The Current State of Executive Recruiting

November 22, 2023 – Look back three months and optimism was high. Everyone was hoping for a rebound and many were willing to believe certain data points—a market rally, continued growth in executive hiring—served as confirmation we were there—or, at least, almost there. Despite stubbornly high interest rates and global conflicts, Q2 was a proof point for the optimist. But that was then and now it seems those flurries of activity were anomalies, according to a just released report from Thrive. PE and VC deal values are at six-year lows, and the S&P and EMCLOUD gave back much of Q2’s gains. Against that backdrop, the study found that Q3 opened search volume dropped 13 percent quarter-over-quarter, erasing nearly all of the executive search market’s growth over the first half of the year. Now, comparing Q3 to Q4 2022, opened searches are up just five percent.

Perhaps most notable, however, was how that decline happened. “In past quarters, at least one asset class has bucked the trend of the market, growing when the market was otherwise declining or declining when the market was otherwise growing,” the Thrive report said. “Not this quarter. Every asset class—public, private, PE, VC—and stage were in the red. And macro conditions didn’t seem to create any quantitative silver linings.” Thrive found:

● In the public sector, opened executive search dropped 29 percent while the S&P 500, Dow Jones and Nasdaq all posted their first quarterly declines in more than a year.

● Within private equity, companies saw a 15 percent decline in opened searches while exit values fell 41 percent quarter-over-quarter.

● In venture capital, opened searches fell 12 percent while quarterly deal count hit a three-year low.

The road ahead maybe feels less optimistic, but the reality is that—when you begin to look at opened search volume on a monthly basis—you’ll notice that Q3 is mostly what the market’s been for the last 5 quarters, according to the report.

“The difference, this time, is that there was no rally of enthusiasm—even if just for a month—that led to a growth story,” the  Thrive report said. “While we won’t prognosticate as to why that didn’t happen, we do believe there are data points worth sharing to help contextualize market developments. We’ll tackle them within.”

Private Equity

Perhaps no asset class felt the brakes slam in Q3 more than private equity. The headline-grabber, according to Pitchbook data, is that exit value dropped 41 percent quarter-over-quarter, leading to the second-worst quarter since 2008.

For an industry that’s felt the pain, but found ways to be resilient in a difficult market, it looks like a shock to the system, especially when you evaluate the potential long-term impact, according to the Thrive report. “After deal counts fell at the start of 2022, private equity appeared to hold on as tightly as possible, maintaining deal activity levels that mirrored the last few quarters before COVID—albeit with consistently slipping exit values,” the report found. “Now, though, those exit activity levels are 15 percent lower, and the potential for a liquidity crunch looms. What’s unclear, then, is whether Q3’s activity levels are new normals or a slowing ahead of ramped up activity in 23Q4/24Q1, as there’s some level of expectation PE’s willingness to find creative capital deployment mechanisms, solid fundraising, and fully corrected valuations will help deliver more to the resiliency story. For now, it’s created a chilling effect on the executive search market.”

A BDO survey released in late September revealed that half of surveyed PE CFOs and fund managers said they are understaffed in critical leadership roles. In fact, the market responded in Q3 similar to the way it did in Q2 2022, dropping 15 percent QoQ —perhaps most notable because PE had strung together a year of flat quarters with a significant 20 percent quarter-over-quarter increase in opened searches just three months ago.

Related: How Fear of a Recession Impacts Talent Strategy

That Q2 boom, so to speak, also brought heightened comp, which appeared to correct itself moderately as median OTE dropped 1.5 percent quarter-over-quarter and seven percent year-over-year. And while hiring has slowed overall, it appears the macro dynamics are forcing considerations around stronger investments in growth. Opened sales & business development roles were up 23 percent quarter-over-quarter and 26 percent YoY, marking the third time in four quarters that the function has seen quarterly growth and the second time in four quarters that the function has seen 20 percent + quarterly growth. CEO, too, remains a heightened focus. The role has been strongly in demand for two of the last two quarters, up 22 percent YoY and up 40 percent YoY when comparing Q2 and Q3 2023 to Q2 and Q3 of 2022.

