By Eric Hanson, Ph.D.
Your organization’s CFO just got hired away for a bigger opportunity at another organization. As the person responsible for filling the role, you’re feeling panicked. It’s no time for your organization to go without a CFO (as if there’s ever a “good” time to lose one of your organization’s key players), and you’re feeling the pressure to fill the role with the perfect candidate—and fast. What are you going to do?
The most common alternatives are:
- Promote an internal successor who is ready right now (rarely a reality).
- Consider the few internal candidates who might be able to step up.
- Look outside to search for a viable candidate.
The decision to consider external candidates—whether out of necessity or curiosity—often leads to a call an executive search firm, also known as a headhunter, to help bring in highly talented candidates. However, many companies wonder about the value of paying for a headhunter, knowing that, according to one study, 50 to70 percent of executives fail within the first 18 months of placement. Furthermore, other research shows that 40 percent of executive searches fail for a variety of different reasons.
At DDI, we do not offer headhunting services, but have partnered with many executive search firms to help companies evaluate and select the right people for executive positions according to the specific organizational context. In our experience, success in using a headhunting firm largely depends on the process the hiring company uses to vet the candidates brought in by the headhunter firm.
So back to your problem—filling the CFO slot. Here are the three most common ways companies might handle using a headhunter to evaluate candidates for a key executive role, and the pros and cons of each.
1. Interview the top three candidates.
The headhunter brings forward the top three highly talented executives, and the senior team interviews them using a somewhat informal and conversational approach. Here’s how it went: Candidate A had a stellar experience base, a charming and energetic demeanor, and was articulate in responding to every interview question.
Candidate B seemed easy to work with and had notable financial savvy, but wasn’t particularly impressive in the interview. Meanwhile, Candidate C had related experience in a larger company, but hadn’t yet been in a role of this magnitude. She also was more reserved than the other two, giving a solid but somewhat uninspiring interview.
Based on the interviews, Candidate A seemed like the clear choice. Fast-forward four months, and unfortunately, it starts to appear that he’s more of a risk-taker than you’d anticipated. He’s made decisions that have jeopardized the company’s forecasting, and it’s created a mess. He assures you that this approach has worked in the past for other companies, and accuses the company of being too risk-averse.
If only you’d known more about the candidate’s personality and decision-making process upfront. He might have been a great CFO for other organizations, but his risk-taking personality puts him at odds with your more financially conservative board. What do you do? Do you try to coach him to change, hoping he won’t put the organization further at risk? Or do you cut your losses, fire him, and start the process all over again?
This scenario is incredibly common. Headhunters are typically strong in tracking down candidates with ideal experience profiles, which many boards and executive teams assume is the most important factor in choosing the right candidate. From there, executives figure they can choose the candidate that gives the best interview. The advantage of this approach is that it’s usually the fastest way to get someone started in the role, and sometimes it can lead to the perfect candidate for the job.
The danger, however, is that the interview provides only a small glimpse into the executive’s real capabilities and underlying personality. Many executives present themselves well in interviews, which can mask potential gaps or personality derailers.
Because executives have such a large sphere of influence, these shortcomings can cause serious issues down the line, as occurred in this scenario with Candidate A. In most cases, having some gaps doesn’t necessarily mean that the candidate isn’t the right fit for the job, but knowing about the gaps can help the company keep an eye open for potential risks. In the case of Candidate A, the CEO or an executive coach may have been able to provide guidance to mitigate risk.
2. Add other assessment tools to the mix.
Because of the limits of an interview-alone approach, many companies go a step further to add more rigor, including incorporating structured interviewing and psychometrics, such as personality testing. In some cases, a headhunting firm might utilize a personality test with candidates in the evaluation process, while in others the interviewing and personality testing could be done by a separate firm that specializes in assessment.
Now let’s go back to our candidates, A, B, and C. By adding a personality assessment, you might have found that Candidate B had an ideal profile for the role, making her a more attractive candidate. You move forward with her, and a year later, she’s become a trusted and valuable strategist. But she's struggled with engaging her team and leading vital changes. As a result, her team isn’t meeting major deadlines, and is failing to proactively address opportunities aligned to the company’s strategic goals.
