Expectations Strong For 2001 — If Economic Slowdown Isn’t Severe

Despite a slowing economy and the precipitous drop in assignments for executives to run companies in the business-to-consumer and business-to-business Internet sector, search professionals and economists predict a strong show of activity in the industry during 2001. The volume of assignments isn’t expected to rival last year’s, but recruiters expect they’ll stay busy (see box, "Hands Down, A Hard Landing Will Hurt," below), provided the U.S. doesn’t go into an economic recession.

What’s the cause of optimism? Technology, for one reason. "There’s been a dot com retreat, but technology, from telecommunications to software to hardware and wireless, fuels the economic engine. We expect our practice to grow at an above-average rate," says James Boone, Korn/Ferry International’s president of the Americas. Advanced technology searches, at 23 percent of all assignments won in the firm’s fiscal 2000, comprised the biggest sector for Korn/Ferry International (see graph, page 8). Expectations are high enough that Korn/Ferry International and rival Heidrick & Struggles International both opened offices in the past 12 months in Emeryville, CA and Denver, CO, to serve clients in technology and related areas.

Executives at other search firms, such as Christopher Clarke of Boyden and Ray & Berndtson’s Paul Ray Jr., also predict the tech sector will be solid. Says Janet Jones-Parker, of Jones-Parker/Starr, who recruits recruiters for search firm clients: "The general feeling is that the Information Age is going to continue to drive demand for good people. Our clients are not abandoning their e-business and technology practices."

Other areas considered fine performers include some aspects of healthcare, such as pharmaceuticals and biotech. Heidrick & Struggles recently announced the creation of a global subgroup within its healthcare practice dedicated to handling biotech clients. Kelly Kincannon, head of Kincannon & Reed, a boutique firm focused on life sciences, food and agribusiness, explains that recent successes in research to map the human genome may lead to an explosion of new products coming to market and increased need for executive-level talent.

Professional services is another area that continues to hold its own. "In an economic slowdown, companies look to consultants for advice on restructuring," notes Mr. Clarke of Boyden. Ray & Berndtson recently hired ex-A.T. Kearney Executive Search professional services recruiter Tim Wujick as a partner. Ms. Jones-Parker of Jones-Parker/Starr sees interest from some firms in developing legal practices, an area that historically has been handled by contingency search firms. This month, for instance, TMP Worldwide Executive Search brought onboard Kristin Hebert and Latham Williams as partners to recruit attorneys.

Two sectors expected to slow at least in the short term are consumer products and financial services. That’s because of merger-and-acquisition activity among some of each sector’s major players. The marriage of PepsiCo and Quaker Oats and possible merger of Nestle and Ralston Purina, for instance, mean a slight slowdown in work for traditional companies in the consumer sector, says Tierney Remick, managing director of Korn/Ferry’s consumer practice in North America. Consumer goods, which in 1999 comprised 20 percent of all assignments at Korn/Ferry International, up from 15 percent the year before, fell slightly to 18 percent in fiscal 2000. Ms. Parker-Starr, the consultant recruiter, reports firms are not building consumer practices aggressively: "Rather than adding more partners, they’re looking at succession planning to maintain the same level of activity."

Like packaged goods companies, financial services firms are still digesting after a heavy helping of dealmaking. Historically a major contributor to revenues at firms including Russell Reynolds Associates and Heidrick & Struggles — in 1999, for instance, the sector was second only to technology in contributing to overall revenues at Heidrick, pitching in 22 percent (see graph, page 8) — financial services work is slowing in early 2001 as global clients like J.P. Morgan Chase and CreditSuisse First Boston sort out post-merger personnel matters. That, coupled with a slowing economy, could make these financial services outfits cautious, says Mr. Ray of Ray & Berndtson. However, "The sector won’t go into the tank," he predicts, "unless the economy does."

