A Broken Model

The traditional executive search model seems to be broken today.  The current failure rate of new executives hired from outside an organization is approximately 50% within the first 18 months.  This is a staggering figure and represents a business model or process that would be completely rejected in any other industry.  The costs of such failure are estimated to be 10 times (or more) the salary of the executive.  The evidence of such failure has been tracked for more than a decade, and by multiple, respected sources.  From one of the industry’s best known executive search firms, Heidrick & Struggles, former CEO Kevin Kelly revealed results of an internal study of 20,000 executive searches conducted by his firm: “We’ve found that 40 per cent of executives hired at the senior levels are pushed out, fail or quit within 18 months.  It’s expensive in terms of lost revenue.  It’s expensive in terms of the individual’s hiring.  It’s damaging to morale.” (Financial Times  March 30, 2009).

Respected research, best practice, and training organizations such as the Center for Creative Leadership and the Corporate Executive Board’s Corporate Leadership Council have published similar results ranging from 40-50% failure within the first 18 months.  Former Harvard Professor, author of The First 90 Days, and industry guru, Michael Watkins, published research results reflecting an even worse condition with 58% of the highest-priority hires, new executives hired from the outside, failing in their new position within 18 months.

Typical reasons given for such failure include lack of culture fit, unrealistic expectations, and inadequate on-boarding of the new executive.  Whereas well-planned on-boarding and mentoring can have a positive impact on reducing executive turnover, the culture and expectations issues point to a failure in recruiting.  The real source of the problem may be that much of the executive search model today, especially for the larger firms, is driven solely by numbers.  For many, a difficult economy and earnings pressures have changed search into a ‘transaction’ business.  Senior partners sell engagements and turn them over to far less qualified juniors.  Staff tend to rely heavily on existing (often stale) resume databases and are pushed to produce candidates quickly.  The more traditional process of investing a significant amount of upfront time learning the culture of an organization, relevant strategic plans, and interviewing peers and subordinates, as well as superiors, is now perceived to be a luxury.  This process is no longer client interactive and consultative (including pushback on expectations when appropriate)… more like job order and numbers game.

Talent retention is a key metric of the executive search profession.  Boutique firms like Lumenis Partners (which has achieved a more than 95% retention rate over the past twenty five years) tend to focus much more time and effort on quality rather than quantity.  They take on fewer engagements and tend not to be handicapped by the larger number of ‘hands off’ agreement limitations of large and specialized industry firms, which are naturally restricted from recruiting employees away from their clients.  Boutique firms are willing to invest whatever time is necessary in the old-fashioned process of networking into organizations that employ the type of candidates with proven track records to match a position specification, and interviewing prospective candidates in depth to identify true compatibility of individual with organization.  Skills are important, but culture trumps even skills.  

The applicability of skills learned in one industry to a specific position in another industry requires broad experience and keen discernment.  Successful cross-industry placement is an art that has become a specialization of Lumenis Partners, and has been a factor in our long-term retention.  Nothing however, can replace the experience of a senior partner conducting an entire search.  Executive Search is a people business.  Successful intuitive assessment of candidates comes from thousands of hours of screening, interviewing, and monitoring the results of one’s judgments over years.  Lumenis Partners is an example of the strength of a boutique practice. We are also among the best in our profession when it comes to the critical benchmark of executive retention.