CEO search: How to land the big one

As anyone who has ever gone fishing knows, reeling in the big ones isn’t easy.

You’ve got to figure out where prize catches are likely to be found and when they are hungry enough to bite. And it takes just the right bait as well as patience to snag a coveted heavyweight before someone else does.

That’s a perfect analogy for the process of finding and landing a new chief executive officer, top recruiters say. Companies are increasingly having to look outside their industry and outside Canada to lure the top talent they need.

But at the same time, the pool of prized candidates is shrinking, so those in demand can afford to be very choosy about taking the bait, the recruiters say.

Last week saw two trophy catches in Canada. Nortel Networks Corp. capped an extensive international search by naming Mike Zafirovski, who until recently was at Motorola Corp. in Chicago, as its new chief executive officer. And Bell Canada lured George Cope away from competitor Telus Mobility to be its president and chief operating officer.

In both cases, the candidates had extensive experience in the telecommunications industry, but increasingly searches are not restricted to an industry. In fact, “in many searches today, boards of directors are looking for people with fresh approaches,” says J. Robert Swidler, Montreal-based managing partner for Canada of Egon Zehnder International, the search firm that landed both Mr. Zafirovski and Mr. Cope.

So the process of finding and landing top executives has become a complex detective case that can span continents and go on for months, Mr. Swidler says. For an executive search, a recruiting company is hired by a company on an exclusive contract to identify people with the right stuff.

While Mr. Zafirovski was actively looking for a new position, having left Motorola this summer, locating good candidates is seldom that simple, Mr. Swidler says. In fact, good candidates generally play hard to get because “availability can be a negative. Companies can be biased away from someone who is out of work. In the majority of cases, candidates aren’t available and are happily employed.”

“It is a business of identifying people who have experience, knowledge and skills who are ready to take the next step” to the corner office, says Carl Lovas, managing partner and president of Ray & Berndtson executive recruiters in Toronto.

He compares the typical search to an exploration. The recruiters start by identifying the people in the immediate industry who are doing similar work. Then they look further afield at executives in related businesses. And then they expand the boundaries to look at executives no matter where they may work, who have the right requirements.

And in a CEO search, the shopping list of qualifications has become extensive because boards of directors are under increasing pressure from shareholders to demonstrate they are getting maximum leadership performance for the company, says Tom Long, Toronto-based partner at Egon Zehnder International.

“We have to micro-target people who have a precise fit with the board of directors’ definition of victory and the organization’s specific needs,” Mr. Long says.

Those shopping lists over the past few years have expanded from operational abilities to requirements that the candidate have the emotional intelligence to inspire strong teamwork, as well as a record of successfully leading an organization through changes and complex global challenges, Mr. Long says.

Often, candidates will also need experience to meet goals. For instance, if the organization is looking to expand, it will want a candidate who has a record of opening new markets. If a merger or acquisition is in the works, the person will need a history of being able to knit disparate organizations into a cohesive team, Mr. Long explains.

But finding qualified candidates is getting harder because not only are companies having to go further afield, they are having to go fishing more often, says John Challenger, chief executive officer of Challenger Grey and Christmas Inc., a career-consulting and outplacement company based in Chicago.

North American companies have seen a record number of CEO turnovers this year, and about half of those hired are from outside the organization, according to statistics kept by Challenger Grey. CEO departures are on track to break the record annual total set in 2000, when 1,106 CEO departures were announced. The turnover is now averaging 112 a month, and the year-end total will exceed 1,300 if that pace continues.

And the average tenure for an outgoing CEO is 5.9 years, down from about 12 years in the mid-1990s, the Challenger statistics show. Nortel has had three CEOs in four years.

The result of such short tenures is that CEOs don’t have enough time to groom a successor within the organization, Mr. Challenger says

“That has huge implications. When you are going back and trying to pull out a big candidate from a small pool every few years, it really taxes the supply of contenders,” even if you are searching internationally, says Anne Fawcett, managing partner of executive search firm Caldwell Partners International in Toronto.

So experienced recruiters have learned to scope out leads from contacts in the industry or related fields about executives who may not have a chief officer title but who have a scope of experience and a record of success that would make them candidates, Ms. Fawcett says.

“In most cases, you are looking for someone who is ready to be a CEO, not someone who already is one,” she says.

That’s because the CEO job has become so taxing in modern business that executives want to take it on only once, Ms. Fawcett explains. “If they are successful, they won’t want to do it again, and if they are not successful, nobody is going to want them to do it again.”

