One of the most dismal years in memory for healthcare executive search firms is coming to a close, but insiders say the buyer’s market for their services is likely to continue into 2010 as the desire to hire external candidates for senior-level jobs remains at a low ebb.
Experts say exec recruiting to stay slow into 2010
“I don’t think you’re going to find an executive search firm that has not had layoffs this year. I don’t know of a search company this year that has not had to double-down and really work it,” said Doug Smith, president and CEO of Lenexa, Kan.-based executive placement firm B.E. Smith. “I think it’s going to be a bumpy ride until we have healthcare reform established.”
The doldrums in the executive search world might seem at odds with reports of increased churn in healthcare C-suites in 2009. Longtime hospital and health system leaders have been weighing the prospects of more-challenging futures while their restless board members are reacting to the effects of a two-year recession, both of which are increasing voluntary and involuntary executive departures (June 29, p. 6).
But observers say that in many cases the changes are being incorporated into internal reorganizations that leave systems with fewer jobs to fill, and what spots do remain are being filled with internal candidates to avoid search fees. Healthcare is also finally beginning to embrace more succession planning in its upper management, experts say, and some of the larger multistate systems are even starting up their own in-house search departments to cut down on cost, including Bon Secours Health System and 53-hospital Tenet Healthcare Corp.
“Good talent management programs are the enemy of big search firms,” said Seth Lee, vice president of talent acquisition at Mariottsville, Md.-based Bon Secours Health System, which operates a centralized executive search department for its 13 community hospitals in five eastern states. “The partnership with search firms is important, but it doesn’t have to be used for every search, and large systems can grow and do these things on their own,” Lee said.
Bon Secours saved a net $600,000 in fiscal 2009 by using its in-house search firm, including the cost of running a five-person department to handle the task. Lee said he expects the savings to double in fiscal 2010. Among the system’s 250 senior-level jobs, it’s not uncommon for 30 or 40 of them to open up over the course of a year.
And systems looking to recruit their own recruiters may not have to look too far. Many executive search firms conducted layoffs in 2009, including B.E. Smith, Heidrick & Struggles, Korn/Ferry International and Witt/Kieffer. Smith said some of the smaller firms offered themselves up for acquisition during the year, and several without buyers no longer exist. (For a list of the top executive search firms, see the Lists and Rankings section of ModernHealthcare.com.)
Officials with all those companies confirmed in interviews that the level of competition for the diminished number of executive searches has made the firms far more flexible on their terms. Some are lowering prices below the long-held industry standard, while others are modifying the underlying terms to entice business prospects.
Hospital executives are also seeing traditional executive search firms roll out new products under their familiar logos to generate more revenue. Some are branching into interim placements, others are doing more work in physician-executive recruitment, and some are committing to more pre-employment orientation services known in the industry as “on boarding.”
Thomas Dolan, president and CEO of the American College of Healthcare Executives, said it’s not too surprising that the recession would cause health systems to steer clear of doing too many searches, given the cost: The standard executive search fee is one-third of the placed executive’s first year of total compensation.
“It’s what the fee has been for years. There are some firms that charge less than that. I know of some that only charge 25%. But given what CEO salaries are today, that’s a lot of money, and I could see why systems would balk at that,” Dolan said. But he added that search firms will always have an important role, as hospital boards and human resources departments are not equipped to handle the sophisticated work of top-notch executive recruiting.
Executive search firm officials uniformly said their business began to pick up again late in 2009, and some expected the level of contracts to snap sharply upward as the economy improves in 2010.
The prevailing observation among search firms was that despite boardroom unrest, many executives were remaining in their jobs because they couldn’t sell their houses, or because they needed the extra time to repair the damage to their retirement portfolios. Once those conditions are righted, the pace of change will pick up quickly, search-firm officials predict.
“Things have stabilized, which is good,” said James Gauss, president and CEO of Witt/Kieffer. “I see us coming out of this with less searches, but higher level (job placements) and more emphasis on timeliness and quality.”
One unintentional upshot of the downturn is that it may increase the percentages of executive jobs filled from within, which would be a good thing in the eyes of Marie Sinioris, president and CEO of the National Center for Healthcare Leadership. Sinioris said that the industry’s goal should be having 75% of C-suite jobs filled with internal candidates, based on the examples of other industries, but healthcare currently averages about 50%. Her top goal is to encourage systems to develop their own talent.
Toward that goal, Sinioris said the in-house search arms like those at Bon Secours and Tenet may yield more results, but she would like to see studies of whether those efforts produce longer-tenured executives.
Susan Douglass, a longtime participant in healthcare human-resource work who recently started her own HR consulting firm called Susan Douglass & Associates, based in Colorado Springs, Colo., was skeptical that an internal recruitment department would produce the same results as an established national search firm.
“My personal opinion is, it’s probably a rarity, and the people who do it are probably not getting the best talent. Here’s why: Most of the high-performance executives in this country are not looking for jobs,” she said. “As an in-house person, you don’t have access to the sourcing aspect that an executive recruitment firm would.”
Heather Kopecky, managing partner for the hospitals and health systems sector of Chicago-based executive search firm Heidrick & Struggles, applauded the efforts of systems that create in-house search departments. “The idea of creating an internal recruitment arm in large systems is a fantastic idea. And many times we find it complimentary to what we do,” she said. “When we partner with them, these folks are great to work with.”
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