Global heavyweights feel pinch

Sunday Business Post - Executive Search and Selection Report - Dec 14 2008

As demand slows down, some of the world's biggest executive search and selection firms have already shed 40 per cent of their workforce. But the full impact of the downturn won't hit home until next year, writes Dermot Corrigan.

Demand for the services of executive search and selection firms has slowed significantly this year, leading to job losses internationally, but worse is to come.

"We have seen two of the biggest executive search firms (in) the world - Heidrick & Struggles and Korn / Ferry - already let go about 40 per cent of their own staff," said Karl Croke, managing director of Amrop Strategis in Ireland. "The number of senior management searches coming into organisations, in Ireland or abroad, has slowed significantly."

Croke said the early effects of the downturn had begun to take their toll on the executive search and selection market in September. The full impact would, he added, hit home next year.

"We expect to come back down to the figures we had in 2006. That is just reflective of the economy, and what is going on."

Employers are taking more time to fill executive roles, meaning longer processes and ultimately less business for executive search firms, according to Maurice Carr, managing partner, BDO Recruitment.

“The latter half of 2008 has been difficult,” said Carr. “The main outcome has been a slow down in demand and also a lengthening of the time that it takes to complete a processes due to fear and negative sentiment on both the sides of the employer and the perspective employee.”

By contrast, 2007 was a peak year for executive search and selection in Ireland, said Barry O'Connor, partner, Merc Partners.

"Our revenues this year would be well down on 2007, which was probably the best in our history,” said O’Connor. “We do not expect a massive increase in 2009 either, we expect things to be quiet again, in comparison to 2007.”

Sectoral trends
"Construction has taken a hammering, particularly house-building and development,” said Croke. “Financial services is also finding it tough, but most sectors are feeling the brunt right now."

"Everything is connected, and there is a flow through, and with confidence the way it is people are holding on to the few quid they have. There is a big degree of fear out there. Until we get to the bottom of the cycle, that is not going to change."

O’Connor said some sectors were holding up better than in others.

"Some elements of the financial services sector are still functioning - insurance, for instance,” he said. “We are also doing business at senior level for quite a few back-office type operations for financial services companies. Food, pharmaceuticals, retail, consumer goods and outsourcing are all still quite active."



Carr said that the healthcare and green sectors had strong growth potential.

“The multinational healthcare companies continue to be strong performers,” he said. “They are still recruiting at senior level, the environment is also an area that is showing increasing demand, but that probably has a year or two left before it is a major employer.”

Croke said that the global slowdown was forcing multinational companies with operations in Ireland to rethink plans to relocate elsewhere.

"The Intels and other similar multinationals which were moving operations to Poland or China seem to have consolidated here a lot,” he said. “That sector has strengthened in Ireland in the last year, which is (not what you would) have expected."

New opportunities
Croke said the response to the downturn, among search and selection firms, had been to diversify, to broaden the range of services on offer to clients.

"Executive search, for people to run organisations day to day, has slowed significantly,” he said. “However, that has been replaced by leadership products looking at board structure, management review and board review."

"Organisations are saying 'given all the change that is out there, that our strategy might no longer be relevant and we should review everything'. If the required strategy has changed, companies may need new people on the board, or in the management team, with different competencies and skills."

Carr said that BDO had refocused its own offering in response to the downturn.

"We have focused on new areas, including doubling our interim turnover, and also increasing our consulting fees, particularly in the area of performance management systems," he said.

John C Harty, managing director John C Harty Associates, said clients facing a more difficult marketplace were keen to work more closely with their executive search partners to help manage recruitment and HR processes.

“Over the final quarter of 2008, and into the first quarter of 2009, our clients are looking more than ever before for a partnership relationship,” he said. “Our clients’ key decision makers are relying on the executive search firm to guide them wholly through the recruitment process and also looking for some guidance on existing staffing structures.”

Interim management was particularly popular in the current climate," said Carr, "particularly with senior finance people across all sectors who have been recruited to deal with liquidity issues, but also the full spectrum of businesses in dealing with the decisions and actions that they need to take to deal with the changes in the economy. I believe this will be a very active area in our business.”

O’Connor said that there was still some demand from Irish companies with operations abroad.