No one knows for certain what the economy will do in the coming months, of course. But John Urbanchuk, executive vice president of economic consulting firm AUS Consultants and a consultant to the Association of Executive Search Consultants, is willing to make a forecast. Analyzing the statistical relationship between real gross domestic product since 1995 and an index of search activity derived from quarterly reports from AESC member firms, he has found a high correlation between search activity and real GDP with a two quarter lag. "What happens in the economy today was reflected in executive search activity two quarters ago," he says. Looking ahead, he predicts reasonable economic growth in the first quarter of 2001 and a slower second quarter.

Hands Down, A Hard Landing Will Hurt

Recruiters are largely an optimistic bunch, but they are wise to the potential impact of a recession. Proof of that comes from the results of a recent survey, conducted via e-mail by the Association of Executive Search Consultants during the week of January 15, 2001. The organization’s 160 member firms worldwide were asked the following questions (possible answers are in parentheses following the query). Nine percent of firms including Russell Reynolds Associates, Spencer Stuart, and Battalia Winston International responded, although the exact response rate couldn’t be determined at press time. Totals do not always equal 100 percent due to respondents checking multiple answers or not responding to all questions.

What is the outlook for your firm’s business in the year 2001? (Best ever, good, average, not so good, worst year ever)

Responses:

• Best ever - 50 percent
• Good - 28 percent
• Average - 13 percent

What do you believe the hottest sector for search will be in 2001? (Pharmaceuticals, computers/electronic equipment, telecommunications, financial services, Internet/e-commerce, healthcare, other).

• Financial services - 57 percent
• Telecommunications - 43 percent
• Computers/electronic equipment manufacturing - 14 percent

What about the most sharply declining sector?

• Internet/e-commerce - 83 percent
• Financial services - 17 percent

If the economy slows, how do you think that will affect the overall demand for executive search? (Profoundly; somewhat; not very much; not at all).

• Somewhat - 63 percent
• Not very much - 38 percent

How much impact do you think a slowdown in the U.S. economy will have on the search industry worldwide? (Profound, some effect, not very much, no effect).

• Some effect - 88 percent
• Not very much - 13 percent

Villeneuve: Search With Emphasis On Organizational Development

Kim Villeneuve never had designs on starting her own search firm. The founder, owner and chief executive of Seattle-based Villeneuve Associates spent 19 years in industry, working as a human resources executive, focused mostly on training and development of senior management at large companies. As a 29-year old divisional vice president in charge of staff training and development, she recalls that "the experience taught me how much an organization can be shaped by bringing in new talent."

Intrigued by the impact a gifted leader can have on a corporate culture, she studied management, with an emphasis on organizational development, at the University of Redlands throughout the 1980s while working at such companies as Carter Hawley Hale, Northrup Aircraft and Marine Midland Bank. In 1988, seeking to exercise more influence over the choice of talent within companies, she joined a boutique retail-focused retained search firm, Helstrom Turner Associates in Los Angeles. She began her recruiting career as an executive director and rose to partner over the next 10 years with oversight responsibility for the firm’s offices in Chicago, Dallas and Seattle. "I learned how to do search really, really well during that part of my career," she says.

But by 1998, that alone wasn’t satisfying. In analyzing the work that brought her greatest satisfaction, she realized that her repeat clients were those where she’d approached assignments with a view to the organization’s development in addition to simply filling an assignment. After a time of serious soul-searching, she left Helstrom Turner and hung out her own shingle, Villeneuve Associates.

"For years I’d provided leadership at various companies, but I wasn’t the chief executive. Because I have two children, I thought I needed the flexibility of working for someone else," she says. "But I’ve always risen to natural roles of leadership. That was a very scary revelation. I realized I couldn’t not do it."

Today her eight-person boutique recruiting firm, with offices in Los Angeles, New York and Seattle, conducts searches with an emphasis on organizational development for clients that include traditional companies, like Nordstrom’s and Hollywood Entertainment, as well as New Economy outfits like Scient and E-Toys. "Kim’s emphasis is on finding the best person for the company rather than guaranteeing the she has access to a certain stable of people," says Betsy Sanders, a director of Advantica, the operator of Denny’s restaurants. As leader of Advantica’s board selection subcommittee, Ms. Sanders worked closely with Ms. Villeneuve in a search to find the company’s next CEO. "Kim’s firm is small, and she emphasizes personalized service. She stays in close touch with candidates and clients."

