Hunt Scanlon’s Top 10 Recruiting Stories of 2023
December 22, 2023 – For the recruiting industry, 2023 was a mixed bag. Recruiters continued to look for new ways to provide value to clients, AI remained a hot topic, and market consolidation led by investors continued to impact the industry. While fears of a recession, talent shortages, and candidate-driven market have been challenges for search consultants. Meanwhile, finding talent for the private equity sector has been a hot area for recruiters. In addition, truly transformative events and innovative change dominated our newswires, rankings and market intelligence reports this year. As we do every year, Hunt Scanlon Media took on the challenge of selecting our Top 10 stories that shaped the recruiting landscape.
2023 was a quite the year for technology. Recruiters have told Hunt Scanlon that generative AI is on track to becoming the most pivotal advancement for human capital and talent-centric business in more than four decades and reports from McKinsey & Company have confirmed that. This has also led to the emergence of the chief generative AI officer, a subject that H.I. Executive Consulting’s (HIEC) Tony Leng detailed in one popular story from this year. In addition, chief information security officers are another role on the rise. These executives saw an 11 percent increase in compensation over the last year, says a report from IANS Research and Artico Search.
Acquisitions also made big news in the recruiting industry this past year, and for good reason. Outside investors caught on to the sector’s expansion potential and long growth runway ahead. Top search leaders also found ways to maximize profit. That made them highly attractive to private equity firms seeking platforms they could accelerate, and scale. Top recruiters joined Hunt Scanlon for an exclusive article sharing their perspectives.
We also looked at how private equity’s unquenching need for talent across the sector continues unabated. All signs point to a tight market for experienced PE talent and this could continue for a while, says one story we look back at with Bespoke Partners. Another story we highlight is on what it takes to fill senior roles for these companies with several top recruiters weighing in. In addition, Cody Crook, managing director and head of investment strategy of M&A advisory firm at Hunt Scanlon Ventures, highlighted how can search firms navigate the shifting landscape of PE search. Bespoke Partners’ PE Talent Benchmark Report also examined why capital-efficient growth is at the core of wide-ranging leadership hiring decisions today – particularly in private equity.
Another important topic we covered this year is on why search firms and their clients are embracing interim talent. The Tolan Group, a full-service healthcare executive search firm, rolled out a new interim service for its private equity clients and their portfolio companies in need of short-term senior finance and accounting talent.
One of our better-read stories of year was on the debate of whether to use a boutique firm or a larger search outfit. Kelli Vukelic, CEO of N2Growth, sat down with us to examine the nuances that distinguish boutique search firms from their larger counterparts.
Let’s take a look back at the top recruiting stories of 2023!
AI Making Inroads Into Human Capital Sector, Jolting Investor Interest
A recent McKinsey & Company survey revealed a remarkable adoption of generative AI tools across various industries. Over one-third of respondents reported that their organizations were already leveraging artificial intelligence in at least one business function. What’s even more astonishing is that nearly a quarter of C-suite executives admitted to incorporating AI into their work processes, signifying a notable shift in how leaders are embracing cutting-edge technology. In an upcoming market intelligence report, Hunt Scanlon Ventures has found similar promise in the role AI can play in adding strategic value to search firms and human capital solutions providers. AI has already had a transformative impact on talent acquisition and the executive recruiting space in reshaping how organizations identify potential candidates. Within this rapidly evolving landscape, advanced AI technologies are playing a pivotal role at a time when recruiters are finding their industry in the midst of a renaissance. According to Hunt Scanlon, generative AI is on track to becoming the most pivotal advancement for human capital and talent-centric business in more than four decades. Hunt Scanlon has backed up this forecast by investing in AiFlow, an AI-driven market research platform designed to automate competitor analysis and market research for private equity firms. As Josh Gardner, co-founder of AI Flow explains, “PE dealmakers can consider 100x more data, compare more benchmarks, and ultimately consider 10x more deals,” with AiFlow at their side. “AI tools are arming recruiters with a unique set of tools to optimize their processes,” said Scott A. Scanlon, CEO. “The resulting efficiencies will wring more profit out of their businesses,” he noted. One of the critical areas where AI has made a substantial impact is in the creation of compelling job descriptions, the quality of which can significantly affect the caliber of talent a company attracts.”
