Demographics Give Hope to Recruiters

As baby boomers reach retirement age, the executive recruiting market will be busy finding qualified candidates for a generation's worth of senior management positions

by Joseph Daniel McCool

Since its humble beginnings within the walls of some of the first management consulting firms, the multibillion-dollar business of executive headhunting has always been closely tied to the surges and troughs of the business cycle.

That association held true from 1992 to 2000, when revenues from headhunting fees grew by double digits, only to be followed by some rough times between 2001 and 2003 and then by steady, double-digit market gains ever since. Indeed, when corporate earnings are robust, companies tend to invest heavily in the quality of their people and leadership.

Escaping the Business Cycle

Over the years, some headhunting firms were blinded by the upside of the business cycle and invested too heavily when the going was good, only to be forced to reduce headcount and close offices when the economy sagged. Those were tough lessons no recruiting company wants to learn again.

These are good days for the world's executive headhunters. Yet one can't look much further into 2008 without considering the impact the softening U.S. economy—which originates one-half of all retained search assignments every year—will have on corporate earnings in the months to come. And based on what has happened before, it might seem reasonable to assume that headhunters are bracing for another downturn.

It seems, however, that executive headhunters are beginning to call their plays from a new playbook—one that suggests that demographic shifts alone may create a new relationship between the business cycle and search assignment revenue. If this optimism is borne out, it should serve as a warning to hiring organizations that still fail to develop their own leaders and/or lack even the most basic management succession plans.

"It's an extraordinary time to be in the space," says Peter Crist, chairman of Crist Associates , when asked about the market for senior level executive search assignments. "You can see a very strong human capital market in 2008, and I think that regardless of what happens in the economy—speaking of the high-end executive search game—you'd be hard pressed to see anything but very, very busy times ahead."

Private Equity's Deep Pockets

Crist, who says his firm has been turning down a lot of business in part to focus exclusively on the C-suite search market, contends that the growing influence—and financial resources—of the nation's private equity firms and investors is fueling continued demand for senior management talent. And it extends far beyond the long-standing competition for top leaders driven by the world's largest public companies.

"Private equity companies have a lot of money, and public companies—whether they're growing or need to change focus—will invariably need to swap out some of their top management teams [in the year ahead]," Crist predicts.

That portends that the financial performance of any company—public or private—may not be as relevant an indicator of future demand for executive headhunting as it has always been.

The maturation of baby boomers to retirement age is already creating a talent vacuum, and not merely in the U.S. In the coming years, many companies may be forced to continue hiring no matter what the economic environment is. Such hiring—despite any future pressure on corporate earnings—would likely concentrate on reducing the drain of institutional knowledge as key executives end their careers. It might also stave off a drop in productivity, a decline in innovation, and the loss of key client relationships built by an older generation of senior management leaders.

Certainly CEO confidence in the economy, headhunters' relationships with internal decision makers, and the liquidity of investment capital will continue to shape the future and pace of executive headhunting activity. But, in what could reveal itself as a real inflection point for those in the business, it may soon become apparent that corporate requirements for external leadership talent—despite a growing focus on developing leaders from within—will extend beyond the depths of any near-term rough spots in the business cycle.

That's not to say search firms should disconnect from the realities of the economic environment in which their clients must operate. Rather, it's simply an observation that the long-term trend lines for this specialized form of management consulting look very positive.

Joseph Daniel McCool is a writer, speaker and advisor on executive recruiting and corporate management succession best practices. He is the author of Deciding Who Leads: How Executive Recruiters Drive, Direct & Disrupt the Global Search for Leadership Talent, which has been recognized as "one of the 30 best business books of 2008" by Soundview Executive Book Summaries.