Unravelling the True Cost of Failed Executive Search
By Rachel Davis
Hiring talent is hard. It doesn’t matter what level; the challenge is universal and tends to be industry-agnostic. It is believed that the cost of making the wrong or a bad hire is three times greater than their salary, making it imperative to make the right hire first time. In several studies conducted by McKinsey, they found that even after two years of transitions for an executive hire, between 27%-46% of them are regarded as “failures or disappointments”.
In this post-pandemic era, requirements have changed, influenced by the need to automate and become more digitally-enabled. In this continuing global uncertainty, the profile of leaders has also changed significantly, with the old ‘command and control’ style, replaced by the need for agility, empathy and high emotional intelligence.
So as companies scramble to acquire these leadership profiles, these skills become in high demand, meaning the talent they want is not available or they cannot attract them. This results in companies increasingly taking a chance on people with less experience or experience that is misaligned.
Leaders play a pivotal role in shaping company culture, driving strategic vision and transformation, and fostering employee engagement. Organisations often prefer to create and develop talent internally for succession into leadership roles. However, in many cases, they need to look externally to identify talent from competitors or adjacent industries to introduce new skills or more diverse ways of thinking. The decision then is how to best identify and approach external executive talent, and what is the best recruitment channel in terms of branding, effectiveness and cost.
Many leaders found their next moves through traditional Executive Search and are themselves advocates of using this method. Given the high cost of Executive Search, HR and Talent Acquisition often prefer alternative routes to market. Routes that involve collaborating with a research partner to support just the elements of the search process that the company needs - deconstructing it and therefore being able to significantly reduce the cost of the search as well as take control of the final stages themselves should they so choose.
This is why Armstrong Craven has industry-focused experts and why we have developed our unique Deconstructed Search™ methodology. Using this methodology, along with the insights gathered from our research team, allows us to help businesses ensure they can attract, hire, and retain the scarce and senior talent they need anywhere in the world.
Using Executive Search firms can have benefits if a very narrow pool of industry-specific talent is what an organisation needs for a role, but what is the cost to a business if the search is not successful and the appointed leader fails to meet the expectations of the business? Kevin Kelly, the ex-CEO of Heidrick & Struggles, was quoted in the Financial Times (FT) as saying:
"We've found that 40% of executives hired at the senior level are pushed out, fail or quit within 18 months. It's expensive in terms of lost revenue. It's expensive in terms of the individual's hiring. It's damaging to morale."
It is essential for any business seeking talent for leadership roles to fully understand the leadership style and the outcomes they are trying to achieve when selecting their next leader, as different roles will require different styles, whether that be Autocratic, Bureaucratic, Visionary, or Servant leadership. This must then be communicated to all parties involved in the identification, engagement, interview, and selection process to ensure a successful hire.
Irrespective of source, if an appointment is made into a leadership role that does not align with the required soft or hard skills, the ramifications can be significant. This can include:
Loss of Strategic Direction
If a new hire is not equipped to deliver key milestones and objectives, the organisation might lack clear strategic guidance. This can lead to confusion among employees about the company’s direction, potentially resulting in misaligned efforts and missed opportunities.
Ineffective leadership may result in ambiguity and inefficiencies. Without a strong leader driving initiatives and providing clear direction, productivity may suffer as teams struggle to prioritise tasks and make informed decisions.
High Turnover Costs
When a leader is unable to meet expectations, the organisation may need to replace them. The process of hiring, onboarding, and training a new leader can be time-consuming and costly, impacting the overall budget and diverting resources from other important areas.
Negative Impact on Reputation
Leadership instability and underperformance can tarnish a business’s reputation. Investors, customers, and partners may lose confidence in the organisation’s ability to make sound decisions and achieve goals.
Reduced Morale Across the Business
A leader’s inability to effectively lead and inspire can result in a sense of uncertainty and demotivation among employees. This can negatively impact overall morale and employee engagement, leading to decreased enthusiasm and commitment to the company's success.
Pressure on Budgets and Targets
When leadership fails to deliver results, there may be increased pressure on other departments to compensate. This can strain budgets and impact the ability to meet financial targets, potentially leading to missed opportunities for growth and innovation.
