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From Resource, July 2006
Copyright by LOMA
Executive
Recruiting:
Investing in Best Practices
As a recovering job market increases competition for viable job candidates,
finding, hiring and keeping the right people for the right job is increasingly
difficult. So what are the best ways to do this? At the 2006 LOMA Financial
Inforum, two human resources executives and a talent solutions consultant
revealed the methods that have helped them avoid making hiring choices that
don’t pan out—and that often result in a tremendous waste of time and money.
By Stephen Hall
Recruiting the right person for
a job opening in your company is a challenge, even under the most ideal
conditions. In addition to the experience, technical competencies and job
skills of a candidate, you also have to determine the person’s flexibility and
their ability to adapt quickly if they’re coming from a business culture
that’s a far cry from that of your organization—an ability that isn’t as
easy to quantify as the ones usually listed on a résumé. Choose the wrong
candidate, and you could be looking at decreased productivity, a training
investment that never pays off, and the additional time and expense of replacing
an employee that often equals a year of that position’s salary, if not more.
At the 2006 LOMA Financial Inforum, three industry professionals conducted a
panel session titled “Best Practices in Insurance Recruiting,” in which they
discussed their respective experiences with the employee recruiting process,
recalled some lessons learned the hard way, and shared the kinds of recruitment
policies and techniques that have proven successful for them. The panel
participants were (in order of speaking): Ann Federici, senior vice president of
human resources for The Auto Club Group; Kathy Pinkett, SPHR, second vice
president of human resource planning for Securian Financial Group; and Seymour
Adler, Ph.D., senior vice president of talent solutions consulting for Aon
Consulting.
Business
Cultures and Their Role in the Pre-Selection Process
Federici began the panel
session by discussing the cultural aspects of employee recruitment in the
insurance and financial services industry—and according to her, the diverse
nature of her company and its workforce gives someone in her position plenty of
opportunities to consider workplace culture as a hiring factor. “The Auto Club
Group is a parent company, and we own AAA clubs, insurance companies and a trust
bank,” she said. “We also own the largest travel agency in the state of
Michigan
, so I have the opportunity to work with more than 6,000 employees of very
diverse natures, in terms of the types of skill sets that are needed to be able
to fill those jobs—from tow truck drivers to actuaries, and everything in
between.”
Another
noteworthy aspect of Federici’s career at The Auto Club Group is that she
hired almost the entire senior management team of her company—including her
boss, Charles H. Podowski, the company’s president and CEO. “The company
started as a single-state company, and when the previous CEO announced his
retirement, I was assigned to work with the board of directors to bring in a new
CEO,” she said. “And through that experience, I found that there are certain
crucial steps that most companies don’t take before they begin their search
for the right person at the right time in the right seat. People sort of jump to
Stage Two or Three, and they completely ignore the first step, which I call the
pre-selection phase.”
There
are three key elements that Federici said many companies tend to overlook when
making recruiting decisions: the culture of the organization, the long-term and
short-term strategies of the organization, and the job specifications. “I
think the first two have to come before the third, because I don’t really
believe you can get into the specification aspects of a job until you really
understand the first two,” she said. “For example, when we began the search
for a new CEO, the board was in the midst of strategically positioning our
company as a future regional company instead of a single-state company. Because
of that, it was very difficult to go to a recruiter and get to that third stage,
which is the job specs, or as I call them, the ‘paper specs’—things you
could read about the individual, versus actually knowing the individual.”
Therefore,
the first step along the path to finding the right person for your organization
is to consider the organization itself—and whether you want to keep that
culture or make the transition to a different one, Federici said. “Over the
last 10 years, many corporations in the
U.S.
have tried to exit the culture they have and move into a new one,” she said.
“For example, insurance companies had a long history of hiring people through
the ranks. And then about five or six years ago, you started to see some of the
top companies going into banking or other businesses to bring in a CEO instead
of hiring an actuary, because they were trying to shake up their business model.
Mergers, acquisitions and consolidations caused the necessity for culture to be
redefined, because when you bring entities together, they both come with the
value sets and the culture that they had before, and you have to really think
about those things. We acquired five different companies in the last five years
to create this parent company. We moved from an individual, single-state company
to a company that acquired five other organizations. We established a trust
bank; we’re in the life insurance business; and we have a large property &
casualty business in addition to our AAA membership organization. So the culture
of the company is important to consider when you’re looking at job candidates
to determine whether they’re going to be a good fit, and whether hiring them
will be a success—both for the company and the individual.”
