Why Headhunting is Dead (or should be)

Why Headhunting is Dead (or should be)

Yes, I realize that statement comes across as somewhat perverse, especially given I own a recruiting firm. If I’m speaking frankly though, like you when I hear the word headhunter it makes me cringe. I inevitably harken back to my most recent car-buying experience where the salesman told me that he had just the car I wanted on the lot, with the right options package, and the ability to match any other dealer’s price…only to be short-changed on all counts.

The intent of this opinion piece is not to sling mud at our profession, any firm, or any person in particular, but rather to cast light on a long-held perception (perhaps well-earned) which I’m hopeful will change in the years ahead. Asset management is a business that has undergone incredible change in recent years and will continue to do so going forward. A shift to passive products and fee compression has put a number of asset managers in a tough spot. Even differentiated, higher fee products such as hedge funds are not immune. Gone are the days where senior management teams could simply clip the coupon on their existing business, without the need to grow. While average industry profit margins remain healthy in the 30-35% range and revenues have surged due to a broad stock market rally, there continue to be some challenging signs on the horizon. Broker/dealer platforms have steadily pruned the number of relationships they have with third party asset managers, active equity funds remain in net outflows at the expense of passive products, and asset managers’ operating expenses continue to increase due to items such as ever-increasing health care costs, technology spend, and headcount. 

At this point, it has become critical that firms transform their businesses through innovation, efficiency, etc. or risk a slow run-off of assets. Industry consolidation is inevitable, and while there is some comfort in achieving greater scale, it is more critical to have a solutions orientation, understanding what your client needs and expects. Thriving in the new asset management environment will require a solid long-term strategic plan paired with an employee base that blends skill, creativity, collaboration, and flexibility.

Partnering with the right recruiter can transform a business, particularly in an increasingly margin-constrained business such as asset management. While many larger asset managers have strived to bring more of the recruiting effort in-house, anecdotal evidence indicates that results are mixed. Having solid recruiting depth across all functional areas (investments, distribution, finance, compliance, IT) without deep industry experience is a challenge to say the least. Whether or not anyone wants to admit it, search is a fairly commoditized business. Most recruiters use a similar set of tools. Where the true differentiators present themselves is in a few key areas:

  • Strength of the recruiter’s network
  • Ability to assess cultural fit
  • Ability to assess/acknowledge strengths and weaknesses of a candidate
  • Managing the client/candidate relationship (not simply acting as a conduit)

I tell my clients that too often cultural fit of a candidate is discounted, stating that it is viewed as “the 5% that is really the 95%” in terms of its relative importance. A great example of this occurred during one of my previous industry executive roles. My company at the time needed a new head of marketing to lead a more globalized brand-building effort for the organization and hired a well-known global search firm to handle the recruitment process. Within weeks there were several finalists, all of whom had stellar resumes and appeared well-qualified for the role. The new head of marketing selected was a woman who was a 20-year industry veteran with a background that spanned three well-regarded firms. For the purposes of this story, we’ll refer to her as Sue. As Sue began her new role, the onboarding process went relatively smoothly, only within weeks rumors began to swirl internally about Sue’s strange behavior and how difficult she was to work with. I happened to be in a client meeting with one of our larger long-time clients and after exchanging some initial pleasantries, the client stopped me mid-sentence and said “Jim, I’m sorry to interrupt but I have to ask…where did you guys find Sue?”. Somewhat stunned, I asked him what he meant by it. He shared how he and his boss had arranged an introductory call with Sue to discuss private labeling strategies and within minutes Sue was voicing disagreement with their strategy proposals at almost every turn. These proposals had been fully vetted with our team and our former head of marketing over a period of months and everyone had agreed in principle to them. Sue wasn’t having any of it and decided that she was going to pursue an entirely different course than the original strategy. The client informed me that they didn’t like Sue’s strategy nor did they appreciate her abrasive behavior. We were given a week to reformulate the strategy and return with a new execution plan. After further discussion among our team, Sue was asked to contact the client and work with their original plan, which she did reluctantly. In pursuing her own agenda recklessly, Sue managed to alienate herself from many of her colleagues and even among some of the firm’s management team. A little after a year on the job, Sue was moved into a new role with the firm before departing several months later.

As I think back to Sue’s hiring, I can’t help but wonder how there weren’t red flags discovered by the search firm or by other colleagues who interviewed her. Perhaps she disguised it well, but having interviewed thousands of candidates over the years, you can usually get a pretty good sense of someone’s personality within a conversation or two if asking the right questions. Sue’s story is just one of countless others and I’m guessing you have a few you could add as well.  While I’ve worked with many intelligent and team-oriented people over the years, there are also a few arrogant individuals that were so pre-occupied with their own individual success that it cost them key relationships and roles. This is the role of the recruiter however many recruiters lack the industry experience necessary to do so. 

It might sound a bit “old-school” but I don’t think that there’s a better assessment tool than human interaction. Recruiters are uniquely positioned in this regard to gain a candidate’s trust through confidential conversations. Candidates are far less guarded and much more apt to provide you a sense of their true personality and what makes them tick given they know they aren’t speaking with a potential future employer, feeling like they are on-the-spot in a job interview. Recruiters also have large networks of diverse people across the industry that they speak with regularly about roles, firms, and people. It isn’t uncommon to ask people for perspective on a candidate who may have been someone’s former colleague, client, or classmate. Through the process of triangulation, you can develop a fairly informed view of someone’s personality. 

This facet of recruiting is the magic of a search firm’s role. We must act as confidant, negotiator, strategist, consultant, advocate, and psychologist. While it can feel like walking a thin line at times managing the needs of both client and candidate, our value-add as recruiters is being able to decipher the true needs of a role, spot inconsistencies or acknowledge weaknesses in candidates, and deliver honest, tough messages that can’t be delivered directly without upsetting the process. My hope going forward is that recruiters will see the unique opportunity we have in front of us. We need to transition away from an era of simply pushing strong resumes at clients and telling them what they want to hear even if it isn’t entirely accurate. Instead, we should aim to be long-term consultative partners who can share our expertise based on past experiences. Looking ahead, the asset management industry is likely to continue to experience a period of further consolidation and belt-tightening. In order to be successful, it will be imperative that asset managers hire the best talent available that will help them develop and deliver transformational solutions for their clients better than the competition. Choosing the right search firm to partner with will be crucial in building a solid team dedicated to helping the firm realize its vision. Just remember to be wary if they tell you that they’ve got the exact model on the lot that you’ve been looking for.


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