Last month The Economist spelled out the troubles looming over the executive-search industry, calling into question the future of one of the “big five” headhunting firms, Heidrick & Struggles.

Heidrick & Struggles’s strong position in recruiting for financial firms left it vulnerable after the 2007-08 crisis. It compounded its woes by overreacting, cutting staff drastically and failing to pay its best recruiters competitively. That opened the door for rival firms to raid its talent. The market has recovered since, but the firm still has 25% fewer consultants than at the end of 2008. Mr. Kelly sought to rebuild the business by offering “leadership” advice to senior managers, but these efforts are still at an early stage.

Citing tepid growth following the 2008 market crash, the widely acclaimed newsmagazine suggested the global executive search firm, like its counterparts, must shift gears or suffer untold consequences.

Most big headhunters have responded to this threat by investing in new capabilities. Korn/Ferry has gone on an acquisition spree… Russell Reynolds is concentrating on the growing need for technology staff among non-IT companies. Spencer Stuart is focusing on energy firms. And Zurich-based Egon Zehnder, the only member of the big five whose headquarters is outside America, has sought to build up its presence in emerging markets.

According to The Economist, clients have begun to seek alternatives to the traditional recruitment model in rebellion against outrageous fees, off-limits clauses, and the high level of turnover amongst externally recruited executives within their first 18 months on the job. Talent Intelligence said as much in a recent whitepaper Executive Recruitment in Decline:

The typical retained search firm charges 1/3 of the first year of base and bonus compensation for any role they attempt to fill. That fee is typically broken down into three payments; an initial payment upon commencement, a second installment after 30 days, and a final installment after 60 days. Additionally, clients are billed for expenses such as travel and lodging. [T]he average completion rate for an executive search is around 60%.

For decades, off-limits policies have been a standard of the retained search industry. Limiting searches to available talent as opposed to all relevant talent comes at a significant cost… to the client.

The fate of Heidrick & Struggles is impossible to predict. What is clear is that none of the large firms have sought to develop new and innovative solutions more in keeping with the needs of large companies in today’s rapidly evolving global talent marketplace.

At Talent Intelligence, our mission is to help companies break free from the reactive recruitment cycle. We put an emphasis on proactive talent pipelining as well as shifting focus from replacement planning to true succession planning based on a complete view of the talent marketplace. That kind of approach is what companies need in order to limit their exposure to leadership risk.

To learn more about how leadership risk management can, download The 48 Hour Vacancy: A Case Study in the Efficacy of Leadership Risk Management. It is a fascinating case study in how Talent Intelligence’s unique solutions can help large organizations limit their exposure to leadership risk and hit the ground running when they encounter an unplanned vacancy.

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