Why Hiring Greatness Matters

Picking a person is the most important business decision you'll make. What's an employee worth? Not compensation-wise—but value-wise.

As an extreme example, entertainer David Bowie floated a personal bond issue a few years ago. He offered investors a portion of his future royalties from previously recorded material and receipts from future concerts. The “Bowie Bonds” were gone within an hour of the offer, for more than $50 million.

In an even more striking case, when Dreamworks SKG went public investors immediately drove the value of its bonds to $2 billion. Dreamworks was a film studio without a studio, a film, or even a star. All it had was the intangible value of its founders: Steven Spielberg, Jeffrey Katzenberg, and David Geffen.

The intangible value of being—that's what the new knowledge economy is all about. Veteran information age guru Stan Davis has confirmed the increasing value of people in today's economy.

A person's value is just a measure of how much someone is willing to pay to obtain something from them.

In their book Blur, Davis and Meyer point out that the boundaries between your work and home life are disappearing.¹ In fact, today the rate of change and the depth of connectivity are so fast that every person, product, service, and company are blurring together. Computerization and communications have made us all a linked community. There are, for example, nine times more computer processors in our products than in our computers—9 billion CPUs in items like phones, hotel keys, consumer electronics, day planners, and cars.

As products become more software-driven, they also become easier to link together. Intelligence and information have become the key value being offered in a consumable (some 90 percent of the value of a new car is estimated to be in the computers and software). And you are the value-adder.

Instead of resources or land, “capital” today means human capital. It doesn't take a shoe factory to go into the shoe business these days. Nor do you need raw materials or fleets of trucks. Nike became a shoe industry leader by concentrating on the value-producing capacity of its employees for design, marketing, and distribution know-how. The real capital is intangible: the person's knowledge level, combined with an aptitude for application and execution.

Today, employees—in the high-technology world especially—tend to think of themselves as “free agents.” Like a professional athlete who is always in training, knowledge workers are continuously investing in the next set of skills and training, driving up their personal “stock price.” This puts knowledge value in the driver's seat.

Employers, like yourself, will try ever harder to retain smart, boldly entrepreneurial overachievers.

Google used stock options to attract exactly this kind of person, and has created thousands of employee millionaires. Apple employees who contributed the maximum to Apple's employee stock purchase plan (ESPP) have seen their shares grow in value to approximately $1,112,189 over the seven years—that's 635.76 percent.²

In this world, value is not salary—not for the employer and not for the employee. Your search for a star candidate should be value-focused, not salary-driven.

The authors, both experienced Executive Search Professionals, understand how to look for knowledge value. And just as you'd expect from the complexity of the human factors involved, it is an intensive process. What we bring to the table is a set of guidelines developed from years of experience in locating just such value, and the experience that lets us apply these guidelines quickly on your behalf.

We know what's important for today's knowledge workers—be they executives or programmers—and we bring these elements together and explain them for you in this book.

In the “olden days” (10 years ago) a leadership search was like a two-dimensional board game. It allowed a company a leisured amount of time to send out requests for résumés, which could then be judged along a price/performance set of axes. It allowed for a precise, two-dimensional grid, and a search process so structured and simple that judgments could be handled by a corporate HR department's less-skilled skilled staff.

Now the world moves in three dimensions, at a speed more resembling a video game. It's zap or get zapped, in real time. In such a fast-paced dogfight, you need to define your missions very carefully: no wasted energy, no blurred vision. The right people are even more important to find than ever before.

You need a team of people who think in three dimensions. Nothing else will do.

You need a seasoned recruiter who will be your success partner, who can think in terms of a fast-action, complex world.

Our methodology is based on a “value grid.” The grid identifies the value that a candidate can bring to your company, and then matches the candidate's value systems to your own requirements to ensure a perfect fit.

We apply three measures, or axes, to deliver a successful skill set to your company. There are three dimensions of human value that work as a framework, whether you're hiring or being hired.

The three dimensions to recruit talent, by assessing the value of an individual's contribution, are shown in Figure 1.1.

Height of Value: Knowing What's Important

The production of value is the most important criterion of hiring and should be your most important. Value is not salary and worth doesn't flow from a job title. Knowing what's important to a company means looking beyond job titles and compensation tables, especially in the knowledge-based economy where sudden changes and uncertainty are the norm.

Knowing how to evaluate the worth of someone's contribution is the important element. Being able to assess a candidate's star performance capabilities is the key between average and extraordinary. There are two elements you need to consider:

1. Understanding thoroughly what the value contribution is that you want, and;
2. Understanding how you'll know when you find it.