So
what exactly does a company’s culture consist of? To answer this question,
Federici used her own organization as an example. “The Auto Club Group is
located right outside of
Detroit
in
Dearborn
,
Michigan
,” she said. “
Detroit
is a unique part of the country: It has a very diverse population, both in
ethnicity and race. It has a strong manufacturing base, compared to the East
Coast, which is more financially based. There is also a prevalence of
unionization because of the auto industry, which creates a culture of its own.
And even though we’re not unionized, that culture around us creates different
expectations by our employees. So the demographics of that workforce are
critically important not only to the candidate you’re going to bring in, but
to the candidate’s family, which you often forget. So when I bring an
individual into our organization, we involve the family in familiarization trips
before they move to see the regional environment. Also, you have to be a car
junkie to live in
Southeast Michigan
, because everything in that area revolves around automobiles; and the economic
state of those corporations has an impact on the area. All of those things
impact and influence everything in the culture.”
In
addition to socioeconomic and demographic factors, Federici said, you also have
to consider the customs and traditions of the people who inhabit that culture.
“You have to look at the norms for the area, and more importantly, the norms
within your company—the values that dictate what’s acceptable and what
isn’t,” she said. “If your home office is based in
Southeast Michigan
, like mine, then sports are extremely important. You really do have to know
about the Red Wings and the Pistons and the Tigers. When I first moved there, I
remember the first Saturday I was driving home; I saw all these cars adorned
with flags and said, ‘What is going on here?’ Well, the
University
of
Michigan
was playing
Michigan
State
. In
Southeast Michigan
, sports aren’t just important; they’re embedded in the organization. If the
Pistons make it to the playoffs, our employees will want to wear Pistons shirts.
That’s a very significant norm, and you can’t come in and say, ‘Well,
we’re not going to do that.’ So the norms of the area and of the
organization itself are critically important.”
The
values of the organization also have to be top-of-mind, according to Federici.
“As a membership organization, we do not have the same expectations on the
return on our investment as we would have if we were a stock company or even a
mutual company, like what I came from,” she said. “As a membership
organization, our ultimate goal is to do what’s right for a member, not
necessarily to maximize profit for the company.”
Another
important cultural factor in a company is organizational depth, Federici said.
“When you work for a very large company, they have lots of what I call
safety-net layers, which means that as decisions get made, there are enough
layers within the organization where someone can look at a decision and say,
‘Wait a minute. If we do that, something’s going to happen over here.’
There’s someone there, waiting to catch a mistake and fix it so it doesn’t
cause problems. Our organization does not have that layering, so the most senior
executives have to be very strategic, but they also need to be able to think
through the execution, because there aren’t 20 layers below them that are
going to catch any mistakes. They have to keep one foot in the strategic realm
and the other in the operational realm. Many executives can’t do that.”
The
next cultural element to consider is the company’s strategic position,
Federici said. “Is your company on the cutting edge? Are they the first one to
experiment? Are they the kind of company that wants to be at the front of the
line rather than in the middle or at the back? Or are they a more conservative
company? Certainly most life insurance companies tend to be in a more
conservative vein. In the property & casualty business, when a major new
competitor turns out to be a direct writer like Progressive or Geico, that mixes
up the business model that we use. Before, you could look at Allstate and State
Farm and whatever they were doing, and you sort of got in line, and you might
have been third to do it. Well, now these new entities come into play, and
within one, two or five years, they can eat up a phenomenal market share. So you
really have to understand where your organization is on that continuum, in terms
of how they make decisions, how they operate, what model is used, and whether it
is going through a transformation, because it has to.”
Organizational
Strategy—for Today and the Long Term
The second major area to
consider when looking for new talent is the short-term and long-term strategies
of your organization, Federici said, because where you want to be down the road
should definitely influence the kinds of people you want to hire to help you get
there. Before The Auto Club Group began its CEO recruitment process, Federici
brought in a consultant to work with the board in identifying what the key
strategic pillars needed to be. “The prior CEO was well-loved, did a great job
and brought great integrity to the company,” she said. “He was very
Michigan-based and was very connected and influential to
Detroit
society and the business powers in the state of
Michigan
. In the new CEO search, we needed some of those attributes, but we also needed
someone who had other experience. I needed to find someone who could grow a
business, who had done merger and acquisition work, and who could understand how
to develop critical mass.”
