http://mulkernassociates.com/September2005.htm

The CEO/owner of a start-up had been paying himself nearly starvation wages and working eighteen hour days, seven days a week for the first eight years of his company’s existence. Finally, his creativity, guts and personal sacrifice led to major contracts and the prospect of many more. Break-even had been achieved, and he decided to hire his first VP of Marketing. When told by an executive recruiter that qualified candidates would require annual compensation above $150,000, plus benefits, he said, “Gee, maybe I should quit as CEO and take that job!”

While the brutal demands this CEO placed on himself were extreme, his sardonic reaction was within the norm. Every successful, growing, entrepreneurial company eventually faces the need to hire outside executive talent for the first time—and to face the shock that usually accompanies it. It is not just “sticker shock” at the required compensation—not to mention a recruiter’s 25-30% fee—that is jarring but also the risk that the money will not be well spent. According to a 2005 survey report from Execunet, turnover among executives is at an all time high. Surveyed executives change jobs every 2.8 years, and 77% of currently employed executives say they are planning to leave their present positions in the next six months. According to a poll of recruiters, 18% of executives do not complete one year on a new job.

Attracting and retaining top notch executive talent is further complicated by the facts that there is a shortage of available executive talent, according to 75% of search professionals, and compensation is the main factor affecting job acceptance. Additionally, once a top-notch executive is in place, that person will likely field frequent phone calls from recruiters, in pursuit of a fee, attempting to lure him or her away.

The process of replacing an executive is conservatively estimated to cost at least 150% of that person’s annual compensation. This cost can be many times more if the executive is involuntarily terminated and there is severance agreement in force or if prudence dictates “paying up” to avoid a potentially more expensive lawsuit.

One common mistake for CEOs is to place excessive confidence in professional recruiters. While their services are often invaluable and the best in the field work extremely hard to satisfy the client, they cannot understand what is needed as fully as the hiring company, and it cannot be assumed they have uncovered all relevant background information. For example, the August 17, 2005 Los Angeles Times described one Fred DiBritto who had been hired through a recruiter for a $100,000 a year job at UCLA, based upon ostensibly excellent credentials. It turned out he was actually a five-time convicted felon who had faked his way into a number of jobs, including that of Catholic priest, in the process becoming very popular with his duped parishioners! UCLA fired him after being alerted by LAPD.

Gil Amelio was appointed Chairman of Apple Computer in 1995 to turn around the troubled company before being forced out 15 months later, with a lavish severance package. He was replaced by Steve Jobs, the company’s co-founder, and controversy surrounds Amelio’s strategies to this day. After his departure, a former employer of Amelio was quoted as saying that he would have told Apple Board members what to expect if someone had simply bothered to call for a reference!

Obvious moral of the stories: Dig, dig, dig for background. It is in your long-term financial interest to take your time and not to have to repeat this process soon again. Not all recruiters can afford to worry about the long term, and it is in their financial interest to get someone hired as soon as possible.

No wonder that many growing, entrepreneurial firms postpone hiring outside executive talent until it is absolutely unavoidable. In the best of cases, this means opportunities for growth and improvement are lost. In the worst cases, decline has gone too far to reverse once the decision is finally made to bring in high-priced talent.

Hire Not Only for Competence, but Also for Character, and Fit. Functional skills and experience constitute “Competence” which is the easiest to screen for and is often the sole criterion upon which candidates are chosen. Yet executive failure in the job is rarely based on a lack of competence. It is usually because of the other two criteria. “Character” refers to work ethic, professional honesty, absence of hidden agendas, the courage to speak his or her mind, and enough humility to admit he or she does not have all the answers. It is also a part of effective leadership, insofar as the latter requires respect for others and a strong drive to help them learn and grow. Determining “Fit” requires first being clear on the culture of the company and assessing each candidate’s suitability. At Apple, Amelio’s reported complaints about no reserved parking spaces for executives were taken as a failure to appreciate an important symbol of the company’s egalitarian culture. Some executives with experience in publicly held companies may not mesh well with the charismatic CEO who is 100% owner.

