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Why Retained Search Is Being Ditched by Businesses
The landscape of executive recruitment is undergoing profound changes. CEO turnover is reaching record highs. Vacancies in key leadership roles are lasting longer. And the traditional model of retained executive search is proving increasingly inefficient. Many companies are now realising the benefits of transitioning to contingent executive search or hybrid approaches. These approaches are more flexible and dynamic than traditional retained executive search and can keep pace with today’s demands.
The Rise of CEO Turnover and the fall of Retained Search
Executive turnover has surged in recent years, with a record number of C-Suite professionals stepping down or transitioning in 2023. To put it in context, more than 1,400 CEOs left their positions in the first nine months of that year alone. This highlights an alarming trend in leadership instability.
This is not a one-year anomaly caused by recent economic instability. According to reports, 11% of CEOs now leave their roles within the first year. By the third year, more than a third (34%) have moved on to new opportunities.
These figures signal not just a shift in leadership patterns but also a broader challenge in securing and retaining qualified C-suite talent.
With vacancies in the C-suite persisting for extended periods – an average of 149 days for CEO positions – the cost of these vacancies can be severe, ranging from lost productivity to deteriorating organisational morale. The longer it takes to find a suitable leader, the more likely it is for company performance to suffer.
In short, the traditional value proposition of retained search, with extensive inputs and a long rigid process, provides less value out the other side and leaves companies horribly exposed in the meantime.
The Need for Speed and Agility in Executive Search
In today’s highly competitive talent market, speed is of the essence. Prolonged search processes can lead to top candidates losing interest. This is particularly true when 62% of the job seekers at a senior level abandon opportunities within two weeks if there is no communication following an initial interview. This creates an urgent need for companies to streamline their search and hiring procedures.
Contingent executive search services are proving a better fit for addressing this challenge. Contingent firms are incentivised to move quickly and efficiently, unlike retained firms, which charge a significant proportion of their fees upfront regardless of the outcome. Instead, their compensation directly depends on the successful placement of candidates. This aligns their interests with those of the hiring company, ensuring a faster, more responsive recruitment process.
Additionally, contingent search allows for greater flexibility. It provides organisations with the ability to explore a wider pool of candidates, including both active job seekers and passive talent. This is essential in an era where top-tier executives maintain a roving eye for the next opportunity.
The Emergence of Hybrid Search
Naturally, contingent search is unfamiliar in a lot of boardrooms. For all its benefits, it can lack the sense of safety and comfort that companies crave when replacing members of the top team.
For that reason, many turn instead to a hybrid approach. This combines many of the familiar aspects of retained search while providing the speed, agility and outcome-focus of contingent search.
The commercials work differently too, providing more skin-in-the-game on behalf of the recruitment firm while still providing a through process. For example, rather than the “a third, a third, a third’ fee structure that is most common with retained search, the hybrid approach charges for outcomes. A portion of the fees is for delivery of a shortlist of interested and engaged candidates. The majority, however, is for successful placement and onboarding.
This provides a more familiar process. It has “hard” deliverable deliverables while still allowing for a more dynamic and tailored approach to the search’s delivery, with the majority of the fees riding on a successful outcome.
The Cost of Retained Search
The cost of a poor hiring decision at the executive level is significant. Research indicates that the average cost of a bad hire is around £14,000. However, for C-suite roles, this number can be much higher, often exceeding 30% of the executive’s first-year earnings. The risks of making a poor choice extend beyond financial loss. They can also damage a company’s reputation and impact long-term business performance.
One of the key strengths of contingent and hybrid search firms lies in their ability to master the art of matchmaking between candidates and companies. These firms are typically deeply embedded in the industries they serve. That allows them to offer extensive networks and a keen understanding of the specific challenges and opportunities. This significantly cuts down on time lost to the ‘research phase’ of traditional retained search firms. By leveraging this expertise, contingent and hybrid search firms can identify candidates who are not only qualified in terms of skills and experience but also aligned with the company’s culture and long-term vision.
Moreover, these newer search models enable recruiters to assess potential, not just past performance. With the massive “Baby Boomer” generation now largely retired, the search for younger and more diverse leaders intensifies. It is crucial to find candidates who possess the ability to grow into the role. Put simply, previous C-suite experience is becoming rarer. This shift in focus helps to future-proof leadership teams and ensures that companies can adapt to the evolving demographics and demands.
Customised Strategies for a Changing Market
In the modern executive recruitment landscape, a one-size-fits-all approach no longer works. Today’s candidates are highly discerning, placing increasing emphasis on factors such as organisational culture, work-life balance and career opportunities. This makes it essential for companies to adopt a candidate-focused approach that aligns their hiring strategy with the individual needs and aspirations of potential executives.
The newer search firms are uniquely positioned to provide this level of customisation. By utilising data-driven insights and advanced recruitment technologies, these firms can develop tailored strategies. These strategies reflect both the specific requirements of the client and the expectations of the candidate. This increases the chances of success and also helps to create a more positive experience for all parties.
From researching candidates to conducting comprehensive due diligence, contingent and hybrid search firms are able to provide faster, more accurate results than ever before. As a result, companies benefit from a more efficient hiring process, while candidates are assured that they are being matched with roles that truly suit their ability and ambitions.
The Benefits of Greater Agility
The flexibility and agility offered by hybrid and contingent executive search make it an attractive option for filling C-suite positions. By focusing on outcomes rather than fees, contingent search firms deliver results more quickly and at a lower cost.
In addition, the newer models allows for a more collaborative relationship between the hiring company and the search firm. Without the constraints of a retained fee structure, firms are incentivised to keep their clients engaged and regularly informed. This leads to a more transparent and collaborative approach, where both parties work together to identify and secure the best talent available.
Making the Switch away from Retained Search
In today’s rapidly changing business environment, companies need to be more agile, flexible and responsive with their executive recruitment. The rise in CEO turnover and the increasing difficulty of filling C-suite roles in general are clear indicators that the traditional retained executive search model is no longer fit for purpose.
By embracing contingent and hybrid search, businesses can access a wider pool of candidates, reduce time-to-hire and ensure a better match between candidates and organisational needs. This approach provides a faster and more cost-effective solution with the flexibility and customisation necessary to thrive in today’s markets. As companies face faster turnover rates, the new search models are not just a trend, they are an imperative.
Find out more about Practicus’s hybrid and contingent search offerings with our Executive Search and Executive Recruitment services.
References
Here’s a list of references for the statistics and data mentioned in the article:
- CEO Turnover Statistics. The number of more than 1,400 CEO departures in 2023 and 11% stepping down after a year, along with the 34% leaving after three years, can be found in Korn Ferry’s reports on executive turnover trends. Korn Ferry Executive Turnover Report.
- 149 Days Average CEO Vacancy Duration. Statistics on the length of time CEO positions remain vacant can be referenced from studies on executive recruitment by recruitment firms like Spencer Stuart. Spencer Stuart CEO Tenure.
- 62% of Candidates Lose Interest. Data about candidates losing interest within two weeks comes from recruitment industry reports, such as those produced by Glassdoor or Jobvite. Jobvite Recruiting Benchmark Report.
- Cost of a Bad Hire. The cost of a poor hiring decision being £14,000 or 30% of a C-suite executive’s first-year earnings is supported by data from the Chartered Institute of Personnel and Development (CIPD). CIPD Hiring Costs Report.
- 30% of First-Year Earnings for C-suite Mistakes. This figure can be backed by research from the Recruitment and Employment Confederation (REC) or other executive hiring firms. REC Bad Hire Report.
