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Open season on CEOs
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August 7, 1998: 4:17 p.m. ET
Executive recruiting is hotter than ever, but how well does it work?
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NEW YORK (CNNfn) - It could have been ripped from the pages of a best-selling spy novel.
William Hunt, the then-chief executive officer of a Dallas-based telecommunications concern was ushered into the airport meeting room where handshakes were exchanged and voices were kept low.
The headhunter who initiated the interview had disguised his name, so as not to tip off Hunt's secretary. And Hunt had left no information on his whereabouts.
"These kinds of meetings are mostly done in hotel rooms and airports or at the back end of a darkened restaurant," he said. "It's almost always behind closed doors where there is no traffic, where you won't be recognized."
It's a level of security that some might call excessive. But in the clandestine world of executive recruiting, where the competition preys on the managerial talent of its competitors as aggressively as it does for customers, all parties involved know the importance of keeping meetings under wraps.
"This is a very confidential game and there's a little bit of gut poker involved when dealing with people in this matter," said Peter Crist, a founder and partner of Crist Partners, a senior level executive recruiting firm. "I've even met CEOs in gas station parking lots."
Hunt, a veteran of the industry, has been recruited for top-level positions at least once a year for the past 18 years.
Mum's the word
News that a company's leader could be looking to defect is enough to spark a shareholder revolt, shake the delicate balance that defines the CEO-board of director relationship, or worse.
"If there is knowledge in the marketplace that a key executive was seriously considering leaving, it could prematurely impact the company's stock price, upset the organization, or jeopardize the individual's credibility within his or her own organization," said Michael D. Boxberger, president and CEO of Korn/Ferry International in Los Angeles, the world's largest executive search firm. "There could be questions of loyalty. All aspects of this process have to be kept confidential."
Moreover, Hunt added, "it is a very demoralizing thing for the people around the leader to know he is looking for a job or being considered for another position. Confidentiality protects you and the company."
Following the leader
Demand for top-level executives has skyrocketed in recent years, as the global marketplace redefines competition and the role of the CEO becomes more pivotal than ever.
Those tracking the $7.3 billion industry say the business has been growing at a steady clip for the last decade, up more than 18 percent in 1997 alone. Kennedy Information, a publishing firm in Fitzwilliam, N.H., estimates the recruiting market in North America last year reached $6.6 billion.
"The market at this level is literally inundated," Crist said.
The hiring two weeks ago of Levi Strauss & Co.'s new chief financial officer, Bill Chiasson, he said, is a prime example.
Levi's, the world's largest branded apparel manufacturer, reportedly beat out Quaker Oats [OAT] in the bidding war for Chiasson, a former senior vice president of finance and information systems of Kraft Foods Inc.
That's become a common scenario in modern day corporate America, where the demand for qualified candidates far outweighs the supply.
"Once they show they [are considering a move] the market comes right at them," Crist said.
According to the Association of Executive Search Consultants (AESC), all industries experienced a jump in executive demand last year, led by the utility, pharmaceutical, and food and tobacco sectors.
The glut of available high-profile jobs has sent recruiting agencies scrambling to fill the positions. It also has given top-level executives a boost in bargaining power.
"The price of poker in this environment has made this game very interesting," Crist said. "We are starting to seeing some very interesting deals. The currency today is equity, whereas five or 10 years ago it was cash."
Picking up the tab
On average, client companies pay executive search agencies one-third of their CEO's first year's total compensation package.
For recruiters, that can amount to anywhere from a few hundred thousand dollars to $500,000 per placement.
Crist said his company places up to 40 top- level executives a year.
Nationally, the four largest headhunter firms are Korn/Ferry International, Heidrick & Struggles, Spencer Stuart, and Russell Reynolds Associates.
As a testament to the industry's growth, Heidrick & Struggles announced it is going public later this summer and Korn/Ferry International said it plans to follow suit by the end of the year.
The personality game
The search for top-level executives typically begins when a company sends out a request for proposals, inviting executive search firms to "shoot outs" for the job.
Sometimes a sitting CEO issues the invitation without the board's knowledge.
From there, the recruiting firm interviews up to several hundred executives and identifies a dozen or so candidates based on the criteria outlined by the client.