The latter is a major selling point for Nelson Marchiole, former head of restaurant chain El Pollo Loco, a VAI client, and the newly tapped chief of Advantica. "I like the way she approaches a search. That’s why I keep working with her. I trust Kim. I need to be honest with her and to confide in her."

Does Parallel Processing Make Retained Firms Contingency Recruiters?

ESR: What motivated you to investigate parallel processing in the retained search industry?

Cronin: Last February I read an article in the Wall Street Journal in which Heidrick & Struggles acknowledged the use of parallel processing, which is the practice of introducing a candidate to more than one client. I said I just can’t believe something like this is happening. Retained search firms showing candidates to multiple clients? It’s the craziest thing in the world. How can they get away with this? I had been in the search business for almost 40 years, but I had never heard of this practice, so I decided then to do a survey among the retained search community.

ESR: How many firms did you poll, and what did you find out?

Cronin: In March 2000 I polled 200 retainer firms nationwide, ranging in size from solo practitioners such as myself, to the big public firms. We received responses from 69 firms, which is close to a 35 percent response rate. Interestingly, two firms acknowledged that they permit parallel processing. Also, four firms said the practice is ethical even if the search firm doesn’t make the client aware of it. But the thing that really amazed me the most was that out of the 69 replies, 45 respondents wrote in personal comments on this subject. I was astounded that people would take that kind of time to share their personal views on this subject.

ESR: What were some of the comments?

Cronin: They were overwhelmingly negative against this practice, which is a good sign. The comments were that this is wrong, we can’t understand why this is happening? "What has happened to the search world—it is depressing!" wrote one. "If you are conducting parallel processing you have no right to seek a retainer for your services," wrote another. Several consultants asked the stance of the AESC (Association of Executive Search Consultants) on this subject. Another consultant maintains, "This practice is not ethical and in my experience, the client would not tolerate such a practice if he knew about it." Another: "Going public by the larger firms puts a focus on revenue versus the historical foundations of retained search." Another consultant argued: "It depends on how the candidate was developed. If client A is paying and you turn up candidate X through direct sourcing, it is unconscionable to parallel process X until A is no longer interested. But if X is already sitting in your data bank, I’m not sure who ‘owns’ the rights." One consultant maintains that it is ethical if you make your clients aware of the situation. "It is their call at that point," wrote that consultant.

ESR: Isn’t presenting a candidate to multiple clients more like contingency search?

Cronin: Absolutely. Once you cross the line on parallel processing, you no longer are considered a retainer search firm. I know some contingency search consultants on a personal basis. They’re outstanding people and do a good job, but they don’t portray themselves as a retained search consultant. They get candidates in front of a client and shop him until he is finally hired. It is perfectly legitimate because any firm or client company that hires a contingency recruiter knows that once the contingency firm’s candidate is hired, a fee must be paid. But when a retained search firm does the same thing, it cheapens itself by behaving like a contingency firm when it is paid as a retainer firm.

ESR: What conclusions do you draw from this about the retained search profession?

Cronin: It tells me there are no ethics left in the retainer search industry.

ESR: That’s a pretty harsh statement to make on the industry.

Cronin: Yes it is, but I began to form that opinion several years ago when the AESC changed the off limits policy from two years and began allowing search consultants to individually set the off-limits term with their client, which is absolutely ridiculous. The real problem is that in most high-level search assignments, the search consultants aren’t dealing with senior human resource professionals who understand the role of retainer search. Instead, recruiters usually deal with a search committee for a board or with the top executives of a company. If you bring up the topic of off limits to these people, they don’t have a clue of what you’re talking about. And it is similar with parallel processing. All these folks really want to know is when will they see qualified candidates and when will we get this assignment completed. That’s all they care about.

