Recruiting From Within

Executive search firms will tell you the best person for the job isn't necessarily an outsider. Companies should develop internal talent

by Joseph Daniel McCool

"Be exceptional and we'll find you." That's how Gerry Roche—senior chairman of Heidrick & Struggles (HSII), who has conducted searches for some of the world's largest companies—conveyed his confidence in his firm's ability to uncover the top performers in any company, anywhere.

That confidence comes with experience as companies continue to rely on the skills of Roche and other headhunters to delicately separate talented external management candidates from their current employers, as they've been doing for decades.

A lack of corporate succession planning over the years has fueled the growth of the executive search business—it's now a $10 billion global enterprise—while leaving too many talented insiders sidelined from further career advancement.

Significant Number of Promotions

Given the vast amounts of money and other corporate resources devoted to finding outsiders to fill top positions, one might assume executive recruiters only encourage companies to look elsewhere for the next generation of leaders. But executive recruiters also help build companies from within. More often than anyone has previously realized, the external search for world-class management talent has often led to headhunters' eventual recommendation that an insider be promoted into the position.

While there are no data on headhunters' role in facilitating what ultimately becomes an internal promotion, the experience of headhunters like Roche, and anecdotal evidence, suggest the numbers are significant.

"The number of searches, or let's call them projects, which we have handled where we wind up recommending their inside person is enormous," says Roche. "Inside is better than outside, all things being equal." Sometimes the organizational culture and mission are such that an insider would have a huge advantage over even the most talented external candidate. Indeed, despite the fresh perspective and complementary experience an outsider would bring, under certain circumstances, the right insider can propel the organization to peak performance.

That has been the experience of organizations such as Coca-Cola (KO) and Walt Disney, which engaged Roche, and which both ultimately chose to promote insiders Neville Isdell and Bob Iger respectively into the chief executive role.

Changing Culture of the Search

If you're thinking your only chance to advance is to leave your current company, you should realize assessing internal candidates as genuine contenders is taking on increasing importance during the course of any external search, especially with regard to succession.

And that's a sea change from how things were done in leadership recruiting for most of the past few decades. At some point—perhaps largely over the past couple of decades, when a so-called cult of the CEO and corporate savior mentality emerged—searching outside the existing workforce became a reflex reaction for too many companies looking to fill the most senior positions.

So for many aspiring internal executives, their only way to the C-suite was to go to another company, often relying on an influential headhunter to help them make the transition. And as senior executives chose to go elsewhere, the idea of looking externally rather than internally reinforced companies' reliance on outside searches.

Investing in the Next Crop of Leaders

Another factor that led to the rise in outside searches was the number of corporations that stopped investing in developing their next generation of leaders. If companies don't bother to develop leaders, how can they expect to find them from within their own ranks? Developing internal leaders is key to preserving a winning organizational culture. It is also becoming a point of differentiation between the best-performing companies people want to work for and all the rest.

Good people want to work for a company where they can learn, grow, and realize their full potential. Whenever a company fails to invest in its next crop of leaders, it is setting itself up for a downward spiral in organizational performance and financial returns to shareholders.

Bringing in outside talent can be a way to disrupt an underperforming culture and help transform a company. Recruiting the right person, or people, from the outside certainly remains one way to achieve these critical goals.

But to do so at the expense of a roster of talented insiders is indeed a big mistake, and a lost opportunity. If you're looking for top talent, don't overlook the insiders. True, they often don't have someone lobbying for them the way executive recruiters often do for outsiders. But as corporations, recruiters, and executives realize an outsider isn't the only choice or even always the better choice, look for more insiders to rise to the top.

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.

This is a reprint from BusinessWeek