Do Headhunters have a Code of Ethics? (Part 3)

How executive talents are identified:

A company requiring external executive talents has essentially 3 options: First, ask for referrals from friends; second, advertise; and third, engage the services of an executive search firm or what is popularly known as a headhunter.

Referrals from friends sometimes work, but rarely. This is because of the limited number of talents that this approach can unearth.

Advertising may work for lower-level positions; however, smart senior-level executives will not be caught responding to classified ads.

Executive search is the third option that most companies rely on.

Two Models in Executive Search

There are two models in executive search: Contingency and Retained.

1. Contingency or Success-based

Under this model, fees are charged only upon the successful placement of a candidate by the firm that referred the candidate’s resume. Contingency searches are common in junior to mid-level managerial positions. In most cases, search assignments are assigned simultaneously to 2 or as many as 5 headhunters.

For clients, a contingency and non-exclusive arrangement has three advantages: there are no upfront fees; the fees are generally lower than what is known as retained search engagement. And thirdly, the arrangement promises speed.

Most of the 50+ firms in the Philippines work on what is called “contingency or success-based” terms. These contingency headhunters will readily accept simultaneous search assignments in competition with other firms.

With no assurance of being paid, these headhunters will, as fast as possible, endorse as many resumes to claim “ownership” ahead of the other headhunters.

Pabilisan or unahan (race to be first) are the operative terms. This way, they increase their chances of placing candidates. Their hope is that from the many raw resumes they send, someone may be lucky enough to be hired.

The above scenario encourages malpractices which have, and continue to, hurt both candidates and clients alike and which has given a black mark to the search industry. The proliferation of so-called search firms has given rise to cut-throat competition.

Unfortunately, many client firms unwittingly contribute to this sad situation whenever they engage the services of unethical headhunters.

Equally important is that most clients overlook the hidden costs that are incurred when they deal with headhunters who resort to “pabilisan or unahan”.

Instead of using precious management time for more important issues, clients end up doing the work of the unprofessional headhunter. Because of the absence of value-adding processes, candidates are not carefully selected and assessed before they are endorsed to the client. In addition, the all-important due diligence or reference checks will also fall on the shoulders of the client. All time-consuming and cost-incurring efforts on the part of the client.

In part 4, we will discuss how clients can effectively manage contingency or success-based engagements while helping prevent malpractices from being committed.

2. Retained Executive Search

This model is ideal for critical senior-level positions which, 90% of the time, requires utmost discretion and confidentiality. Typically, this arrangement is done on an exclusive basis, meaning no other firms will simultaneously search for the same position because it will compromise confidentiality.

The approach is process-driven and removes the element of luck in finding talent gems. The process depends on a “partnership relation” with the client to maximize the consultative services of the search firm.

The process starts with a good understanding by the search firm of the client’s requirements and specifications. Towards this end, the search firm requires a meeting with the client to gain full appreciation of the organization, culture, ideal attributes of candidates, expectations, career path etc.

With good grasp of the client’s requirements, a two-pronged research is initiated through the search firm’s data bank and social media. Simultaneously, an industry research is done wherein potential candidates in preferred industries are discreetly contacted.

Typically, this research phase yields 15 to 25 viable candidates. Of this group, the most promising 5 to 6 are invited for face-to-face interviews with the Search Consultant. Informal and discreet due diligence is done at this stage to weed out

undesirable candidates.

The interviewed candidates are then assessed in terms of suitability factors such as academic background, personality, relevant experience, track record, “cultural fit”, growth potential etc. Motivation in entertaining a possible move is also probed. Finally, candidate assessments are written up and presented to the client.

This rigorous process normally yields 3 to 4 candidates who stand out as short-listed candidates to be endorsed to the client.

The client then interviews the short-listed candidates and decides to whom to offer the job.

A critical part of the process is a formal due diligence covering the chosen candidate’s former superiors, peers and subordinates. Apart from validating the claims of the candidate, the results of the due diligence can be helpful in the development plans for the successful candidate.

Because of quality investment in time and effort on the part of search firm, a progressive billing is made, usually in 3 installments: upon signing of search contract, upon presentation of the short-listed candidates and finally, upon acceptance of the job offer.

The process of identifying candidates and endorsing them to clients could take 3 to 5 weeks. While this is longer than the 1 to 2 weeks that contingency firms send raw resumes, the likelihood of finding superior candidates through the retained model is significantly higher.

Equally important, the burden of screening, assessments, due diligence etc. are not passed on to the client.

Choose your approach: Contingency or Retained?

The two models of executive search, Contingency and Retained have their advantages and disadvantages. One is ideal for junior to mid-level managerial positions while the other is preferred for confidential senior level positions.

Once again, in part 4, we will cite some examples of malpractices and discuss how best to avail of the services of contingency firms while discouraging malpractices.