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Riding the Cycle in Executive Search

This material was originally developed as part of a recruitment round table hosted by Livingstone Partners. It features alongside other content in Livingstone’s September 2019 Human Capital Newsletter.


Executive search firms have traditionally been regarded as more exposed to the vagaries of market sentiment due to the transactional nature of their revenue model and the discretion that their clients may have to defer hiring decisions in weaker or more uncertain markets.

The last two severe global recessions – in 2001 and 2009 – saw the global executive search market suffer sharp declines of 36% and 32% respectively. However, the market also showed remarkable resilience, bouncing back over 40% over the following two years. This repeated itself on a smaller scale with the ‘false horizon’ recovery in the immediate aftermath of the Global Financial Crisis and 12 month slowdown in 2012.

The population of listed ‘pure play’ search firms is limited but Fairgrove’s analysis of the two most prominent international groups – Korn Ferry and Heidrick & Struggles – reveals that their revenue performances responded to these market corrections in line with the wider market. Their subsequent revenue growth of 3% CAGR has tracked the wider market exactly.

In seeking to build more resilient and valuable businesses, recruitment firms have frequently looked to increasing their geographic diversity and reducing their exposure to any one territory and region.

Based on the segmental analysis that is publicly available from these two large search firms – and not unexpectedly – the seismic nature of the financial crisis seems to have adversely affected search revenues across all regions. Interestingly, while the North America and EMEA business units of both firms were hit equally hard, North America bounced back much more quickly and, in Heidrich’s case, its EMEA activities had still to recover to their 2007 peak.

Looking specifically at the UK executive search market, similar themes emerge from a review of the largest executive search firms’ reported revenues. Disappointing performances at Korn Ferry (since remedied) and Russell Reynolds were the result of company-specific challenges rather than market factors.

The other hedge against cyclicality most frequently deployed by the search firms has been to develop a complementary interim or placement capability. Taking one leading accounting & finance recruiter – Robert Half – as an example, Fairgrove’s analysis reveals that while the temporary/interim and permanent markets follow an equally cyclical pattern, the permanent market experiences more extreme variances. A well-developed temporary/ interim practice may therefore soften the blow of a market correction – but no more.

Service line diversification beyond traditional recruitment has also become an important feature of the larger search group’s strategies. Korn Ferry has the most developed strategy in this respect with only 40% of revenue now generated by executive search, down from 59% in FY14. Korn Ferry’s Advisory and RPO service lines now account for 43% and 17% of global revenues respectively. Other major search firms – including peer Heidrich & Struggles, with 91% of revenues still from search – remain a long way behind.

If there are lessons to be learned from the listed players’ behaviour, ‘strength in breadth’ would appear to be the key message. A broader service offering and geographic base provide a natural hedge for those firms that are bold enough to take the leap.

For further information, please contact Paddy Woods Ballard.

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