But those involved in the business say finding a qualified CEO is only half the battle.
Personalities, and the ability to click with the sitting board of directors, is another story altogether.
"The hardest thing about these searches is that a company will always come up with three or four guys who invariably can do the job," Hunt said. "But will there be chemistry with existing management? Will they fit in or be a square peg in a round hole? That's where most successful searches come unwound. Negative corporate culture is like a cancer: If it's bad it's very hard to get out."
Moreover, they say, it is not only critical that a company retain the right CEO, but that it continue to recruit the right leaders throughout the company's growth cycle.
"The requirements a company has today for a CEO may be entirely different than five years ago," said Lane Kramer, president of The CEO Institute in Dallas. "There's not a static, cookie-cutter approach that can be used for CEOs. Some specialize in turnarounds. Others are talented in shepherding a company through very rapid growth. One size does not fit all."
A CEO, he said, must have "tremendous vision" for the industry and for the company's ability to retain or create a competitive edge.
"You can barely put into words how important it is to have a great CEO, especially in the age of international competition," Kramer said. "That's partly why they get paid so much, because there are relatively few people out there who have the composite skills, from A to Z, to handle such a demanding and difficult job."
The not-so-Magic Kingdom
Recruiting executives from the outside, however, does have its pitfalls.
One need only recount the not-so-fairy tale relationship between former Disney president Michael Ovitz and Chairman Michael Eisner.
Ovitz, a Hollywood heavyweight and one-time close friend of Eisner, resigned from Disney in 1996 with a severance package estimated at $90 million.
Rumors of the executives' "fearsome feuds" were never confirmed, but Eisner acknowledged to shareholders that hiring Ovitz had been a mistake, one he promised would not be repeated.
Over the years, Roy Disney, vice chairman of Walt Disney Co. (DIS), said he has become a firm believer in the merits of grooming from within.
The hiring of Eisner and Ovitz, he said, was a departure from the norm.
"Traditionally, we have recruited from within," Disney said. "When we brought Eisner on board it was a revolution, a time when the company was not doing that well. We felt it was time for some new faces."
Disney said he plans to continue looking inside the company for hardworking visionaries who know the corporate culture and can help lead the company into tomorrow.
But even he admits that throwing title promotions at fast-track employees does not necessarily translate into corporate loyalty.
Disney has had its share of high profile defections. Stephen Bollenbach left the company several years ago to head Hilton Hotels (HLT), and earlier this year Starwood Hotel & Resorts recruited Disney's chief financial officer, Richard Nanula.
Still, Disney said he remains undeterred.
"We have brought in scads of really great people and the people who have left us have gone on to head their own companies," he said. "From that you can tell that, within the ranks, there are more (leaders in the making)."
Another high-profile and costly blunder in the corner office was the departure last July of Apple Computer Corp.'s (AAPL) chief executive Gilbert Amelio.
Amelio left the job after just 16-months with a severance package valued at between $6.5 million and $20 million.
AT&T Corp. (T) was bit by the recruiting bug too.
The telecommunication titan's president and chief operating officer, John R. Walter, walked away from the job last July after less than a year at the post.
Walter, the former head of printing and publishing firm R.R. Donnelley & Sons (DNY), took the position under the assumption he would replace AT&T's Chairman and Chief Executive Officer Robert Allen at the helm by January of this year. It didn't work out that way.
Walter was recruited to the post despite his lack of telecommunications experience.
The rank and file
In today's competitive job market, there's no question the search for top-level executives is flourishing.
But recent studies suggest that headhunters, dubbed "big game hunters" by some, may be encroaching on all levels of management.
An AESC report shows that search activity last year grew significantly faster for mid- and upper-level management than it did for top- level management.
Search activity for division heads grew 37 percent while demand for other general management positions grew 58 percent.
"The proliferation of searches into much smaller companies (and for newly created positions) has been one of the growth drivers in this industry," Boxberger said.
In short, those following today's tight labor market and the proliferation of executive searches say companies that think they've got it tough finding and retaining workers today haven't seen anything yet. 
--by staff writer Shelly K. Schwartz
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