Taking
a Closer Look at the Job Candidate
The third and final element
that Federici emphasized when it comes to filling a position in your
organization is job specifications, which includes the kind of work experience
the candidate has, their unique skill sets and core competencies, and their
personality and preferences. “While The Auto Group is large, we’re certainly
not a big company,” she admitted. “Yet our vision of what we want to be
requires us to have people with the kinds of skill sets you typically find in
national or international companies. When it comes to hiring someone to be part
of our senior team, I don’t look for people who are currently the head person
at large companies; I don’t look at the CIO of Allstate or the chief marketing
officer of Discover Card. I’m generally looking a tier or two below that, at
someone who has exposure to that kind of visionary and strategic activity and
wants to move up.”
At
that level, Federici said, she has found some very good candidates whom she
could recruit away from a stock company that has a lot to offer in terms of a
compensation package. The person has the credentials, the person above them
isn’t going anywhere, and so they’re looking to move because they want the
top job. “That’s critically important: They’re hungry to be the chief
marketing officer or the CIO or any of the positions we’re going to fill,”
she said. “And so when I’m hiring for my company, my niche is that group of
people. And we’ve been very successful. Not only have we brought in a new
management team in the last five years under this CEO, but we now have people
occupying the three tiers below them, so we have succession and organizational
depth. And we talk with our board on an annual basis regarding the makeup of
those tiers. We have to grow some of our businesses within our company. For
example, the only place you can find someone who understands emergency road
service in a AAA club is someone who already works for a AAA club. So we try to
make sure that we have enough depth from within so that we can find people
internally to fill those jobs.”
If
this kind of pre-screening isn’t done early on in the recruiting process,
Federici said, then a new hire has about a 50-50 chance of being a good fit for
the organization. “Given the dynamics of the company I’m in today, it is
essential for me to do that pre-screening,” she said. “It is essential for
me to be very honest with the candidate about who we are, where we are, and what
they and their family will find in our area, and to advise them to think long
and hard before they accept the position. We certainly don’t want to disrupt
their lives by having a person leave a job and move their family to the area,
only to find that once they started doing the job, it wasn’t what they
anticipated. Or they’re very happy in their job, but their family is very
unhappy. So we spend a lot of time bringing people and their families in and
talking to them before they accept the position.”
Securian’s
Approach to the Candidate Selection Process
Kathy Pinkett, SPHR, second
vice president of human resource planning for Securian Financial Group, took
over from Federici to discuss her company’s philosophy regarding business
culture and its role in the candidate selection process. “At least 40 percent
of executives who are new to a company fail because of incompatibility with the
culture, not because they weren’t technically able to do the job,” she said.
“And replacement costs for people equal almost their salary, in terms of lost
productivity. Relocation alone for an executive costs over $100,000 nowadays
because of the prices in the housing market. Therefore, it is important to
mitigate poor selection decisions wherever possible.”
For
this reason—and due to the nature of its business culture—selection is very
serious business at Securian, according to Pinkett. “First of all, we have a
strong promote-from-within philosophy,” she said. “Our CEO started at our
company at age 22 as an actuarial student; this is true of the prior CEO as
well. We enjoy very strong retention; turnover is low. We have a strong
associate referral culture without having to rely on a bonus. And lastly, we
make sure our recruiting and selection strategies complement our business
strategies. These are all things we have to think about as we bring new people
into our organization.”
Securian
has earned numerous “employer of choice” awards, both nationally and
locally—and Pinkett credits this to the company’s “reputation capital,”
as well as its rigorous management of its employee selection process. So what
are some of its best practices? “First and foremost, we have an HR team
that’s expected to know the business,” she said. “Their expertise is
obviously HR, but I expect them to understand the industry in which we
operate—the environment, the company financials, the challenges of their
client areas. They’re expected to read industry publications. They are also
aware of their clients’ sales and earning goals, internal leadership pool, and
long-term management potential. Even if they’re not recruiting or hiring for a
particular area, they should be meeting with their clients to understand the
area’s current focus and complement of the staff, particularly the management
talent.”
In
addition to staying on top of developments at other companies in the industry,
Securian employees are expected to have an understanding of the big picture—to
know what’s going on in the industry as a whole, and how those changes are
likely to affect the kind of people Securian will need to hire. “We have to
look at current environmental challenges, business initiatives, and the kinds of
corporate initiatives that are filtering down into the various business
areas,” Pinkett said. “If our investment company is bringing on more funds,
that may affect our mutual fund accounting area, and could possibly mean more
staff.”
When
the time comes to take a look at the candidates themselves, one of the most
important things to Securian is the tenure of the candidate’s previous
positions. “Again, we enjoy strong retention, and we also want people that
want to build careers with us,” Pinkett said. “For example, if a candidate
has changed jobs every two to three years, or if we don’t see some measure of
stability in their career history, they will likely be considered a riskier
candidate.”
