media, and other innovative methods to identify and engage with top talent. The industry has also focused on promoting diversity, equity, and inclusion, recognizing that a diverse workforce can drive innovation and better business outcomes.

The growth of the executive search industry in Canada is seen in the increasing number of firms entering the market and the consistent revenue growth. Last year, staffing, search, and recruiting firms generated more than $15 billion in revenue toward Canada’s economy.

One notable trend in the industry is the expansion of Canadian executive search firms beyond the country’s borders. Several firms have established a global presence, allowing them to provide clients with a wider range of executive search services, including board and CEO advisory services and leadership development programs.

Overall, the executive search industry in Canada is positioned for continued growth and innovation, as it continues to provide valuable services to both employers and job seekers in the country. The industry’s ability to adapt to changing market conditions and leverage new technologies to identify top talent is critical to its ongoing success.

“Due to the volatility of the global markets, organizations in Canada continue to grapple with increased costs of capital and rising inflation,” said Dominique Fortier, partner in charge of Heidrick & Struggles’ Toronto office and leader of the financial services practice in the Americas. “Additionally, return-to-office conversations are top of mind for leaders, which directly impacts organizational culture and learning and development. These environmental forces are causing businesses to look ahead and review their strategies, which often catalyzes transformation.”

Cautiously Optimistic
“I’ve seen clients cautiously optimistic in the current climate, taking a measured approach in their growth plans and initiatives,” Ms. Fortier said. “Across sectors, clients are seeking talent with technology, environmental, social, and governance, and risk and compliance experience to keep pace with the evolving landscape. The demand for talent remains strong, with some slowing in healthcare and life sciences after an influx of hiring during the last two years.”

Ms. Fortier says that she has seen developments within the human resources executive landscape in which clients are seeking executives who are more strategic and innovative on their talent agenda.

“With record years in 2021 and 2022, this year we expect clients will prioritize commitment to transformation and technology, with an emphasis on risk management as the regulations tighten, sustainability, replacing executives who plan to retire, and building out an internal bench of talent,” Ms. Fortier said. “More broadly, organizations will focus on culture as their employee base vocalizes their desire to have flexibility, which has been afforded to them since the onset of the pandemic.”

“Uncertainty and increased volatility would best sum up the current Canadian business environment,” said Kevin N. Hall, managing partner of AltoPartners Canada. “This is due to: inflation; higher interest rates resulting in reduced consumer spending, reduced investment by corporations in capital projects and higher returns expected by investors; talent and labor shortage; continuing impact of COVID; expected recession; reduced global investment in Canada; geopolitical concerns (i.e. Ukraine, Russia, China); and overburden / uncertainty of federal and provincial politically driven policies, increased taxation and over-regulation.”

“Canada is a natural resources economy and much of this originates from Western Canada. Central and Eastern Canada have limited raw mineral mining operations and are more reliant on service and manufacturing/goods, and financial services,” said Keith Labbett, managing partner of AltoPartners Canada. “The natural resource sector (e.g. oil and gas, mining, lumber, pulp and paper) and related support industries are under increased pressure on all sides notwithstanding the global need for energy, lithium, and rare earth metals. All businesses are facing increased costs, particularly: raw materials, supply chain, and wage demands triggered by higher inflation.”

“Over the last several years, we saw growth in information technology, E-commerce, renewable energy and sustainability, financial products, innovation, and emissions reduction,” Mr. Hall said. “Decision-making in executive hiring has to a large extent slowed down (replacements notwithstanding) as boards assess their organization’s near and long-term paths forward. Hiring is still happening but deliberation is more commonplace than the urgency of the past year or so.”

Record Year
“AltoPartners Canada and other search firms experienced a record year in 2022,” said Mr. Labbett. “This shows not only the strength of the industry but of the need of our clients to recruit top executive talent in a competitive market. The mass retirement resulting from covid exhaustion and the need for diversity, equity, and inclusion candidates have positively impacted the executive search industry.” This supports Hunt Scanlon’s recent survey of Canadian search firm which found that 63.3 percent greatly exceeded goals for 2022, while another 23.3 percent said they were moderately successful and exceeded goals.

“Eastern Canada is more sensitive to rising or falling interest rates, the U.S./Canada exchange rates and consumer spending than it is to oil and commodity pricing which mainly affects our West,” said Mr. Hall. “The nature, size, and volatility of these economies impact the executive search market in Canada. Even with the uncertainty and adverse outlook, companies are not hesitating to retain experienced consultants when needed. DEI is driving firms to exercise full market due diligence to ensure they are covering the entire market.”

Mr. Labbett also notes that they are seeing organizations attempting to cut costs by hiring more employees into internal recruiting positions. “This has also been a repeat cycle over the past three decades,” he said. “This still has very limited success as few executives will respond to an advertisement placed by a competitor or return a call as it is very risky and potentially catastrophic when confidentiality is critical. Many hiring executives will admit internal executive and senior-level recruiting is almost never successful. They use internal recruitment as much as a competitive fact-finding exercise vs. economical senior talent growth.”