Will the Surging M&A Market for Executive Search Firms Continue?
Over the past decade, a wave of consolidation activity across the executive search sector has profoundly changed the recruiting sector as we know it. And in the last five years, the role of executive search firms has fundamentally changed the look and feel of the sector even more. The industry has moved from simply identifying talent — which when you think about it is a single impact event — to managing a much more complex set of talent mandates around leadership development, assessment, coaching, interim solutions, culture fit, and people strategy. It is a powerful platform shift that will create a new paradigm for search firms in the coming decade and beyond. Search firms along this journey have gone through quite a metamorphosis, bringing more tactical value to the table, and playing an increasingly larger role as strategic people partners to an ever-expanding client base. This shift in model is leading to one of the most extraordinary readjustments ever seen in this sector. And everyone, from SHREK firms to boutiques, is trying to figure out where they fit and how to capitalize on this once-in-a-lifetime change. For search firms fortunate enough to have financial leverage — firms like Bespoke Partners, ZRG, and Kingsley Gate have attained their financial leverage by way of private equity investment — the opportunity to rapidly expand with sophisticated growth playbooks at hand is helping to fuel merger and acquisition activity like we have not seen in the sector before. High on the target list of these buyers, and many others like them, are specialist boutiques that bring a functional or industry specific niche, or an adjacency that might help to strengthen an existing platform or help launch a new one.
Why Search Firms, and Their Clients, are Embracing Interim Talent
Business trend studies come and go, but you can be certain that executive search firm leaders everywhere sat up a bit straighter when they came upon the findings of this spring’s Business Talent Group (BTG) report on “high-end independent talent,” also known as on-demand or interim talent. Since last year, said the study, the need for interim leadership rose 116 percent year over year at all levels throughout organizations, with the demand for such help in the C-suite rising by 78 percent. Calls for interim CEOs surged 220 percent year over year and climbed 100 percent for CHROs and chief transformation officers. Most wanted were CFOs, which represented nearly half of all interim C-suite leadership requests, said BTG, a company that Heidrick & Struggles acquired two years ago. Businesses asking for interim finance chiefs rose 103 percent year over year, while the demand for interim controllers skyrocketed 233 percent and rose 71 percent for all interim finance talent. Also up, by 20 percent, were interim talent requests for IT and tech transformation projects and skilled workers in tech and systems implementation, as organizations invested heavily to capitalize on rapid tech advancements. “The dramatic increase in demand for interim leadership underscores the significant challenges companies are experiencing in today’s turbulent market,” said BTG CEO Amelia Warren Tyagi. “The uncertainty that organizations are facing emphasizes the importance of effective leaders to drive critical transformations and position companies for resilience in a world of constant change.” As business leaders are challenged to do more with less, she said, “they are acknowledging the full benefits offered by on-demand talent—in both interim leadership roles and project-based work—to deliver the expertise needed to fill skills gaps and navigate uncertainty while remaining flexible with capacity and cost.”
Compensation for Cybersecurity Leaders is on the Rise
The CISO role was partially shielded from the macroeconomic challenges of 2023. The average increase in total compensation among CISOs was 11 percent in the latest comp cycle—a drop from 14 percent in 2022, but a relatively small dip in light of the economic climate. One in five CISOs didn’t receive an increase in compensation. IANS Research and Artico Search jointly fielded the fourth annual Compensation and Budget survey. Between April and August 2023, we received compensation data from more than 600 CISOs in the U.S. and Canada. The sample has strong representation from firms in eight industries—finance, tech, healthcare, manufacturing, retail, consumer goods and services, business services, and legal—with varying ownership structures including privately owned, publicly listed firms and quasi-government entities. Their revenues range from less than $100 million to more than $150 billion. This report combines survey data with insights from executives at Artico Search, in particular Matt Comyns, co-founder and president, and Steve Martano, partner in Artico’s cyber practice. “Many companies that invested in security heavily in 2021 and 2022 are scaling back in 2023,” Mr. Comyns said. “The year 2022 was marked by a challenging global economy amidst a struggle to tame inflation, higher cost of borrowing money, and economic and political volatility overseas,” he says. “While the overall cyber threat environment remains high, we do not see the same level of investments in cyber program growth in the most recent budget cycle that we saw in the two prior budget cycles.”