Tenure
is especially important at Securian when the company is hiring for an executive
position, Pinkett said. “For an organization to be successful, it is important
that executives live with the decisions they make, as their decisions have the
potential to change a business area’s culture,” she said. “Because of our
strong promote-from-within philosophy, we must also look at a candidate’s
leadership potential when we’re trying to hire personal producers. If they
haven’t assumed a leadership role in the workplace, did they do it in college?
Did they do project management where they had to influence a cross-functional
team without the authority? At the very least, we want to know what their
aptitude and their appetite for leadership are.”
Securian’s
candidate selection methodology also includes an extensive interviewing process.
“Aside from HR conducting the first line of interviews and then referring
their preferred slate of candidates, we actually ‘open our home’ to
candidates,” Pinkett said. “We have them interview with the boss, and maybe
the two top candidates would interview with the boss’s boss. We have them
interview with people they’ll be working with or having to service. I will
advise a candidate to ask the same question of several interviewers to see if
they get similar answers. This has helped us to sell the candidate on the
company.”
The
final component of Securian’s interview process for executive positions is an
assessment by an industrial psychologist. “The psychologist receives a copy of
the job specifications, as well as an outline of the current environment and
business strategy,” Pinkett said. “This assessment is one more voice in our
process and, given the importance of the decision, it is an affordable tool. The
assessment also produces a report that can be used as a career development
platform for the new employee as they grow, not only within that position, but
within the company over the long term.”
Bringing
New Executives On Board—and Up to Speed
Seymour Adler, Ph.D., senior
vice president of talent solutions consulting for Aon Consulting, concluded the
panel session with his presentation, in which he outlined the most common
mistakes that are made when a new executive is “on-boarded,” or brought into
the company, as well as some methods companies can employ to help make that
process as smooth and successful as possible.
“Why
are effective transitions important? First of all, it turns out that there’s a
50 percent probability that a new executive will quit or be fired within the
first three years,” Adler said. “Forty percent fail within the first 18
months. You’re looking at an investment of hundreds of thousands of dollars in
reaching out there, working with executive recruiters, going through the
assessment processes that Ann and Kathy talked about, getting somebody on board,
and then seeing that investment literally walk out the door. In addition, the
cost of replacing a newly recruited employee could be anywhere from 1.5 times
the salary of that position to 40 times that salary. So there is real risk that
needs to be managed. Think about relocation costs—multiplied for the
expatriate, of course—as well as all the investment in recruiting, assessing
and selecting a new executive. Think about the client relationships that the
exiting individual has that need to be rebuilt. And we’re not only talking
about bringing new people in from the outside; the on-boarding question also
relates to people being promoted or transferred from unit to unit.
“So
what we’re dealing with here is the challenge of on-boarding unique, expensive
talent, with a large up-front investment and a long time needed to recoup that
investment,” Adler continued. “Pre-hire assessment processes are not always
focused on critical factors that affect successful on-boarding. New executives
may have what it takes to do the job once they are up and running—but the
question is: Do they have what it takes to get up and running? That can be a
very different kind of question. Also, new hires are not necessarily prepared
for the new environment, and that could be the case whether they’re industry
veterans or newcomers. Coming from within the industry, they may assume the
transition is going to be easy: ‘I worked for MetLife, so how hard could it be
to move over to Prudential?’ But the fact of the matter is that the
organizational culture, how things are done, the politics, the policies and
procedures, the social networks—all of it can be very different, or perhaps
misleadingly similar. That superficial similarity can lull you into taking what
you did in the old job and unthinkingly applying these habits in the new job,
which could really sabotage your success. When you walk into a new organization,
there’s an enormous amount to learn, and there’s ambiguity about what’s
expected of you. And the challenge is that when you first come on board, it’s
all investment. Veterans are going to be teaching you the ropes; you’re going
to be learning, all the while absorbing resources. At the start, you’re not
paying back. So the question is, at what point do you start producing a positive
ROI? The challenge for the company is: How do you accelerate that point in time?
What could be done to avoid that year-and-a-half between the day you start and
the day that you and the company experience a positive ROI? And this question is
at the core of the on-boarding challenge: Who is responsible for the new
executive’s on-boarding? The accountabilities are not always clear.”
Adler
then gave a list of the most frequent “land mines” that arise during the
on-boarding process. “There is often a lack of alignment between new
executives and their managers regarding performance expectations,” he said.