Venture Capital

If the analogy is that PE hit the brakes, VC, perhaps, is in a time machine, the Thrive report explains. Deal volume and deal count for the year remains somewhat steady, according to Pitchbook data, and is in line with 2018 numbers. The same could be said for search volume in that all of the 2021 enthusiasm has burned off. Since the peak in executive search in Q3 2021, the VC executive search market has fallen 54 percent. In Q3 alone, search volume dropped 15 percent QoQ, the fourth double-digit quarterly decline in six quarters. “In turn, we’re left with a market that looks more like the first couple quarters after the COVID freeze than anything else. In the macro, it all feels somewhat similar to the cautious optimism and silver-lining seeking of private equity earlier this year,” the Thrive report said.

Predicting 2024’s Talent Acquisition Trends
No individual can see the future clearly. But when we blend the expert views of global talent leaders with comprehensive data, it becomes clearer. It’s this powerful combination of insights that fuels Korn Ferry’s annual talent acquisition trends report. Each year the search firm, which is the largest globally as ranked by Hunt Scanlon Media, lays out recruitment trends and talent trends you will be seeing in the coming year and offers advice on how to stay ahead of them. “In 2024, it’s your skills that count,” the Korn Ferry report said. “It’s a big win for diversity, equity and inclusion. And widening the talent pool will bring big advantages to organizations. With so many skills gaps to close, we expect businesses to focus on the skills they need to bring on and develop now.”

For VC, Thrive says that two of the biggest trends have a “squint your eyes and you might see PE” feel to them:

● Investors are fighting to hold the line on deal volume (much like PE), but deal value is stubbornly depressed.

● Two anticipated IPOs—Klaviyo and Instacart—offered reasons for optimism (much like PE’s Q2 exit value boost), but both were trading below IPO price within one month of their market debuts, cooling much of that optimism.

Another number that looks the same? Thrive points to the amount of startup-startup M&A activity. According to Crunchbase, 2023 is pacing to numbers similar to 2020, when 291 M&A deals were done between startups. Those numbers, for context, were 547 in 2021 and 431 in 2022. Like the aforementioned trends, there is one more “squint your eyes and you might see PE” component to all this: There are voices of optimism. These realities seem to be tied to the current search market. While all stages of VC-backed companies saw declines in search volume, it is late stage (Series D+) that is feeling the most tightening in the market, posting a 35 percent YoY decline.

Reasons to be Optimistic

While Q3 was a difficult quarter, it—like every quarter— is default viewed through the lens of the market’s peak, according to the Thrive report. “A more optimistic view would be to look at the quarter through the lens of the market’s valley,” it said. “In that way, search is still up. And if you keep that view for the macro environment, it holds up. The S&P and EMCLOUD—noted in the introduction for giving back much of Q2’s gains—both remain up double digits year-to-date, and VC/PE deal counts are comparatively steady when viewed against the drop in deal values.”

Even amidst a surprising quarter and macro challenges, Thrive says that plenty have an optimistic long-term outlook. “Hiring may not be following suit, at least not for a while,” the report said. “With EBITDA being a key valuation driver, that may mean headcount efficiencies get rewarded longer. And if efficiencies are required because of higher interest rates, then the timeline is reasonably clear. For many, then, that means strategic planning, building networks and developing talent pipelines.”

While the market may not feel open right now, the optimistic view—that everyone will figure out how to get deals done in this new environment—feels like the pragmatic view, especially as it relates to executive search, the Thrive report explains. “In taking an alternative, more pessimistic view, one runs the risk of missing talent and slowing network growth,” it said. “Should the more optimistic environment come to fruition, that becomes a challenging place to be.”

Related: The Prospect of a Recession Remains Murky

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Executive Editor; Lily Fauver, Senior Editor – Hunt Scanlon Media