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Is “top talent” worth the expense? How do we ensure that our investment in executive talent pays off? What does it take to land a top prospect? How can we compete against big corporations? What will it take to be successful post-hire?
These questions have always confronted companies setting out to make a key leadership hire. Because the executive talent market has structurally changed over the past 20 years, coming up with answers is harder today than ever.
Competitive Advantage In spite of the challenges, independent companies possess a significant competitive advantage in the quest for top talent. Because this competitive advantage is rarely exploited, there is an opportunity for forward-thinking leaders to win top talent even against much larger competitors.
For these forward-thinkers, the talent advantage can be a major factor in driving company outperformance and shareholder returns. Making that promise a reality requires -- 1) understanding of the dynamics of today’s executive talent market, 2) making talent a priority; 3) a systematically seizing the opportunity.
The Executive Talent Shortage McKinsey estimates that the number of future executives, the cohort aged 35-44, will decline 16% from its 2000 peak to its nadir in 2016. The Aspen Institute projects that by 2020 there will be a deficit of 14 Million skilled workers in the U.S. Of these, Equity Corps conservatively estimates that more than 200,000 will be C(x)Os of independent companies.
We acknowledge that the demand for executives will rise and fall with the overall economy. Nonetheless, the trend indicates continued high demand at the C(x)O level over the long term. Especially for top performers. (Read more about the executive talent shortage.)
The Rise of Executive Free Agency The shortage of executive talent notwithstanding, executive tenures have been declining.
These changes have profound implications for operating executives. Since 1985, the executive job cycle has compressed 61%, from 99 months to 39 months. This means operating executives are looking for jobs 2.5 times as frequently, and that they are spending 23% of their professional lives in search of their next career engagement, up from 9% in 1985.
The most talented Baby Boomer executives will choose whether they continue to work or not. In a world where tenure is compressing, turn-over is frequent, and searches remain lengthy, many will simply opt out. (Read more about Executive Free Agency.)
Why Independent Companies Are Rarely Competitive for Top Talent Large companies have and continue to invest considerable resources in executive acquisition, development and retention programs. McKinsey reports in a December 2007 study that companies ranked competition for talent number one in importance among global business trends for the next five years. Large companies are well prepared for the executive talent shortage.
Independent companies are less well prepared. According to the 2007 Mass Mutual American Family Business Survey, although Owner-CEOs are rapidly approaching retirement, 80% have neither successor nor succession plan and rank finding qualified talent third among important challenges.
The Opportunity As executives spend an increasing portion of their time in the incessant search for their next career engagement, they are becoming de facto Free Agents. For many executives – even the most highly motivated – the new environment can be exceptionally frustrating. As a result, many executives would welcome the opportunity to return to a smaller independent company, where they can have a large impact.
For forward thinking leaders of independent companies, there is an opportunity to harness the considerable energy and expertise of a generation of exceptional leaders to expedite your business to the next level and beyond.
The Difficulty of Winning with Outside Executive Talent The central challenge in filling any leadership position is simply getting it right. This seems obvious enough, but the numbers suggest that execution – actually winning with outside leadership – is more difficult than apparent.
Consider the case of CEOs recruited from outside. A 2007 study by Booz Allen reported as follows. 57% of departing outsider CEOs were forced out by the Board. Insider CEOs outperform outsider CEOs in shareholder returns by nearly 2:1. Insider CEO tenure is two times that of outsider CEOs. Overall, the research suggests that companies that recruit outside executive leadership endure failure nearly twice as often as companies that promote from within.
These failures occur after an executive search of 4 - 6 months that is administered by Human Resources professionals who often employ an outside recruiter – a recruiter that is paid regardless of the business impact or tenure duration of the new executive.
It is hard to win with outside talent.
Avoid Costly Recruiting Errors, Win the Talent War, and Drive Shareholder Returns Winning the talent war requires doing the hard work to build a foundation for success - both to land your target executive, and, as importantly, to set the stage for exceptional performance on the job. Some of this work - research, interview prep, contract design, reference checking, background investigation - is mundane and time consuming. It does, however, demand thought, diligence, and considerable attention to detail. Companies that fail often simply fail to do the work. Here are some ways to ensure that your company gets and stays on track.
We wish you much success in your quest to win with top talent.