Retained Search Firms: The Backroom Mechanics

Retained Search Firms:
The Backroom Mechanics

Most job hunters think that retained search firms operate like employment agencies, matching job applicants to jobs.

Retained search firms are consulting firms retained by employers and are structured like the Bains and McKinseys of the world, or like law firms, accounting firms and other professional service firms are.

There are two types of retained search firms: Major Firms and Boutiques. The back-office structures of each is quite different.

Major Firms have multiple offices, operate nationally or globally, and have a hierarchy that is similar to one you would see at a large law firm, accounting firm, consulting firm or other professional services firm. To oversimplify it, these firms are composed of rainmakers/project managers and search consultants. The lead consultants, called Partners or Managing Directors or sometimes Principals and Vice Presidents, bring in work and then manage it. The lower-level consultants are called Associates, Researchers or perhaps Principals (at firms where the senior consultants are titled Partner or Managing Director).

The Partners rarely have been search consultants for their entire careers. They typically have held senior executive roles in their past lives, generally in the industry in which they specialize.

The Associates are frequently freshly-minted MBA’s, or they could simply be new entries to the search world, hoping to eventually move up. The role of an Associate varies depending on the firm’s structure and the workload of the partner for whom he works. Duties often include basic grunt work, like in-house database searches and developing call lists, but at some firms includes most of the search process, including interviewing candidates. More often than not, the Associate is the one who makes the initial calls to prospective candidates. These prospects are developed by reviewing the firm’s database and by using external databases to identify prospects working in the client’s industry who are not already known to the firm. Normally, the Partner who manages the search makes about 25 calls to people in her network, and interviews the candidates developed through these contacts, plus the candidates identified by the Associate. If the Partner has a heavy workload, the Associate may do most or all of the candidate interviews.

Boutique Firms range in size from solo shops to perhaps as many as ten consultants and associates. These firms tend to be more industry specific, and have one or just a handful of offices. Being smaller, they have smaller databases. Despite the smaller databases, being smaller can be a major advantage in the retained search business, however. Since retained search firms can't recruit any employee who works for a client company (whether the firm was responsible for that person getting hired there or not) of any recruiter at any one of their global offices, the major search firms often have their hands tied - Korn Ferry will have thousands of clients off limits. The boutique firms can reach out to far more prospective target companies and candidates (to learn more about the off limits rule at search firms, click here to read The Off-Limits Rule: Retained Search Firms Can't Recruit from Client Companies).

Some consultants at boutique firms handle the entire search themselves, including making cold calls to candidates. Others employ in-house researchers/associates to make cold calls, or outsource these calls to external research firms.

Specialties: Most search consultants have cultivated several specialties, but by the same token, most will opportunistically work outside of these specialties. Be wary of believing that the specialties listed in the Kennedy Guide or even on the firm's website represent the full gamut of industries in which they work. Although some firms refuse to step outside of their specialties, most will take on any search that they feel they can comfortably handle.

The Process: A retained search begins with the lead consultant meeting with the person who engaged the consultant (generally, a retained search firms is engaged by the chief human resources officer, the CEO or the division head) and the hiring manager. In some cases, they will also meet with a variety of other people who will be interacting with the new executive, including future subordinates, and the heads of other functional areas within the organization.

At a large search firm or at a boutique at which someone other than the lead consultant has candidate contact, an Associate or Researcher often accompanies the lead consultant on this first meeting.

During this initial meeting, the firm develops a good understanding of the corporate culture, what the hiring manager is like, and the specific requirements needed in the position they will fill, especially if they haven't served this client in the past. The client views the search consultant with trust, just as they would their attorney or accountant. If a firm regularly works for a client, the client will often discuss long-term strategy and future personnel plans with the search consultant. They will at times ask the search consultant for their opinions on various staff members that they meet during these presearch interviews as they plan their organization’s future development plan.

How do retained search firms find candidates?

Databases/Files: The first place a retained search firm turns to find candidates is their in-house database. Many of these people are known entities – candidates they have presented on previous searches, candidates who have been interviewed and not presented, and people who have been good sources or are otherwise known to the firm through past projects. These also contain resumes of unknown candidates that have been emailed or mailed in. The known entities are far more likely to get a call.

Within the client company: The search firm frequently is asked to interview and rate internal candidates and compare them to the external candidates that they develop. The firm is paid the same fee, regardless of whether an internal or external candidate is hired. Sometimes, this is done merely to make an internal candidate feel good; the client has decided that they are going to hire from the outside, but they need to make internal staff members feel that they have been given their due. In other cases, the client plans to hire the internal candidate from the start, and they have brought in the search firm and interview the external candidates they serve up to prove to their shareholders or board that they are doing their due diligence. There are no hard and fast rules in search, and the process is unpredictable.

Candidates referred by the client or who the client asks the search firm to target. The client refers candidates who have come to them or who they have identified through internal referrals to the search firm for evaluation. They also will ask the search firm to target certain companies, and often will request that the firm contact specific people at these target companies that they know but feel uncomfortable contacting themselves.

Networking: The second place the firm reaches out to is their network. To learn more about how to become a part of a retained search firm's network, click here.

