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With top-level exits across companies, it is good times ahead for executive search firms

Inadequate succession planning strategies and unplanned exits have led to companies rushing to search firms

Oct 16, 2018 07:59 PM IST | Source: Moneycontrol.com

When former Infosys chief Vishal Sikka stepped down from the CEO post in mid-August 2017, the company appointed executive search firm Egon Zehnder to look for a replacement within a week. In December 2017, Salil Parekh was appointed as the Managing Director and Chief Executive Officer of the IT major.

Similarly, Axis Bank appointed Egon Zehnder in April 2018 to hunt for a successor for outgoing CEO Shikha Sharma. In September 2018, Amitabh Chaudhry (the then-MD and CEO of HDFC Life Insurance) was announced as her successor.

At a time when a host of companies are finalising plans for nominating a successor for the top posts, it is a busy period for executive search firms who have been winning the mandate for CEO selection.

Across the world, executive search firms play a key role when it comes to the selection of senior candidates. Unlike junior or mid-management positions where the internal human resource team takes a call on who to hire, for senior positions companies take the help of external experts.

The size of the executive search industry is expected to be in the range of Rs 1,000-2,000 crore in India.

Executive search firms like Egon Zehnder, Korn Ferry, Russell Reynolds, Heidrick & Struggles are some of the firms mandated to hire individuals at the C-suite level.

None of the firms was willing to comment on record considering they are involved in search and selection of open positions across India.

However, a senior official from a large global search firm that has handled such mandates in the past said for critical posts, biases could creep in.

“For a large company with critical stakeholders, the CEO is like the brand’s face. Hence, having an independent expert to hire this official is crucial since HR officials at companies may not have the expertise or experience to look beyond the company,” said the official quoted above.

On October 11, private sector lender Yes Bank appointed Korn Ferry to assist the search and selection committee in evaluating candidates. This committee is comprised of external experts who will identify a suitable successor to Rana Kapoor, MD & CEO of Yes Bank.

Apart from the fact that the internal HR of a company may not have the adequate resources to look at candidates for C-suite positions, search firm officials also said very senior professionals do not prefer engaging with HR at the initial stages.

Sunil Goel, Managing Director of executive search firm GlobalHunt said search firms have a wider scope and reach for prospective candidates. “At the search stage, candidates are comfortable talking to these firms rather than the prospective company’s human resource team,” he added.

Further, when it comes to the top management team, each company will have a specific requirement in terms of the cultural fit and qualifications. Goel said an executive search will also be able to assess the candidate’s work experience better and highlight their strengths and weaknesses.

Business model

Some companies employ executive search firms as a part of their external HR panel. Here they are paid a fixed fee depending on the size of the company and employee strength. Whenever there is a specific requirement in these companies, one of the firms is called upon to take up the mandate.

In other cases, executive search firms are given the mandate whenever there is an urgent requirement. Here, the firms either take a fixed-fee that could range from Rs 50 lakh to Rs 5 crore depending on the profile and the urgency.

Some others take 20-35 percent of the annual compensation of the executive being hired as their fee. This could either be a one-time payment or staggered over a few months.

Inadequate succession planning

Senior professionals from the executive search industry are of the view that succession planning exists on paper, even among large companies.

"Only when an exit occurs do companies start scrambling to get the human resources in order. Internal HR teams in companies are not equipped to deal with immediate management changes and appointments," added the regional director at a global search firm.

All companies have detailed succession planning strategies in place. However, they do not take into account any senior-level exits that are unplanned.