Bigger is Not Always Better When Selecting an Search Firm
Senior leadership hires can make or break an organization. Various studies show that the failure rate of executives coming into new companies is 30 to 40 percent after 18 months. This makes the selection of the right executive search firm essential for organizations. Bigger is not always better when selecting an executive search firm and success is often much more about focusing on what you’re good at, according to Kelli Vukelic, CEO of N2Growth, a Philadelphia-based management consulting and executive search firm. Ms. Vokelic points to the many times she has heard a board chair say: “We’ve got one shot at this. In a hiring market, like the one we’re currently experiencing, finding a true game-changing leader is extremely challenging,” she said. “Furthermore, making a hiring mistake is extremely costly in terms of both direct and indirect costs. So how do you find those top performers and disrupters that can take your organization to new heights? Internal recruiters do not have the tools or abilities to fill these critical leadership roles, their open requisition stack is too full, and all roles get equal attention, whereas the most critical ones need a dedicated team. Only a trusted, skilled expert can lead you to the right candidate. Once you recognize that an external search professional is needed, the decision for which one should be solved with a different calculus than in the past.”
The Outsized Role That PE, VC And Tech Play In Executive Recruiting
In their latest Executive Search Report, Thrive noted that following a precipitous drop in executive hiring to close out 2022, the market seems to have found stability. Opened searches increased nearly 12.5 percent in Q1, the largest quarterly uptick Thrive said it has seen in its dataset in almost two years. Closed searches also increased, similarly posting its largest quarterly rise since Q4 2021. Still, demand for talent has been uneven for at least a year, according to an analysis by Hunt Scanlon Media, and it has been notably cooling in Q2. Search firms are considering all sorts of strategic steps to keep growth going from entering new niche verticals and expanding into adjacencies that align with their offerings, to acquiring rivals, and establishing global footprints. The PE, VC, and tech sectors have played an outsized role in the expansion of the search industry for much of the last decade. That makes this all the more interesting to note from Thrive: “While the PE market looks to be a bright spot [for recruiters], it appears to be creating that shine in a more concentrated fashion.” On the VC side market conditions have slowed to a crawl. In March, CB Insights reported that the median time between funding rounds lengthened by at least five months for each round since the beginning of 2021. Thrive’s analysis reveals that the slowdown in VC led to falling search volume. This news comes with a silver lining however, as it was the least precipitous quarterly drop since the market reached its peak in late 2021 and early 2022. It appears the downward momentum in VC search is beginning to slow.
The Emergence of the Chief Generative AI Officer
In the ever-evolving landscape of technology, one phenomenon has firmly captured the collective imagination and discussions of innovators and industry leaders alike: generative AI. This technology is no longer just a promising concept on the horizon; it has swiftly become the focal point of transformative conversations, according to a just released report from H.I. Executive Consulting’s (HIEC) Tony Leng. “With its potential to reshape industries and redefine the very essence of business operations, generative AI’s impact is being compared to the groundbreaking advent of the internet,” he said. “As it takes center stage, businesses are awakening to the realization that generative AI is not merely another tool in the IT arsenal, but rather a driving force for comprehensive end-to-end transformation.” Several months ago, Mr. Leng delved into the transformative potential of generative AI in an article titled “The CGAIO: Transforming Business with Generative AI.” The concepts he explored in that piece have since evolved as the technology marches forward at an unprecedented pace. “Today, we build upon those initial insights to provide an updated perspective on how the role of the chief generative AI officer (CGAIO) is gaining prominence and changing the dynamics of the business landscape,” Mr. Leng said. Much like the emergence of chief digital officers a decade ago, the role of the CGAIO is becoming an essential consideration for organizations aiming to harness the full potential of generative AI, according to Mr. Leng. He notes that as industries grapple with the transformative nature of this technology, the question of leadership arises once again: who should lead the charge, and to whom should they report?