ESR: What is your background? Have you always been in executive search?

Cronin: I came to search out of human resources. My former partner, Bill Hodge, and I were both with ITT’s telecommunications division in Chicago from 1958 to 1963. Bill headed up the compensation and benefits area, while I was the manager of employment for about 1,800 workers. In late 1962, ITT decided to move the entire operations down to Milan, Tennessee. Neither Bill nor I wanted to move our families down there. So in 1963 we formed Hodge-Cronin Associates as a retainer search firm. When Bill passed away in 1977, I took over the business as a sole practitioner.

ESR: Based upon your discussions with other search colleagues, what have you learned about the practice of parallel processing?

Cronin: I’ve discussed this topic with a number of people I have known over the years I’ve been in search. I was also on the AESC board at two separate times. I surmise it's a widespread practice now, especially among the large firms that are growing so quickly. Recruiters at those firms are so busy with many search assignments that they’re not really concerned about the client any more. They’re only concerned with getting their search assignments completed. It’s the old book and bill concept. Whatever happened to trust, objectivity, confidentiality and protecting the interest of the client?

ESR: Why do you think some clients are allowing their search consultants to bend the rules?

Cronin: I think that retainer executive search is not clearly understood among most of the companies that use it and I’m including some of the senior human resource people. They really don’t know what happens. They give you a search assignment and they trust you because you’re a professional and you’re going to treat them right.

Thorndike Deland Associates, Founded in 1926, Closing

The nation’s oldest retained search firm, Thorndike Deland Associates, founded in 1926, is closing its doors. Joseph Carideo, senior managing partner of the $3 million to $5 million New York City firm, says that with the retirement in recent years of partners Howard Bratches and Lou Hoyda, he and other active partners, including William Venable, decided to close up shop. The decision was announced to the firm’s staff in January of 2001. As of February, the firm will operate with a skeleton staff as remaining work is completed.

Korn/Ferry CEO Appoints Committee to Find Successor

Windle Priem, president and chief executive officer of retained executive search firm Korn/Ferry International (NYSE:KFY), requested in early January that Korn/Ferry’s board of directors form a search committee to begin looking for his successor. The committee will include Richard Ferry, chairman, and all six of the board’s outside directors.

Heidrick & Struggles Acquires Amrop Finland

Retained search firm Heidrick & Struggles International has completed its purchase of AMROP Finland, a search firm in Finland. The deal brings seven consultants to Heidrick. The purchase price was not disclosed. AMROP Finland is headquartered in Helsinki and operates affiliate offices in Russia, Estonia, and Latvia. Juha-Pekka Ahtikavi will be the office managing partner in Helsinki.

Spencer Stuart’s Neff Recruits Kilts As Gillette CEO

Thomas Neff, U.S. chairman of executive search firm Spencer Stuart, has recruited James Kilts, former head of Nabisco Holdings Corp., to Gillette Co., maker of Mach3 razors and Duracell batteries, where he will be chairman and chief executive. Mr. Kilts assumes his duties on February 12. Before working at Nabisco, Mr. Kilts was the head of Philip Morris Cos.’ worldwide food group.

MVC International Recruits Nneji to Rapp Collins

Toronto-headquartered executive search firm MVC International has recruited Ben Nneji to marketing solutions company Rapp Collins Worldwide, part of Omnicom Group. Mr. Nneji comes to the agency after four years at GE Capital, where he was vice president, marketing, global consumer finance. In the newly created role of senior vice president, customer management services at Rapp Collins, his initial responsibilities will be internal, focusing on development and implementation of service delivery processes and establishment of agency-wide quality and operations initiatives. Mark Van Clieaf of MVC International led the assignment.