"We have seen more international activity in 2008 than before, particularly assignments in association with our affiliates abroad,” he said. “We have had clients looking for Irish people to work abroad, and likewise Irish clients looking to recruit people abroad for their operations abroad. The latter is something that has been busier than in previous years."

Salary markers
O’Connor said the remuneration packages on offer at executive level had taken a hit in recent months.

"Anecdotally, I would feel that there is downward pressure on compensation, which is particularly coming from lack of bonuses, which seems to be happening in all sectors,” he said. “Bonuses are still being offered as part of packages, but expectations are much lower."

In some cases, however, Harty said, many companies were still willing to offer increased salaries to attract the right candidates.

“When a top executive is being head-hunted for a new role in a different organisation the overall package generally rises by between 12 per cent and 16 per cent to that of their previous role,” he said. “This trend is holding steady in those sectors not directly exposed to the downturn.”

Croke said media coverage concerning executive salaries and bonuses carried its own risks.

"It is reasonable to question some of the bonuses and salaries, but we need to be careful not to shoot ourselves in the foot, in financial services or anywhere else,” he said. “Really good executives can move internationally. Ireland cannot nail these people to the floor. You can liken it to liverpool football club. If you cut the players wages in half, they will head for Chelsea or Inter Milan. We still really need leadership at the moment."

Future trends
O’Connor said he expected the market to pick up slowly next year.

“We are not planning any expansion or anything like that, but our business is chief executives and function heads, and the demand for leadership talent grows as organisations come under pressure," he said. "The demand for the best talent out there may increase in the coming year, and we would hope that we can play a part in that."

Harty said his firm was looking outside the Irish market to grow its business in the new year.

“In 2009, we open offices in Abu Dhabi, Dubai and Doha,” he said. “Our aim is to search on a more global basis for all our assignments whether the role is based in Dublin or Doha”

Carr said that, as companies were forced to fight their way through a difficult economy, the services of executive search and selection agencies would be required.

“Although in the short term companies will be hesitant about making senior appointments, I see this improving in the first quarter of 2009,” he said. “Over the next number of years there will be a requirement for a higher performance from executives that this will create a demand in executive recruitment."

"The bar will also be raised in terms of the ability of people in the executive search market to deliver the quality of executive required.”

Panel: Advice for candidates
Executive-level candidates are increasingly insecure about the long term viability of their current roles, according to Karl Croke, managing director, Amrop Strategis in Ireland.

"The number of people who would like to have a cup of coffee with me is getting larger every day,” Croke said. “These are people at executive level who are concerned about their future and the role that they currently in. A number have been let go from various organisations. Some are in organisations where the writing is on the wall, and they are very concerned. Others who are in organisations where they can see a future, are thinking that maybe this is not a good time to take a risk and move."

Barry O'Connor, partner, Merc Partners, advised candidates to review all of their options.

"People need to look at how they will develop their career, and continue with that, regardless of the pressures in the general economy,” he said. “People have to look at whether they could do better, or be more effective or advance quicker in another firm. These are questions that executives should be asking themselves.”

Croke said that experienced candidates were finding more favour with employers.

"The law says that you cannot discriminate by age, but right now people with some grey hair, who have been through economic downturn before, are more valuable to organisations,” he said. “During the dotcom boom it was the 30-year-old gung-ho risk taker with huge energy seemed to be the flavour of the month. People who know how to manage through a difficult environment are now more interesting to companies."

O’Connor said the downturn had not affected which skills and talent employers typically sought from top-level executives.

"The fundamentals still apply,” said O’Connor. “Organisations still look for the competencies they have always sought, but they are looking for the best in those particular areas. Leadership is still a major requirement, as is commercial analysis and the ability to communicate and get people to buy into whatever agendas are required to rejuvenate organisations. Strategy also remains very important.”

John C. Harty, managing director, John Harty Associates, said international markets offered opportunities to Irish executives whose careers might have stalled at home.

“You have a greater pool of executive candidates in the market place who fear that their current position could be under threat,” said Harty. “My advice to senior executives would be to be as open as they can be to opportunities outside of Ireland. The more international experienced gained the better. The corporate world is changing and is about to change more dramatically. The era of outsourcing is about to (hit) the Western economies rapidly and those who do not follow or adjust to the global changing market place will be left behind.”