The consequences of making the wrong decision when hiring into a leadership role extend beyond the immediate performance challenges. According to Forbes Study: Ineffective Leadership, the devastating individual and organisational consequence.
"Oftentimes, an ineffective leader will demonstrate behaviours such as low emotional intelligence, disrespect, bias, intimidation, and a lack of empathy, support, recognition, and self-accountability. The individual consequences of employees dealing with behaviours like these can impact an employee's whole life and manifest as fatigue, irritability, anger, lack of motivation, headaches, or even more serious health problems. In fact, one report examining the relationship between workplace stressors and mortality claims that more than 120,000 deaths per year and approximately 5%-8% of annual healthcare costs are associated with and may be attributable to how U.S. companies manage their workforces. This problem becomes more complex when we consider the Fourth Industrial Revolution and the four generations currently in the workforce: Baby Boomers, Generation X, Millenials, and Generation Z."
With all the complexities and risks associated with bringing in a new leader, many companies turn to psychometric testing and behavioural or cultural fit assessments ahead of making a job offer. One thing that is commonly overlooked is referencing. Over recent years, references have become more and more bland as companies fear litigation for even the smallest negative comment.
At Armstrong Craven, we offer an executive off-list referencing service that gathers evidence, with permission from candidates, from independent sources that are totally confidential to ascertain if organisations have identified the right person for a leadership role. Whether the objective is to benchmark shortlisted candidates against each other or to perform due diligence on the final candidate, our referencing can reveal aspects of personality and performance that would have otherwise remained undiscovered until much later – possibly when it was too late to avoid a costly mistake.
Mitigating Leadership Risks: The Role of HR
Chief Human Resources Officers (CHROs) play a crucial role in mitigating leadership risks and building a resilient leadership pipeline. By adopting proactive talent assessment strategies, robust succession planning, and seamless onboarding processes, CHROs can significantly reduce the likelihood of an incorrect hire into a leadership role and the detrimental effects that can follow.
CHROs should include benchmarking and best practice in leadership selection and development. Studying successful leadership transitions in other organisations and industry trends can provide valuable insights into how effective strategies can be implemented. Benchmarking can also support the company in setting realistic expectations and goals for leadership development initiatives. Utilising talent insights and gathering data related to the workforce and job market will allow employers and organisations to make more informed and strategic choices.
The evidence gathered by Armstrong Craven’s talent insights team through external data points allows companies to better understand trends, demands, and competition in terms of skills and talent. This will support a senior leadership team to better mitigate the risk of offers not being accepted, improve attrition rates, and create best-in-class company values and branding that attract top talent to the executive team.
Successful companies have a well-defined succession planning process in place to identify and groom potential leaders from within, as well as consider external succession talent. CHROs, in collaboration with other C-suite executives, should identify high-potential employees and provide them with opportunities for professional development. By cultivating a talent pool from within, organisations can reduce reliance on reactive and costly searches should an unplanned exit occur. Where there are gaps in the internal pool or where an organisation needs to bring in new types of skills, it is possible to create robust, fully socialised, external talent pipelines to complement or strengthen the internal plan.
Organisations that also consider external talent for leadership positions can bring fresh perspectives, diverse experiences, and innovative ideas. This infusion of new viewpoints can challenge groupthink, foster creativity, and lead to more effective decision-making. Additionally, external leadership talent may possess skills and expertise that are not present internally, enhancing an organisation's overall capabilities and giving them a competitive advantage.
By proactively identifying external talent for future leadership roles and building relationships ahead of specific openings, the need for urgent and potentially expensive executive searches and the time taken to fill vacant positions can be significantly reduced.
Armstrong Craven supports clients with succession planning. Our free Leadership Risk Diagnostic Tool enables businesses to look at internal succession highly effectively. It identifies flight risks, potential timelines for succession needs, and the difficulty of hiring for certain roles. Many clients require an external view of talent landscapes in specific areas in order to strategically reduce organisational risk.
In addition to our diagnostic tool, we work with clients to identify external talent for potential succession, enabling clients to develop a robust pipeline of future talent. Talk to Armstrong Craven about how we can help you mitigate your leadership risk and, at the same time, plan how to improve representation in your senior team.