Ray & Berndtson Places CEO At Textron’s Golf Goods Unit

Breck Ray, a partner at Fort Worth, TX-based executive search firm Ray & Berndtson, has recruited Gregory Hyland to Textron Golf, Turf & Specialty Products. Mr. Hyland’s new role is chairman and CEO of the maker of golf cars, utility vehicles and professional turf care equipment. Mr. Hyland comes from Tyco International, where he was most recently president of the flow control divisions engineered products group. He succeeds L.T. Walden, who will continue to serve as chairman emeritus.

Heidrick & Struggles Places Network Associates CEO

Search consultants at Heidrick & Struggles International have recruited George Samenuk as chief executive of officer and president of Network Associates, a maker of security and antivirus software. Mr. Samenuk comes to the Santa Clara, CA-based company from TradeOut.com, an online exchange for surplus business equipment, where he served as president, CEO and director for one year. Prior to that job, Mr. Samenuk was employed by IBM for 22 years. When he left his title was general manager of the Americas. At Network Associates, he assumes some of the responsibilities held by William Larson, Network Associates’ former chairman and CEO, and Peter Watkins, the company’s former president and COO. Messrs. Larson and Watkins resigned recently.

Battalia Winston Recruits Green As ExceLight COO

Jane Greenwald, a partner in the Edison, NJ office of retained search firm Battalia Winston International, has recruited Kevin Green to ExceLight, a wholly owned subsidiary of Sumitomo Electric Lightwave Corp. in Raleigh, NC. Mr. Green, whose new title is chief operations officer, was global account director at Lucent Microelectronics in Chicago, a unit of Lucent Technologies.

Sockwell & Associates Places Jenkins At eSASA

Charlotte-based retained executive search firm, Sockwell & Associates, has recruited Philip Jenkins as eSASA Corporation’s vice president of business development. eSASA Corporation is a global asset company, offering a marketplace solution for the procurement and disposition of surplus capital assets headquartered in Atlanta, Georgia. Mr. Jenkins comes from Associates Commercial Corporation, a commercial finance company, headquartered in Irving, TX.

Diversified Search Places CEO At Bryn Mawr Trust Company

Judith von Seldeneck, CEO of Diversified Search Companies and Bud Locilento, managing director of the retained search firm, have recruited Frederick C. "Ted" Peters to The Bryn Mawr Trust Company. Mr. Peters, whose new title is president and chief executive officer, was founder, president and CEO of First Main Line Bank, a division of the National Penn Bank. Prior to that, he was the founding chief executive officer of the National Bank of the Main Line.

Which Trends Will Continue, Which Fads Will Fade?

Eager to claim the best and brightest executives in Corporate America for companies funded by their portfolios, venture capital firms and business incubators hired recruiters from established search firms and brought them in-house — without a doubt one of the most popular trends of 2000. Will it continue? Some industry players, like Janet Jones-Parker of Jones-Parker Starr, recruiter of consultants to search firms, says yes. "VC firms still have money, and there’s still a greater demand for talent than there is supply," she says. Others, such as Gene Spence, of search firm Spence Associates, believe models like Internet Capital Group, where former Heidrick & Struggles partner Rick Devine built an in-house recruitment team, will fade away due to inefficiency and expense. Still, most recruiters agree that venture capital firms and search firms will continue to work together through alliances and partnerships as they did with gusto in the past year.

Another trend that will continue: taking equity in addition to cash as compensation for search work performed. McKinsey’s "War for Talent" study shows that senior-level talent will continue to be in short supply for the next few years, and recruiters know it. Just as the executives they recruit are being paid with stock options and cash, search professionals will continue to demand more than the traditional one-third of the first year’s salary as compensation. If bringing in the right executive can send a company’s share price flying — and increase the value of shareholders’ portfolios — shouldn’t recruiters be duly compensated?

The Internet, now the accepted backbone of communication within search firms and between clients and candidates, will continue to insinuate itself into recruiters’ daily activities. "The Internet speeds up knowledge transfer, puts more information at our fingertips than ever before," says Paul Ray Jr., chief executive of Ray & Berndtson.