Executive Search Firm

How To Use An
Executive Search Firm
A guide for family business owners

executive search firm

Using an executive search firm is a smart strategy when a family business is seeking to hire a non-family key executive according to top family business expert Don Schwerzler, "As the family business grows, the skill sets and the experience needed to ensure profitable growth can outgrow the family's management talent pool. Waiting for family members to get the education and experience to make good management decisions may stall the growth requirements of the family business," notes Schwerzler who has been studying and advising family businesses for more than 40 years and the founder of the Family Business Institute.

Many family business owners are not experienced in recruiting and hiring executive talent. Using an executive search firm is a smart strategy. The executive search firm will screen applicants and when a position is filled, the candidate comes with a guarantee, for a limited time period, that the executive applicant will be suitable.

Jon Harvill, CPC, owns an executive search firm and we asked Jon to address the different ways an executive search firm works to meet the needs of their clients.

"When a top executive hears the term "professional recruiter", he or she will likely only think of retained search. When managers who hire entry level and lower level professionals hear that same term, "professional recruiter", they may only be familiar with contingency search. As an executive search firm owner with a career in both, let me eliminate some of the confusion by explaining those terms, as well as some variations. I'll also express my opinion as to when each should be used."

Contingency Search

"A Contingency Search Assignment is most commonly used when you, as a hiring official, want to recruit on the position yourself and have a fair chance of avoiding paying an agency fee. For an easy assignment, a contingency search notice will get many agencies actively working on your assignment. You pay only the executive search firm that provides the candidate you actually hire."

"Unfortunately, you are often flooded with inadequately screened resumes because the agencies are in competition with each other to get each candidate's resume to you. Many agencies may each put forth a little effort, with the hope of winning your fee. Some search firms may not tell you this, but for a difficult assignment, or a discounted fee, you may find that none of the agencies will put forth the required effort. This may lead to a selection from relatively unqualified candidates or lead to having months pass without success in filling your open position."

Jon's recommendation is to work with a very limited number of executive search firms that you trust, and give them the necessary communications links and details required to do their jobs effectively. Build relationships of honesty and cooperation.

Exclusive Search

"An Exclusive Search Assignment is a contingency search assignment given to only one executive search firm. You must have confidence that the firm can and will produce for you. The promise of exclusivity is generally an effective method to gain an executive search firm's commitment to work a moderately difficult job assignment, on a contingency basis. It only works if the executive search firm has never been inaccurately told that they had an exclusive search assignment. If that happens, they are not likely to accept another search assignment from you, or worse yet, your company is now possibly a 'source company' for them rather than a client."

Retained Search

"A Retained Search Assignment can be used anytime you can assume that you will need to pay a service charge to fill a particular position. A retained search costs about the same as a contingency assignment, with the addition of expenses if you require the consultant from the executive search firm to travel to interview candidates. You pay one-third of the estimated service charge to begin the search and the remainder over the next two months. A retained search can also be used when you need to maintain a degree of confidentiality, such as when there is an incumbent to be replaced; or you have concern about any public impression of high turnover. A retained search is a good way to know that someone is actually working on a difficult assignment and that it is likely to be filled. A retained search will also minimize the number of recruiting contacts you must maintain."

"Any reputable executive search firm will work diligently to complete the assignment. To ensure success, share your organizational data and your complete selection criteria and avoid changing the job specifications or reporting relationship once the search has begun."

Preferred Search (or Modified Contingency)

Jon's executive search firm calls any assignment that is a combination of the retained and contingency relationships, a Preferred Search.

"The client pays a portion of the estimated service charge up front in exchange for his firm's commitment to work diligently on the assignment, when just a review of their currently active resumes may not turn up the necessary degree of expertise or desired quality of candidates. The remaining one-third, or two-thirds, of the fee may be paid contingent upon the search firm providing the candidate who is hired."

"In addition to periods of extremely tight market conditions, this option may be advantageous for a client who is in a state of reorganization and whose requirements are subject to change. If your company changes the requirements or cancels the search before it is completed, you will have paid only a portion of a total service charge."

Contract Recruiting

"For Contract Recruiting you pay an individual, or a group, at a fixed rate per placement, or at diminishing hourly rates for the labor of consultants, recruiters, researchers, and clerical assistants respectively. This relationship offers the greatest opportunity for savings for many of my clients."

"Contract Recruiting can be very effective when filling a large number of positions, such as in a plant start up. In one instance a placement was completed for as little cost as one hour of researcher's and four hours of consultant's time. In this case, the search firm (mine) specialized in the needed industry and was willing to include the use of their extensive industry and candidate files in their quoted hourly rates. As an executive search firm, we have offered Contract Recruiting only to companies to whom we can statistically project significant savings, based upon data collected from having worked a significant number of their assignments."

"A word of caution: Beware of a contingency or retained search "consultant" who will work cheaply if you give him or her a contract. Logic would indicate that he or she may not be good enough to earn a better living as a professional recruiter. Their skill level or work habits will not be changed by your company paying them on a contract. Also be aware of the restrictions and tax concerns associated with paying an individual on a 1099 (government reporting form) as a contractor."

Interim Executives

"More and more companies are finding occasions when temporary employees should be used to augment their core employees. This may be to free up their own employees for special projects, to fill specific functions that are not necessarily ongoing, or especially skilled outsiders to fill even the President's office in an emergency."

Jon recommends against using temp-to-hire to fill all of a company's open positions. In effect, this would cause your entire company to be staffed from that limited population which is willing to take temporary assignments.

As family businesses grow in size and complexity the human assets of the company become a critical issue. Using a search firm will have a professional fee associated with the service - but the costs of a "bad hire" or the lost opportunity costs associated with a family business that fails to meet the human capital requirements of their business can be significantly higher. Using a professional executive search firm simply makes good sense!

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