Challenges and Opportunities
“In summary, the current climate for executive search in Canada is characterized by both challenges and opportunities,” Mr. Hall said. “Companies are looking for leaders who can help them navigate the economic and cultural changes brought about by the pandemic, and executive search firms are poised to play an important role in helping organizations find the talent they need to succeed.”

“Within the financial services industry, we are seeing organizations preparing for a more challenging environment with continued market volatility on the horizon; as a result, we expect organizations to be budget conscious in their hiring decisions,” said Michael Henry, managing partner of Massey Henry. “As well, there are a lot of rapid shifts happening that are impacting business within the sector — digitization, climate change, and technology adoption, to name a few. The implication is that the industry will need to adapt accordingly and quickly to match the changes taking place.”

Within the financial services industry, Mr. Henry anticipates that the upwards trajectory for hiring over the past three years will slow down considerably. “Firms with a public sector focus will find increased competition for roles, while firms that specialize in sectors or functions may need to further hone in on key areas of expertise,” he said. “Likewise, candidates might be more cautious to switch organizations given the concerns around a looming recession. Nurturing relationships with clients and candidates will be especially critical. Regardless of these considerations, the demand for executives — especially amidst labour shortage challenges and the increasing gap in critical skills at the leadership levels — will remain strong.”

“We also continue to see a sustained interest in succession planning mandates at the C-suite level, as well as a focus on hiring executives for key functions such as risk, cybersecurity, and client experience,” Mr. Henry said.

“Here in Canada, as is the case south of the border and in the rest of the world, the economic environment has become more challenging,” said Jay Rosenzweig, the founding partner of Rosenzweig & Company. “Companies are being cautious. We have a client who’s doing extremely well and needs senior people, but is hesitant to hire given the economic volatility. That being said, with the improving inflationary environment there is more positivity. We’ll have to see how it all plays out. As a firm focused on higher level positions with a great deal of customization, we tend to be somewhat insulated. In my experience, there are great companies looking for great people even in the most challenging economic cycles.”

Wait and See Mode
There is no question a lot of companies generally are in a wait and see mode, according to Mr. Rosenzweig. “However, we are definitely finding that some leading companies are taking advantage of this pause to go out into the market and lean in to get the best talent,” he said. “We are seeing that in some Tier 1 professional services businesses. Despite the macro economic uncertainty, there are a number of areas of optimism and even growth. Even in the tech market, which is obviously going through a challenging time, the long-term opportunity to advance AI and other platforms of the future like Web3 remains powerful. The longer term demand for great tech talent is not going to go away.”

Mr. Rosenzweig explains that the financial services, professional services, and healthcare sectors have maintained relatively high demand. “We do a lot of work in the tech space, both with earlier stage venture-funded businesses and large companies seeking talent in the context of broad digital transformation,” he said. “All the media attention around ChatGPT has kind of popularized the speed at which AI is moving. In the longer term, that affects every single sector out there. Digital transformation more generally is not going way. You’ll continue to see companies with legacy businesses looking to bring in great talent to stay relevant and help them navigate toward the future.”

Looking ahead, Mr. Rosenzweig expects inflationary pressures to ease as supply chains recover from COVID and as economies move past the massive stimulus that government provided during the pandemic to help people weather the storm. “I think we will experience a recession, but one that will hopefully be short-lived,” he said. “Overall, there are economic and technological trends that are changing the world in fundamental ways – in extraordinary ways. Those trends have much longer time horizons and are driven by talented people with critical expertise. That is our business, and that allows me to be pretty positive looking forward.”

“Even in the face of a more cautious economic outlook in 2023, Canadian SMEs are largely optimistic about their industry and ability to grow in the next few years,” said Karen Swystun, CEO of Waterford Global. “Economists anticipate that business investment intentions are likely to be at about the same levels as they were in the first quarter of 2019. Inflation is still well above targeted levels, but supply chain constraints that had led to inflationary pressures earlier are now easing. Many organizations across industry sectors are focussed on measures that increase productivity, talent acquisition, talent retention, and health, wellness, and work-life balance.”

Changing Employee Demographics
Many Canadian organizations are taking note of changing employee demographics and are formulating plans for strategic talent acquisition and succession planning for key leadership roles, recognizing that their competitive advantage can be dependent upon how they retain and build the expertise they have developed in their leadership teams over time, according to Ms. Swystun. “Thus, in the first quarter of 2023, our firm has witnessed an energetic demand for search services, and growing competition in agriculture and manufacturing organizations for top talent,” she said. “In the context of a cautious economic outlook, some organizations may follow a wait-and-watch approach for large-scale hiring projects.”

“Post-pandemic, HR is increasingly finding itself at the table in certain organizations where this was previously not the case,” Ms. Swystun said. “As a result, the market demand for strategic, as opposed to administrative/tactical, HR talent has increased. Other functional areas continue to express an ongoing need for leadership talent experienced in digital transformation, customer experience, cybersecurity, and leading cultural change brought on by the dynamics of our current post-pandemic economy. Additional leadership talent in strong demand includes all areas of supply chain. Among others, we continue to see robust hiring in agtech, medtech, and fintech.”