“In some cases, your boss may be very clear about what you’re expected to
do, but nobody else is. Other land mines include a failure to form internal
networks early on; a failure to identify the key stakeholders in the new role;
and little to no feedback and coaching. It could be that your boss did not take
full responsibility for his or her role in your on-boarding. It could be that
the new leader’s past performance data is not considered in helping to predict
problem areas. For example, maybe in the past, the new leader has achieved
success in turnaround situations through tough, unilateral action and has been
tremendously effective with that style; but now this person is entering a
culture that operates by consensus, in an organization that’s doing pretty
well, and the expectation is that she’s going to move that organization from
doing well to doing great. That’s a very different scenario, perhaps requiring
a shift in styles that this person is incapable of making.”
Another
common mistake, Adler said, is when new executives are given the chance to bring
their administrative assistant with them to their new job—in theory, to help
smooth the transition from one job to another. “More often than not, that’s
a big mistake, because then the administrative assistant doesn’t know what’s
going on in the organization, either,” he said. “What would really be of
greatest help to the new executive is an experienced administrative assistant
who knows the ropes of the new company, who knows how to get expenses and IT and
all of those annoying issues resolved for the new executive so that he or she
can concentrate on learning the important components of the job.”
To
avoid these potential pitfalls and bring a new executive on board successfully,
Adler said, certain key elements have to be in place from the very beginning.
“First, you’ve got to have good selection processes that not only get at
what it takes to do the job well, but what it takes to learn to do the job
well,” he said. “Second, you’ve got to have manager support. The hiring
manager needs to take responsibility. How often does it happen that somebody new
is brought on board, but the manager is out traveling, and so there’s no
opportunity at the outset for the manager and the new hire to get together,
clarify expectations, and make sure everybody is on the same page?”
Adler
also stressed the importance of a conscious discipline surrounding the
on-boarding process, with clearly defined roles for everyone involved. “There
needs to be a partnership approach in which there is responsibility specified
for every single stakeholder—starting, of course, with the new executive and
continuing with the hiring manager, the HR manager, the recruiter, perhaps an
external executive coach, and last and definitely not least, the administrative
assistant,” he said.
The
Six Phases of Executive On-Boarding
Adler then explained the five
events that make up a successful executive on-boarding process. “The first
stage—selection—consists of selecting a candidate and assessing them for
cultural fit and leadership style,” he said. “It’s also about using the
kinds of tools Kathy described: behavioral interviews, personality inventories,
and skills and abilities testing.” The second stage, which Adler described as
often ignored but absolutely critical, is pre-boarding. “This is the stage at
which a new executive learns what communications to the organization are like,
as well as how communication occurs between the new executive and other
stakeholders,” he said. “There needs to be an on-boarding plan, written and
committed to, that will be followed over the next several months. HR needs to do
a stakeholder analysis that identifies, very specifically and by name, the
people who will be affected by introducing a new manager. Also, a peer
‘buddy’ and a coach need to be assigned to the new executive.”
The
third stage is integration, which consists of the first month of a new
executive’s tenure. “At this stage, there needs to be a partnership meeting
in which all players gather around the table, sort of like doctors talking about
a patient, in which everybody contributes his or her own discipline and
perspective,” Adler said. “There needs to be a team transition meeting, and
a coach can play a facilitating role in that.” The fourth
stage—execution—consists of regular manager reviews, generating a
performance scorecard, and ongoing coaching and feedback if necessary. The fifth
and final stage is a results analysis, in which the metrics used to measure
performance are reviewed. “You don’t necessarily have to put every one of
these elements in place to fully manage the risk of on-boarding,” Adler said.
“But if you leave everything to chance, the odds are you’re not going to be
successful.”
But
are all of these assessments, meetings and surveys really worth the investment
they require? “Let’s assume you’re a large organization that hires 100
executives a year,” Adler said. “And let’s assume, conservatively, that
only 20 percent of them fail. Now let’s look, conservatively, at an estimate
of the cost of failure. The lower end of that range is two times compensation.
If total compensation is $200,000, the annual cost of failure is $8 million. An
on-boarding program requires a one-time investment of approximately $75,000 for
design and implementation. Of those 100 executives, 50 are targeted for coaching
and transition planning. And again, let’s be conservative in estimating
effectiveness: All of this discipline, effort and investment only reduces the
number of failures from 20 percent to 15 percent, so you still have a
significant failure percentage. But the potential savings is $2 million, and the
net return for the first year is $1.325 million. Now, obviously those numbers
will vary with each organization; indeed, the failure rate is often higher. The
cost of the on-boarding program could be lower if you’re more selective about
who you provide support for, or if you tier the level of support. But what I
hope to convince you of is that the risk that you’ve taken in bringing that
executive on board is worth managing carefully and with discipline.”
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