Cold Calls/Research: In the parlance of retained search, cold telephone calls to unknown prospective candidates are called research. Search firms identify candidates to call cold from all manner of sources, including industry databases, trade show directories, web research and LinkedIn, among many others.

Cold Resumes: a minority of searches are filled through resumes that are e-mailed, mailed or submitted through the firm's website.

Ads: In the past, retained search firms almost never advertised positions. This has changed somewhat, although the vast majority of searches are filled through the techniques mentioned above. Ad postings could appear on the executive job sites (ExecuNet, Ladders, RiteSite, or Netshare) or, less often, the major job boards (CareerBuilder/Monster). Firms working on nonprofit or education jobs may be required to advertise in publications such as The Chronicle of Philanthropy or the Chronicle of Higher Education.

Panel of Candidates Presented: Most search firms present a full panel of three to six candidates for interviews to the client. The firm will never bring a bagful of 25 resumes to the client and ask them to pick out the people who they are interested in meeting – that is the way a contingent firm operates. Clients expect the search firm to fully screen candidates and bring them a limited number, all of whom are well-qualified.

Some firms do present candidates in serial, one-at-a-time, as they develop them. I’m not a fan of this approach, because the first candidate in tends to get butchered, and if the client, after eight weeks, decides to go back to candidate #1, he is often no longer available or interested.

Number of candidates contacted during the search varies, but the number tends to be large. Few firms can put together a panel from 25 contacts, even if all of those people are already known quantities. This may come as a surprise to you if you are hunting for a job, but most qualified candidates say no. Relocation is a major factor, as are all the other components of a job. Client requirements are usually extremely specific, so it takes digging, and often requires contacting 75 to over 200 prospects to put together a full panel of candidates.

Out of this group, the consultant or her associates will interview six to twelve candidates to pull together a full panel.

Candidates interviewed in person. Candidates are interviewed face-to-face if possible, although more firms are depending on videoconferencing these days to save time. Some of these meetings take place at the firm’s headquarters, with the candidate driving in or flying in (at the client’s expense). In other cases, the consultant meets the candidate at an airport or other site near the candidate’s home.

(A word of warning: Don’t take it for granted that you are a stellar candidate and certain to be presented to the client because the search consultant comes to you. Taking such a meeting lightly, and thinking that the search consultant wants to get you hired to get her fee is a major mistake that too many candidates make – you are being evaluated every minute that you are speaking to a search consultant. I can’t tell you the number of times I’ve spent a day’s time traveling to meet a candidate who acted with arrogance, dressed inappropriately, came late, took cell phone calls during the interview and generally acted as if I should be happy to represent him to my client, and I passed him up because of this behavior.)

References are checked by some search consultants before presenting a candidate to the client, and others save the detailed referencing for when the client is prepared to make an offer. Indirect referencing occurs throughout the search, however, as the recruiter speaks to people in the industry, asking trusted sources for candidate recommendations. Don’t, however, fear that the recruiter will blow your cover by calling around to people he knows, mention she is talking to you about a new job, and try to learn more about you if you are a prospective candidate. Retained recruiters are very good about keeping candidate identities confidential.

How many searches does a consultant handle at a time? A boutique consultant who handles the research calls himself may complete as few as six or eight searches a year, while a partner at a major firm, with her team’s assistance, may complete 25 searches. That means that a consultant may be working on as few as two searches (less if he or she isn’t busy at the time) and perhaps as many as ten (rare, in today’s economy). That means that it is a needle-in-the-haystack chance of you calling a search consultant at random and her having the perfect position for you. And remember, perfect is judged harshly in the world of retained search – we are expected to hit our client’s specs exactly, and your evaluation that you are yourself well-qualified is one that is rarely shared by the consultant who is seeing a much broader array of candidates and understands the client and the position far better than you possibly could.

How are firms paid? Regardless of whether the firm is a major firm or a boutique, the traditional fee is one-third of the first year compensation (compensation = salary + bonus/incentive, with benefits excluded). Expenses are billed in addition. The fee is traditionally paid in thirds, with the most common setup being a third of the fee due upfront, a third due after 30 days and a third due after 60 days. The full fee is often paid before the search is completed, and the fee is normally not contingent upon someone being hired, although the firm normally is committed to continuing on the project until the position is filled.

In this economy, there are some variations in the fee percentage and the payment schedule, although far less often than you would think. There are reports/rumors that some firms are offering multi-search discounts to clients, with fees of 25% to 30% per search. There are also some firms (and some firms have always operated in this manner) that have the second payment due on presentation of candidates to the client, and the final payment due when the candidate is selected and signed.

Pseudo-Contingent Firms: There are also some quasi-retained search firms that are really operating primarily on a contingent basis. They take a small retainer – perhaps $5,000 – and get the remainder of the fee on contingency. These firms often do not meet with the client or the candidates personally, nor are they brought into the client’s sanctum sanctorum. They will know less about the client and its strategy. They will likely be the only search firm working on the project, but the client is often free to review candidates that they develop themselves, and if they hire on their own, the search firm is paid only their $5,000 retainer in many, and perhaps most, cases.

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