What You Need to Know When Using a Retained Search Firm for the First Time

June 24, 2024 – Retained executive search firms operate on an exclusive mandate. They focus primarily on C-suite and board positions, although they are also used to fill specialist leadership roles. The retained part of it comes from the upfront fee that you pay to initiate the search process, according to a new report from AltoPartners. The study says that this is key as it means that there is a well-resourced back office that is crucial to conducting a focused, professional and successful search.

Because executive search firms are retained by the organization to conduct a search, they generally do not represent candidates who approach them. Rather, the ‘search’ part of the moniker is exactly that: they will scour the hidden nooks and crannies of the industry–and allied industries–to find the ideal candidate. “A significant investment of resources is made in every assignment to identify, connect with, interview, evaluate and assess candidates against the client position profile. The majority of our value-add is recruiting individuals who are not actively looking for another opportunity,” said Kevin Hall, managing partner of Bluestone Leadership Services / AltoPartners Canada, AltoPartners global operating committee member and co-head of the AltoPartners global natural resources practice group.

What makes it different to contingency recruitment? “Executive search should not be confused with contingency recruitment, which is typically used to fill multiple positions, usually at operational or supervisory levels, matching them with job seekers,” the AltoPartners’ report said. “Fees are dependent (or contingent) upon the placement of candidates. Successful contingent recruitment agencies specialize in high-volume placements, soliciting thousands of CVs to ensure a healthy database of available candidates.”

By contrast, executive search is primarily interested in passive candidates, and consultants manage far fewer searches at a time because of the nature of the search process. Additionally, as Mpho Nkeli, executive chairperson & head: Board Practice Search Partners International (SPi) Executive Search / AltoPartners South Africa and AltoPartners global operating committee member, points out: “The consultant who delivers the pitch to the client has experience of sitting on boards or working at an executive level and is also the person who will be conducting the search,” she said. “This gives us a better insight into how business operates and, therefore, an edge in partnering with the client to find the most suitable leaders for their business. We should not rush this process because a mistake will cost the client a lot more than the fees they pay for our service. Our credibility is key in retaining our client’s trust for current and future leadership searches.”

How does retained search work?

“Typically, a client will engage a retained search firm on an exclusive basis to fill a key position,” the report said. “The fee, which is agreed upon upfront, usually as a percentage of the candidate’s annual salary, is normally payable in three equal tranches: on sign-up, on submission of a short list, and finally, when the candidate accepts an offer of employment from the client. The percentage is ‘slightly negotiable’, depending on the relationship you have with the service provider and the position to be filled, but the upfront payment is not. Either way, retained executive search firms have a non-negotiable minimum fee below which they won’t take on the assignment.”

Related: The Shifting Landscape for Leadership Skill-Sets

“The fundamental fee difference is that while search and recruitment can both be commission-based, the retained search model ensures that most of the fee is milestone based,” said Sonal Agrawal, managing partner, Accord India / AltoPartners India and global chair, AltoPartners. “This removes the bias towards a quick fit and is reflective of the project and the partnership between the client and the partner running the search. The understanding of the problem statement and the refining of the search strategy are key. The contract also covers what will happen if the new hire leaves within the first six months, in which case, assuming no unusual circumstances, the search firm will waive their professional fees and conduct the search again.”

 How to Partner With an Executive Search Firm

In today’s dynamic talent market, aligning with the right executive search firm can be the difference between merely filling a position and truly transforming your leadership landscape. However, the efficacy of this partnership hinges not only on the capabilities of the search firm but also on the behaviors and actions of the clients themselves, according to a new report from SPMB Executive Search’s Mike Doonan. As a managing partner at SPMB, one of the longest-tenured search firms serving the technology ecosystem, Mr. Doonan witnessed first-hand over 20 years how a client’s approach can make or break the success of these critical projects. Mr. Doonan offers four principles that are foundational in constructing a successful partnership with an executive search firm.

Once the contract has been signed and the first payment has been made, be prepared to play open cards with your search consultant. “It’s important that clients see us as trusted partners and advisors,” said Peter Tulau, Sydney-based managing partner at AltoPartners Australia. “We’ve seen it all a hundred times before and have case studies that can help you. If you’re having a problem with reputation, retention, or profitability, we need to know about this to be able to customise our search, This initial briefing meeting to set the search parameters can take upwards of two hours, and you can expect a few hard questions designed to ensure that what you’re looking for is indeed what you need.”

“With retained search, you buy market intelligence and quality,” said Marco Arcaini, partner AltoSearch GmbH / AltoPartners Germany. “We do not simply seek to make a placement; we solve problems. To solve a problem, you need a deep understanding of its nature. We make it our business to understand your legacy, culture and strategy: who are you looking for, and why? What are your expectations for the role? The quality of the preparation, handling and management of the search and selection process is fundamental to the outcome.”

The search consultant’s role is also to help set remuneration expectations by benchmarking what other organizations are paying for similar talent, and they will help clients define their employee value proposition. “This is a two-way street – as much as the client is judging candidates, candidates will be wondering what the organization has to offer them,” said Ricardo Bäcker, founding partner and chairman of Bäcker & Partners / AltoPartners Argentina. “If the sum or requirements are unrealistic, it is the search consultant’s duty to explain the market to the client and describe what the market will be able to provide. I use the term market deliberately: the consultant doesn’t ‘make’ candidates; they scan the environment and identify who is the best for the position.”