A Look at the Talent Needs for Today’s Private Equity Firms
Private equity firms are saying that talent is the most important factor in driving growth. This sentiment explains why the market for private equity leadership talent remains tight despite the sharp drop-off in deal volume in the sector, according to Bespoke Partners’ newly released Private Equity Talent Benchmark Report series, which delves into the trends that shape the talent market for private equity firms. The report is designed to provide PE deal partners, talent partners, and portfolio company executives with data and analysis not found anywhere else. Despite efforts to widen the candidate pool and ease the tight market, Bespoke’s findings indicated that demand remains high for leaders who have deep experience in driving capital-efficient growth. These are leaders who understand how to optimize the use of resources to generate profit and grow revenue at the same time. The Bespoke report says ongoing turbulence in public markets, a stagnant IPO market, and depressed deal flow in the last quarter of 2022 and in the first quarter of 2023 eased the tight market overall. “But turnover rates and compensation trends indicate that demand has remained historically high for seasoned executives in companies with private equity sponsors,” the Bespoke report said. Executive turnover trends – tracking which leaders change in portfolio companies – is a good proxy for leadership demand, according to the Bespoke report. Turnover is most frequently correlated with deal flow in the sector as private equity firms make leadership changes as part of the investment thesis. Bespoke gathered data on 1,570 instances of private equity executive positions turning over in 2021 and 2022 across the U.S.-based software and SaaS portfolios of 31 private equity firms.
Talent Continues to be the Driving Force Behind Private Equity Firms
It has never been harder to attract top talent to private equity and PE portfolio companies. “We’re seeing a huge reluctance to leave jobs for anything less than top brands, and successfully recruiting out the absolute all-stars is requiring more than just outsized economics,” said Jordan Brugg, global head of private equity for Spencer Stuart. So, what can PE firms do? A recent report from Spencer Stuart lays out a few ideas. Start the process early. “It bears repeating that the war for talent has never been more fierce, so you need to move extremely fast when you see someone who fits,” the Spencer Stuart report said. “As a result, our clients are spending more time at the outset before launching searches to get all the stakeholders in agreement; candidates can smell misalignment. This means you need to iron out the business strategy, the case for the role, and the compensation parameters early on.” Spencer Stuart says that at the senior-most hiring levels, it has been commonplace to have more ambiguity when chasing big-name executives and difference makers. “But owners and investors can no longer afford this lack of clarity and the best in the business are spending more time linking how value will be created by each role on the team, and what that means they need from each position,” the firm said. “Doing the upfront work and getting an early jump on aligning stakeholders can actually save you considerable time in the end.”
Cracking The Code For Talent: Why Leadership Decisions Are Now Tied To Capital Efficient Growth
Despite a drop-off in deal-flow last year, all signs indicate that the tight market for seasoned talent in the private equity sector will continue for the foreseeable future. And with that, experienced leaders will continue to command premium compensation packages. All good news, right? In a sense, the PE sector could almost be viewed as a victim of its own success. The outsized returns generated over the past couple of decades in high profile deals caused a wave of new capital to rush into the sector. For Eric Walczykowski, CEO of Bespoke Partners – the high-touch leadership ‘talent partner of choice’ for public, private equity and VC-backed software and SaaS companies – he sees talent through a unique lens. In his view, new capital means new competition. “With talent now the most critical factor for the investment thesis, that means competition for the best leaders with proven track records in private equity is heating up,” he told ExitUp in a recent conversation. “Cracking the code for talent means being able to hire quickly and to get moving as soon as possible on the value creation plan,” he said. “But it also means getting the right talent – the executives who have the right skill sets and leadership acumen to drive growth and expand EBITDA.” The challenge, he said, is doing both at the same time – hiring fast and hiring right. “And that is what we help our clients to navigate every day.”
Related: The Current State of Executive Recruiting
Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Executive Editor; Lily Fauver, Senior Editor – Hunt Scanlon Media