A corporation in transition can be a happy fishing hole for recruiters because senior execs who feel they were passed over begin to look for a new employers, Mr. Challenger says.

A classic case is General Electric Co., he says, where two former senior executives decided to move on shortly after a replacement was named for CEO Jack Welch. Robert Nardelli was lured away from heading GE’s power division to become CEO of Home Depot Inc., and James McNerney was recruited from GE’s aircraft division to be chairman and CEO of 3M Co.

In most organizations, though, there may be no obvious candidates. In fact, a search for a CEO of a major corporation may locate fewer than a dozen people in the world who meet the board’s standards

And some of those likely won’t be available for consideration, Ms. Fawcett says. Only three or four will typically reach the final interviews.

After all the effort, there is still a chance that the prime catch the recruiter has identified can slip away, deciding that the risks of leaving a current employer are too great.

“People who operate at the CEO level are not just interested in the title, they want to be in an environment where they can be successful. They are looking for how they can make this company a success and become a real player in the industry,” Mr. Long says.

Here is where the recruiters enlist help from the board of directors, asking them to be clear about the mandate and support the candidate will be given by the board, as well as laying out opportunities that can open up if the CEO is successful, Ms. Fawcett says.

Mr. Swidler says whether someone takes the bait is ultimately not about the money. “It’s more about the opportunities and whether this is the right opportunity for them.”

But pay and perks are still important to finally netting the big fish, and the recruiters say negotiations over compensation have become increasingly complex.

“Once the person knows they are the preferred candidate for CEO, they are really in control of the negotiation and there is a lot of opportunity to up the ante,” Ms. Fawcett says.

A CEO will come in with an expectation of a large increase over what they were earning in base pay and bonuses, and boards will generally agree, along with bonuses and long-term incentives and an exit package, Mr. Long says.

Nortel, for instance, disclosed last week that it agreed to pay Mr. Zafirovski an annual base salary of $1.2-million (U.S.), plus the possibility of getting an additional $3.6-million in performance bonuses. He will also receive 5 million stock options along with $7.5-million worth of “restricted stock units.” These restricted stock units have become an innovative way to up the ante on an offer, Mr. Swidler says. Stock options have gone out of favour because they might become worthless if the company’s share price falls, but the restricted stock is the equivalent of a gift of shares given for meeting performance goals.

And, as incentive for longevity, Mr. Zafirovski will be eligible for a “special lifetime pension benefit” of $500,000 annually if he achieves five years of service as CEO.

Ultimately, the big fish is not just an expensive trophy. The whole exercise is about ensuring success of the company, Mr. Long says. “And boards of directors realize that you’ve got to pay what you’ve got to pay to get the right person.”

How to catch a recruiter’s eye

What can aspiring chief executives do to position themselves to be the catch of the day?

A history of success in leadership roles is the chief requirement, says Anne Fawcett, managing partner of Caldwell Partners International in Toronto.

To catch the attention of recruiters, “I always advise people not to just wait for those vertical promotions: broaden your base, take on chairman roles and agree to lead a board of an industry organization,” Ms. Fawcett says.

There is also a growing emphasis on team-building skills.

“This is a change from even five years ago. CEOs who are not seen as great leaders of people are being eased out. And people who can attract and develop great teamwork are in demand,” Ms. Fawcett says.

“Not only is this good for your leadership development but it puts you on recruiters’ sonar screens as a big fish worth pursuing,” she says.

Industry-specific knowledge and experience remain an important asset, but increasingly candidates are being sought from outside an industry, says John Challenger, chief executive officer of Challenger Grey and Christmas Inc. in Chicago.

“Whatever they feel is the crucial issue or issues facing the company — whether it be financial, operational, marketing or even legal — someone who has developed a reputation for success in that key area is going to be hired,” Mr. Challenger says.

Global experience is also more prized than ever before, says Tom Long, partner at recruiter Egon Zehnder International in Toronto. Companies want candidates who can translate a business across cultures and has worked internationally.

For instance, he says, this was a key requirement in his company’s recruitment of Mike Zafirovski as the new CEO of Nortel. “For Nortel to have a successful future, a lot will depend on successful mergers and acquisitions and complex legal partnerships with companies in a number of other countries,” he says.

The biggest mistake that aspiring CEOs make is not showing enthusiasm during an interview for a role, Ms. Fawcett says. She is amazed at how many otherwise savvy and experienced executive candidates behave much too coolly and tentatively in their initial meeting with a board.

“They may be under stress or gathering information before they make a decision, but it is a mistake not to convey how positive and highly motivated they are to lead the organization,” she says.

“My advice is to let your passion show.”

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