The search consultant will also advise you on timelines, according to the AltoPartners report. “Search projects take anywhere between three weeks and three months, depending on what you’re looking for and what you’re offering in return,” it said. “All the partners agree that rushing a search is the quickest way to repeat it. However, once you have identified the best candidate, act swiftly. Leaving candidates hanging is a surefire way to kill search momentum. If you’re not getting regular updates from your search consultant and giving candid input that allows them to recalibrate along the way, it will affect the process and the outcome.”

Why the upfront fee?

“Unlike contingency recruitment, much of the work in executive search takes place before we even present a short list of candidates to a client,” says Julia Zdrahal-Urbanek, founder and managing partner of ALTO Executive Search GmbH / AltoPartners Austria and a member of the AltoPartners global operating committee. “Once a clearly defined profile has been drawn up and a culture assessment is done, what follows is a tailor-made, comprehensive screening of the entire candidate market, creating a 100-per cent candidate pool. A much larger pool with the right candidates significantly increases the options on the client’s side, and the client can be sure that they get only the very best candidates that exist. Retained firms commit themselves to filling the position, and a mandate ends only with the right placement.”

Related: Why Selecting a Search Firm is ‘Mission Critical’ During Challenging Times

As Sorin Popa, managing partner of the Accord Group / AltoPartners Romania, likes to remind his clients, quality is never an accident. “The value of retained search lies not merely in sourcing names but in the ability to gain access to senior candidates and establish a relationship of trust and confidence,” he said. “Added to that is the work of deep assessment and referencing to ascertain whether candidates who look good on paper are, in fact, a fit before you present your shortlist to the client (usually anywhere between three or four candidates), you will also have to have a good idea of their willingness to consider an offer from your client, given that candidates of this caliber are seldom actively looking for a new job.”

“This all takes patience, ingenuity, and experience,” said Plácido Fajardo, managing partner of Leaderland / AltoPartners Spain: “The upfront fee ensures that consultants are deeply involved and committed from the very beginning and feel a strong responsibility for the end result.”

A Professional Service, Like Any Other

Even though the cost of a failed hire far outweighs the investment in a retained search firm, both in terms of financial loss and organizational impact, first-time users accustomed to contingency recruitment can have a hard time getting their heads around paying upfront for a search. “And yet, it is precisely this upfront payment that secures the undivided attention of the professional search consultant, said Thomas Heyn, partner and co-founder of Jack Russell Consulting/AltoPartners Germany. “The big multinationals know the value of retained search, and they expect to pay professional services fees, just as they would to any other professional services provider.”

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Pieter Ysbrandy, partner at Leaders Trust / AltoPartners the Netherlands says that while he routinely assists large companies to fill key leadership roles, it’s the smaller businesses that have been using the same model for the last 50 years who tend to be more resistant to the concept of paying upfront for retained search or who try to drive the fee down. “A more for less approach has a place in many aspects of business, but in professional services – which is what we are – you get what you pay for,” he said

“Agreed,” says Casablanca-based Javier Canals, managing partner at AltoPartners Morocco. “Clients who quibble about the fee don’t understand the executive search process. The choice of an executive search should not be based on the fees but on the knowledge and specialization of the firm in the client’s industry.”

“The client has to understand the executive search process and select a trusted advisor,” said Corinne Klajda, managing partner of Accord Group Poland / AltoPartners Poland and one of the founding members of AltoPartners. “Barriers of entry to the recruitment industry are low; be sure to understand the difference between executive search services and recruitment agencies. But all partners interviewed for this piece agree: Once they explain the process and how it works, only the most hard-nosed procurement departments fail to appreciate the benefits. Typically, there are no doubts left once the entire executive search process has been explained. We also encourage potential clients to do reference checks on us and to talk to other decision-makers we have worked for.”

What to Ask

Choosing an executive recruitment partner is one of the most important business decisions any owner, CEO or board is likely to make. “Yet, the barrier to entry in the search industry is low, so clients must do their homework when hiring an executive search firm,” said Verena Acerbi, partner at AltoPartners Austria. She explains that homework should look at the following questions:

• How long have they been in the business, and who is actually conducting the search?
• What is their track record? Do they understand the talent pool?
• Does that person have sufficient gravitas to reach out to senior executives?
• What is their support system like? Do they have researchers who can map your field and allied fields for fresh talent?
• Have they taken the time to understand your business and the role?
• Have they given you valuable insights into the market?
• What guarantees do they offer?
• Will they be meeting every candidate (ideally in person) before they put their name on a short list?
• How thorough is their reference checking?
• What evaluation tools do they use?
• Does the search process end once the candidate signs, or do they offer onboarding services?
• How do they treat and handle unsuccessful candidates?

“Clients have the right to know this before they sign up,” said Nicolás Mora Schrader, managing director of Equation Partners / AltoPartners Chile.

Related: 12 Reasons Why Companies Hire Executive Search Firms

Contributed by Scott A. Scanlon, Editor-in-Chief and Dale M. Zupsansky, Executive Editor  – Hunt Scanlon Media