Today's executives are on the edge of change, and they see better than anyone else how their worth measures up.

What is the value you're looking for from an employee's contribution to your company?

Especially for its senior positions, a company is rarely looking to fill in a tick-box on a standard employee recruitment form. Usually, companies are looking for something more nebulous and important. You're looking for a senior person who can deliver a quality, not a quantity. Instead of filling in a box, you're looking to explode out from an open-ended, initiative-driven space.

Qualities are difficult to find, measure, or test in an ordinary recruitment drive. And you don't find those qualities by searching for specific salary levels—the qualities that make up the New Value Table are money-resistant.

The New Value Table

The qualities that create value for your company are shown in Figure 1.2.

You need to match the value you require to the qualities of special candidates. Knowing the nuts and bolts of the industry is not enough. It requires taking the time to get to know the inner workings of your company: its products, people, and culture.

This goes beyond skill sets and résumés. You want professionals whose qualities match your value requirements. You should share a similar vision. Only then will there be a successful fit for you, your candidate, and your future growth prospects.

Sight of Value: Finding What's Important

More than ever in our history, huge value is being leveraged from smart ideas—and the winning technology and business models they create. So the people who can deliver them are becoming invaluable, and methods of employing and managing them are being transformed.

The candidates you're looking for aren't looking for you. They already have jobs, almost certainly a good job. They aren't scanning the “Careers” section.

So how do you find someone who doesn't raise a hand and say, “Here I am”?

Flight of Value: Get What's Important

The “Perfect Storm”

I encourage companies to use Executive Search Professionals under the right conditions, which I will now explain.

Let's look at a typical scenario where the decision to outsource recruiting and use an Executive Search Professional (ESP) is imminently critical.

You're a member of the senior management team of a successful business. You are profitable, but top line growth isn't what you or your board would like to see. You have both entrenched and emerging competitors. You meet with your fellow management team members and decide you must expand your product management, product development, sales, and ultimately support personnel. You collectively develop a budget for the acquisition and employment of these resources, and at the suggestion of your human resource (HR) organization, assume minimal outside recruiting help (if any at all) with the exception of a few contingency recruiters.

Your HR organization feels confident they can staff these positions on a timely basis and demonstrate their strategic value to the team. The senior team then presents the plan to the board, who want to see a return on investment and understand how the company's size, market reach, and valuation should be impacted. They not only approve your proposal, but encourage you to move quickly because they have extreme concerns about the new and emerging competitors entering the marketplace. The stage is set for the recruiting “perfect storm.” (Personal note: Every executive hire should be judged on its return on investment—ROI is not just for capital expenditures.)

Your HR manager meets with the hiring authorities and develops a brief description of the individuals required. He or she then looks at existing job descriptions and determines titles and compensation from the long-standing company compensation plan. Having identified the individuals, he or she checks back with the hiring authorities who really “don't have time” to review and will assume they can sort it out when they interview candidates.

The HR organization then moves forward as planned: advertising, posting to various job boards, and encouraging employees to submit suggestions from their networks. Because the market is growing, they are inundated with résumés. These are mostly from people who aspire to become the individual you're looking for, but are far earlier in their career and lack experience. There are also key skills dealing either with specific functional responsibilities or new markets not emphasized in the generic write-ups that were posted on the job boards. Remember: The best executives aren't looking on job boards. The result is a flood of ambitious underqualified and overqualified individuals and, for the few who are qualified, an inability to attract them given the compensation that has been (based on history and not current market conditions) set from the opening.

This goes on for about three months, which brings you to your next board meeting. The board is still anxious about competition and wants to know how you're progressing with your expansion. The truthful answer is: You aren't, and you won't until you change the way you're approaching it. This fact leads to some difficult discussions and frustration on the part of the CEO and senior management team, and raises concerns with the board.

Now you look at the more senior positions and say, “Perhaps we should look outside for additional recruiting talent to support our overloaded HR organization” (who are sorting through thousands and thousands of résumés, all of low value, trying to save cost). This brings us to what kind of recruiters to choose, and what selection criteria you'll use to pick one. For the more senior positions, you and the team choose to look for an ESP who will help you fill the most critical openings quickly.