Look for Achievement Motivation. David McClelland of Harvard claimed there are three motivational factors impacting leadership, Achievement, Affiliation, and Power. All people have all three in varying degrees. McClelland’s studies showed that for the most effective leaders Achievement (the desire to accomplish tasks and achieve goals) was their strongest driver, with Affiliation, or concern for people, the next highest. Leaders for whom Affiliation is the highest factor tend to be overly concerned with being liked by other people and often end up being neither liked nor respected. High Power motivation often shows itself as excessive concern with status symbols and trappings of power, including very high compensation and control of others. Ask yourself, where does a candidate’s resume place the greatest emphasis, on accomplishments, i.e., bottom line results; or responsibilities and activities, i.e., affiliations with positions and employers; or titles, promotions, degrees and honors?

Hone Your Interviewing Skills. Interviews are the most widely used screening method, yet are shown by studies to be the least reliable. The reason? Most people doing the interviewing have not acquired the needed skills. This is akin to a mortgage loan underwriter having no skills in assessing credit worthiness. Some entrepreneurs I have observed spend most of the time in an “interview” with an executive candidate selling the candidate on the company. To hone your skills, consider a training course. I recommend Paul Falcone’s book, 96 Great Interview Questions to Ask Before You Hire.

Remember, The Purpose of the Interview-- to obtain information, and only secondarily to provide it. It is the time for probing, even if this puts the candidate on the spot. To cut through canned responses from applicants, seek specifics. For example, of the numerous executive candidates I have interviewed over many years, all claim to be “team leaders.” When asked to provide an example of how they achieved something through team leadership, far fewer can provide a concrete answer. While it is important to make a good impression, if you are overly concerned with being gracious (Affiliation motivation), you are setting yourself up to be taken in. Many executive job-seekers have had extensive, sophisticated coaching on how to slickly package and sell themselves. Unfortunately, those who are best at landing a job are not necessarily the best at doing the job!

Don’t Hire in Desperation. As in negotiation so too in interviewing, the person in the strongest position is the one who is willing to walk away from the table with no deal. Too often the decision to hire is made too late, very few candidates worth considering are actually generated, and the job needs to be filled now. This is a recipe for an expensive mistake. Good executive hiring begins with good strategic and human resources planning and developing your existing staff to the maximum. In a crunch, consider a temporary executive — even temporary CEOs are available. Look for enthusiasm and commitment from candidates; some may also be acting in desperation and will only accept your offer “until something better comes along.” Be especially careful of executives who accept an offer but are unwilling to relocate—it may be a good sign they are not sure the job is for them.

Compare Notes from Multiple Interviews. Frequently CEOs request a large number of people to each individually interview an executive candidate, but there is no sharing of perspectives or notes afterwards. While it is reasonable to expect than any individual interviewer will raise the alarm regarding any “red flag,” it is the comparison of all interview results that can be the most revealing. In one instance, I was asked to interview a candidate, along with several of her prospective colleagues, in a series of one-on one interviews. When we met to compare notes, we found that in each subsequent interview she had quoted a significantly higher number than before for her previous salary. She was eliminated from consideration for lack of honesty. In other cases, one interviewer’s gut feeling that something is just not right can be confirmed or disconfirmed by a more specific observation made by another.

Let Them Know if They Will Own No Equity. This factor is really a part of assessing fit, but is worth emphasizing for privately held companies. Many executives from the public sector are seeking equity, and when they join a privately held firm they do so in the hope that eventually they will be enriched by an IPO. Unless you clearly intend to take the company public soon, it is a good idea to let them know that partial ownership is not available and to see if that is acceptable. If you are considering alternative incentives such as phantom stock, this might be discussed as a way of letting them know that you intend to provide competitive rewards. What you do not want is an executive who is continually urging you to go in a direction that serves their agenda but not yours.

Finally, prepare yourself for the fact that most executives, however highly qualified and enthusiastic, will seldom be as motivated as you the owner. Most executives say that they would like to own their own companies, but if they were willing to pay the price that entails they would not be working for you. Successful entrepreneurs must accept, with all due humility, the fact of their own extraordinary drive and talent if they are to succeed in getting the best from others who are not entrepreneurs.


	Mulkern Associates is a privately held consulting firm of Anthony J. Mulkern