Do you wait and hope things will improve? Do you hire an executive coach to help her build her skills to drive her team toward success? Do you let her go and try to hire a better candidate?
Mediocre performance is a common dilemma when capabilities aren’t diagnosed at a deep enough level. Executive roles are critical and complex; the cost of failure warrants due diligence, just like any other major capital investment. Beyond interviews and psychometrics, companies need a more robust assessment that can give a realistic evaluation of how the candidate will respond to real-life challenges.
3. Evaluate candidates using simulations.
Adding an assessment simulation to the candidate evaluation process shifts the entire process toward a more data-rich approach. There are a broad range of executive assessments designed to help companies pinpoint the capabilities of their current executives and candidates for executive positions, but the most effective assessments are based on simulations, sometimes called assessment centers or “day in the life” experiences.
Rather than just listening to an executive talk about how she would approach a problem, a simulation-based assessment puts the executive in the driver’s seat to let her demonstrate how she would really act to address key strategic issues, and leadership and interpersonal challenges. Simulations are also often accompanied by interviewing and personality inventories, making for a holistic evaluation. Ideally, simulation-based assessments should be anchored on two crucial needs: business drivers, which are your pressing business demands, and the critical competencies needed for the specific role on the executive team.
Going back to candidates A, B, and C, who do you think performed best in the executive assessment? While both Candidates A and B had great experience and gave inspiring interviews, it might be Candidate C that excelled in the simulation, calmly and confidently showcasing her decision-making, strategic leadership, and interpersonal skills in each challenging scenario presented. While this candidate might not have dazzled in the interview and didn’t provide multiple relevant examples, she turned out to perform the best on the job.
It’s all about risk
Of course, every CFO (or any executive role) search doesn’t happen like the one described above. The first candidate the headhunter finds might prove to be the perfect fit for the role. Or an internal candidate might prove to be the ideal person to step up. The point is it’s all about how comfortable your company is with risk and the completeness of evaluation in making a decision.
A headhunter firm goes a long way toward reducing the risk of failure in the role by bringing the people to your door whose experience matches your criteria. How you proceed to get to know the candidates from there depends on how you weigh the following factors:
- Accuracy: The reality is that any one of these methods can produce a highly successful candidate or a failure. But the more objective knowledge you have about the candidate’s skill and fit for the role, the greater the chance of choosing the person who will excel in the role.
- Time: Executives are incredibly busy, and companies (and sometimes headhunting firms) often balk at asking executive candidates to go through an intensive screening process. However, it’s also important to consider the tremendous waste of time, money, and reputation it can be both for the company and the individual if the person is the wrong fit for the role.
- Cost: Measuring cost for filling the position should be two-fold. First, of course, is to consider the hiring cost, including the headhunter’s fee and/or consulting. More importantly, however, is to estimate the cost of turnover or of underperformance in the position (including opportunity cost).
- Risk: In addition to the risk of time and cost in choosing the wrong candidate for the role, it may also be necessary to think about legal risks, especially for key roles in publicly traded companies. As shareholder lawsuits are increasingly common, it’s become more critical than ever for companies to demonstrate that they used objective criteria in selecting their executives.
- Internal competition: While a headhunting firm will be financially motivated to conduct an external candidate search for the role, objective criteria and approaches are also needed to assess how internal candidates stack up against outside talent. How else might you determine that the right candidate is actually one that is already in the organization?
In summary, a headhunter can be valuable in getting qualified executive-level candidates in the door, but how you evaluate those candidates also matters. While standard interviews plus additional personality assessment can provide insight to help make effective selection decisions, these methods don’t show how a candidate will perform on the job.
Using simulation-based assessment as part of your candidate review process gives you the quantity and quality of data to make confident hiring decisions, ensuring the candidate you choose is capable and ready to tackle your most critical business priorities.
Discover how DDI’s executive assessments can help you gain better insights about your leaders.
Eric Hanson, Ph.D., is a Director in DDI’s Executive Services unit. He works closely with clients to design assessment, development, succession, and coaching solutions. Eric is a lead designer of DDI’s executive assessment solutions and has a passion for helping individuals, teams, and organizations be their best.
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