As in every profession, ESPs fit on a performance continuum from low to high. Your collective task is to find one on the high end of the scale. Bear in mind that unless you and the other senior managers involved interview the prospective recruiters, and also assume the role of ultimate decision maker in selecting an ESP, this task will likely be handed off to your HR or purchasing department. More often than not, they'll be habitually inclined to find the lowest price alternative. Alternately, they may run to the largest firms, where they'll pay full fee for a severely limited candidate pool. And, in the case of HR, finding the “right search firm” assures they regain whatever “political juice” they may have lost by not making any progress to date. The selection of an ESP must have senior management involvement.

Unfortunately, using a competitive bid strategy to select an ESP may compromise the value proposition of the search. The collaborative level of corporate commitment required in the successful executive “recruitment and hiring cycle” requires significant time, energy, patience, and cooperation. It requires the priority dedication of human and financial resources to a level that matches the urgency of the task. This might not be the time or place to bargain hunt—drilling down deeper than price should be your first order of business when comparing ESPs. If executed correctly, the ESP investment will achieve simple payback with meteoric speed. Your recruiter should establish his or her value, disclose his or her limitations, and delineate the comprehensive process he or she will follow in your search. He or she must consistently demonstrate his or her expertise and drive the process to a successful conclusion.

So, whereas return on investment (ROI) is always important, beware the low fee or “recruiting mill” arrangement. Low cost may equate to low value. It is apropos to say that “true ESPs have to personally, and by hand, shovel tons of coal to find the perfect diamond.” Recruiting mills dig fast, but not deep. Their employees make a living by handling large volumes of concurrent searches, often by simply throwing résumés at their clients as fast as they can until something sticks. Beware, lest they get the gold and you get the shaft.

Similarly, beware the automatic assumption that it's always best to use the largest search firms with domain dominance. If they have domain experience, they also likely have many companies in the space they're barred from recruiting from. As in Fred's case, defaulting to the largest firms might actually limit your choices by eliminating ideal candidates and may also force the search farther afield, usually raising the compensation cost, introducing relocation cost, and lengthening the recruiting process.

Recapping the scenario we've constructed, your principal issues are timing; adequacy of the job description; adequacy of the compensation; and involvement of the management team in the process. A true ESP will identify these issues very quickly and help you sort through it. Most retained ESPs have held senior-level positions in a variety of companies and have often had P&L responsibility. If you lowball the fees, credible ESPs will outline where the value resides in their fee structure. They will guarantee the executive for at least 12 months so they have a vested interest in ensuring that the right hire is made. There is far more to a successful recruiting agreement than just the fee. This is not the place for average.

Amid all this stress, you and the other team members desperately need a method to objectively evaluate your alternatives and quickly move forward before your competitors sense your hesitation. For your convenience we have provided a set of key questions and considerations to help you select an ESP and his or her firm after you've inquired about the firm's hands-off companies. (And I do mean the firm's hands-off companies and not just the individual consultant's—ethically they should be the same, because if that firm will raid from their other clients, they'll also recruit people away from your company.) It should also help you understand the value they bring and where it's required. The ESP you select will represent your company when they talk to candidates, competitors, suppliers, and other players in the marketplace, along with profiling your company in enticing the candidate to interview for the job. Remember most people on job boards are either unemployed or constantly seeking employment. The ESP will help you find those who are already employed and who are more than capable of meeting your organization's requirements, and in the aggregate at a far lower actual or opportunity cost.

If you're now actively considering retaining an ESP we urge you to read the following four questions. If the search firm passes muster, download the free Executive Search Score Card available on the website at www.HiringGreatness.com. Asking the additional 21 questions will help ensure your search is handled by professionals and is executed in a timely manner.

The Four Critical Questions to Ask an Executive Search Professional (ESP) Before Hiring

1. Is the ESP free from restrictions in terms of recruiting executives from your direct competitors if necessary?

You need to know if the search firm's hands-off list unreasonably restricts your pool of potential companies. Determine if the list excludes some or all of the firms you would want to look at for executive leadership. If they do, you must determine if they're still able to meet your needs. Some of the big firms are so large they can't ethically recruit from tens of thousands of organizations, so if your best candidates would ideally come from a competitor, you would be wise to ensure the ESP doesn't have a hands-off agreement with any of them. Otherwise, they won't be able to ethically touch their employees. Ethics matter greatly to search professionals. None will risk an ongoing relationship with an established client to feed a new account. Our best advice: Ask for a list and check it.