“We expect demand for executive talent to remain strong in 2023, with many organizations across industry sectors showing a commitment to, and a focus on, succession planning, change management, and building diversity,” Ms. Swystun said.

Sentiment among business leaders across the country is varied and is largely driven by their respective industries or geographic locations, according to Paul Gibbons, managing partner of McDermott + Bull. “Most businesses agree that a downturn will be felt across the country, but industries that are more dependent on interest rate sensitivities — including real estate and construction — will be more heavily impacted by rate hikes and inflationary changes,” he said. “Canadian businesses that rely heavily on cross-border trade with the U.S., such as those in forestry and manufacturing, are preparing for the impact of the U.S. slowdown on trade.”

Supply Chain Challenges
“Organizations across the nation continue to face supply chain challenges, yet the pressure has decreased, and businesses are now focused on making investments to improve their supply chain management strategies and alter their readiness for the future,” Mr. Gibbons said. “Apart from a few sectors, such as technology, we have not seen widespread fear or panic resulting in material layoffs or cost-cutting initiatives. Many companies at the mid-market level are buckling down and staying the course. Overall, businesses remain cautious yet optimistic that they will successfully steer through the slowdown and emerge with a more solid foundation and strategy for growth.”

Despite economic uncertainty in Canada, labor shortages remain the biggest challenge for businesses, according to Mr. Gibbons. “Demand for talent remains at an all-time high,” he said. “With roughly one million job vacancies nationally, companies are struggling to gain access to best-in-class talent and are seeking out executive search partners to help navigate the evolving employee landscape and attract top-tier leaders. Organizations are currently investing in critical executive-level hires that will enable them to weather changing market conditions and position them for growth over the next two years.”

Mr. Gibbons says that record levels of excess dry powder, coupled with a fiercely competitive landscape driven by international demand for Canadian companies, have put pressure on private equity firms to adjust their investment thesis to include low-mid market companies. “With that comes the desire to professionalize leadership teams within a greater pool of businesses, thereby increasing demand and subsequent supply of top executive-level talent across a diverse set of companies and industries,” he said. “While the pace of fundraising is expected to slow in 2023, alleviating some of the pressure to deploy cash, this trend is expected to continue throughout the foreseeable future and fuel demand for executive search services.”

Labor Shortages
“As the economy slows and immigration returns to pre-pandemic levels, we anticipate labor shortages will become less pronounced, yet will not disappear entirely,” said Mr. Gibbons. “Improvements in labor supply will be offset by changes in employee behaviors, the imbalance between supply and demand stemming from the aging population, and recent changes to the workforce composition due to the pandemic.”

Mr. Gibbons adds that Baby Boomers are retiring faster than they can be replaced, leaving a significant skills gap in the workforce. “Organizations are losing executives with 45 years of experience and are needing to consider candidates with 15 years of experience as their replacements,” he said. “As a result, we will likely see companies making efforts to retain the aging workforce by offering workplace flexibility or a phased retirement program that allows workers to stay around longer and pass along their knowledge and expertise to emerging talent.”

Adam Pekarsky, founding partner of Pekarsky & Co., said that across Canada he is seeing “mixed messages around the prospect of a looming recession. Some are already hiding under their beds; others don’t think it’s real,” he said. “Much of the reaction seems to be geographic. Ironically, those in the west — notably Alberta — who spent the better part of seven years from late 2014 to 2020 battling the two-headed monster of oil price challenges and COVID, are generally more optimistic than their eastern Canadian counterparts who, it seemed, were having a grand old time in spite of the commodity troubles in the west during those dark years. Things have changed and the tables, it would appear, have turned. For how long is the question.”

“This is our firm’s 14th year in business and we’ve never been busier,” said Mr. Pekarsky. “Not sure if that’s a product of the demand for search services broadly, or the demand for our firm. I hope it’s the former. High tides raise all boats, and such. But it could be the realization that our clients our growing wise to the myth of the ‘global firm’ as technology and sheer hustle have levelled the playing field. Add to this the focus on ESG and diversity in the executive ranks and around the board table and our firm is simply better equipped and more able to assist our clients in that brave new world? Why? Just look at the people who work here and then look at the people who work at the SHREK and other national firms.”

Mr. Pekarsky is also seeing “tremendous growth across our private equity clients who are investing in a broad range of portfolio companies and seeking us out to assist with key leadership roles within those portfolio companies,” he said. “The energy industry has certainly seen a revival and our work in the C-suite and public company board roles has increased significantly. We continue to be the ‘go to’ search firm in Canada for chief legal officers and general counsel roles and we enjoy a steady diet of corporate services roles across all industries.”

“We are extremely bullish looking ahead,” Mr. Pekarsky said. “We are in major growth mode, currently exploring new space that will allow our firm to double in size. The growth will most likely be organic as we continue to attract the best and brightest to our firm as an employer of choice where people really want to come to work.”

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