I don't understand why anyone would steal from a client, but the practice was commonplace when I started recruiting 30 years ago. Since then, the industry has come a long way in cleaning up its public image. But the downside of that is when you choose one of the large search firms you may be limiting your reach into companies you want to go into. The math is simple: A company serving 1,000 clients per year has 1,000 fewer companies they can go to present your opportunity. Clients of the search firm have the expectation, often with legal recourse, of not having their staff approached by the recruiting firm for opportunities elsewhere, often for two years. This narrows your candidate pool by 2,000 companies every year on a rolling forward basis, and is one of the worst things about hiring a firm that specializes in a particular vertical: the smaller the market, the more restrictive the hands-off rules. Now imagine how shallow the talent pool (Figure 1.3) becomes with a firm servicing 10,000 companies a year. Bigger does not necessarily mean better—it may mean the exact opposite. Ask for a list of hands-off companies before you engage a consultant, and determine for yourself if the firm will be too restricted.

The two firms Fred had previously engaged represented roughly 40,000 companies on their respective hands-off lists. It was clear from my tone that I felt the firms should have told Fred about this, and that neither firm should have taken the search given the limited pool of potential candidates available. When dealing with search firms, you need to quantify the risk by obtaining disclosure on competitive restrictions.

2. Does the ESP understand the role you need to fill?

A good executive search firm will help you refine the position description based on their market knowledge. Starting with a clear candidate road map—which all parties have agreed to after participating in its creation—is critical to your success. Investing in the front-end definitions of role, responsibilities, and demonstration of achievements will produce superior results.

3. Will an experienced ESP actually perform the search?

Typically, a firm's representative will be their most polished business development person (a knife and fork salesperson) who may have a decade's worth of experience but play no ongoing role in the search. There are many firms that will put a team onto your assignment and, while this may sound great, this team may be comprised of very junior people learning the ropes. Often they're freshly minted MBA grads.

I can't overemphasize that it is critical to ascertain precisely who will perform the search. Before you sign any agreement, you must meet the person responsible for delivering your project successfully—and if it's a team, you'll want to meet all the players. Ensure you're comfortable with the specific recruiter assigned to the project if they're not the same as the person who sold you the project. Key to your success is the individual who first makes contact with a prospective recruit. It's not uncommon for a senior executive to decline when called for the first time. After all, he or she is busy and successful, likely has a great job, and isn't actively looking for work.

Your success depends on understanding what happens with that potential candidate next. Early in my career I made a very good living as the “recruiter of last resort,” brought in to rescue stalled or failed searches. Most times I recruited an executive who had already been dropped from consideration weeks or months earlier simply because he or she declined the first approach. If at first they say “No,” should the prospect be dropped—or should another attempt be made? If so, how? When? Why? Your ESP must have the savvy to skillfully reignite the interest of a candidate who has already dismissed the opportunity. When considering an ESP, ask for specific examples of how they may have resurrected such candidates in the past.

4. Does the firm offer a performance guarantee?

Every time you do a search you need to protect your investment against two possible scenarios: (1) no suitable candidate is found, or (2) the selected candidate doesn't work out. Either scenario could leave you with an unfilled position despite having paid a full fee. Ask about guarantees up front.

Scenario #1: The search firm presents several slates of candidates, all of whom you deem to be unacceptable. Will the firm continue searching until they find a suitable candidate or will they walk away? You need to ensure they're in it for the long haul. By the way, this is another excellent reason to benchmark a candidate soon after the project gets started so you don't waste time and lose momentum or the element of surprise with your competitors.

Scenario #2: The selected candidate doesn't work. What's the warranty period? There's no industry consensus on that, so it's typically a negotiated term. You should be certain to put it in the signed agreement. A guarantee could be as short as 30 (calendar) days or as long as six months. You probably already know how long it takes your people to judge a new executive's competency, so make sure you either get the search firm to cover your investment for that amount of time or shorten your assessment program so you're covered in case of a bad hire. Determine up front what an appropriate period of time is for your company—one year is not unreasonable. Also, discuss what extra charges, if any, you may incur. It's also not unreasonable for direct costs associated with the search to be billed if the firm needs to redo the search from scratch.

The time to discuss these issues is before the beginning of the ESP relationship and, most certainly, before you commence a search. Finding great leadership at the CEO or executive level is complex. It requires a firm with a breadth of experience in completing senior executive assignments. It requires critical thinking and problem solving skills, and a proactive and fresh approach to each assignment because even the most successful searches are filled with challenges. The active involvement of the Search Committee Chair throughout the process is pivotal to insuring a high-quality result.

There are yet more questions you need to ask, which we'll cover in further chapters. But first, we suggest you download the Executive Search Score Card referenced earlier in this chapter from the book's website, www.HiringGreatness.com.