A paranoid optimist’s guide to recruiting and selecting the right people
You’re probably not great at hiring great talent despite being thoughtful, experienced and keen on improvement (these being characteristics of the people who seem to gravitate towards working with Catalysis). I’m pretty confident in stating that because (a) hiring people is almost certainly a side-line to whatever you are really good at professionally and (b) mastering the many variables involved in judging people is genuinely difficult.
Even people who specialise in recruitment can be aware of their own shortcomings: Catalysis has advised three successful search firms on improving their own hiring processes, which should inspire your admiration for their desire to improve more than chuckles at the irony. Then look at the results: a good rule of thumb - backed up by plenty of research evidence – is that at least half of senior hires end up disappointing the person who made the appointment.
The good news, though, is that you are in excellent company: most of us aren’t great either. I interviewed a much-respected CEO recently and, when we discussed her plans for growing her business, she shared her concern that ‘I’m rubbish at hiring’. She does indeed have some unfortunate hires in her executive record, but I doubt she is more ‘rubbish’ than average.
I worry more about directors who believe they have good judgement about people because they may be deluding themselves. Even with demonstrably successful CEOs, I’m tempted to check the track record of their recruits to see how many actually performed at original expectations. But the main reason to worry about confident claims is that hiring expensive people works better when approached with a proper sense of humility.
In that spirit – and keeping in mind my own painful memories of getting people judgements wrong – as a NED and adviser - here are suggestions about (1) how to think about recruitment and (2) some specific approaches to improve the odds of success.
1. Thinking
There are three principles to keep in mind when contemplating a senior hire:
(a) Adopt the right mind-set
I talked in a previous blog post about approaching investment in a spirit of paranoid optimism. That same spirit – of assuming that you can only reasonably expect success if you worry hard about what may go wrong – is equally applicable to hiring people. The problem is that many of the people Catalysis deals with – investors, Chairs and CEOs – need to embody optimism as a core part of their work. You can’t really persuade vendors or an investment committee with pessimism, while teams and organisations demand a certain level of positivity from their leaders. However, that same optimism can create complacency in recruitment situations and make interviewers think of all the reasons why a candidate will be great.
Unfortunately, the distribution of probabilities means that those involved in recruitment need to keep asking why things might go wrong – and that doesn’t come easily to most of us. For example, a marketing manager from a big high-street brand was hired into a bigger role in an aspiring retail company because she talked persuasively about all the techniques she could bring from her old firm. Unfortunately, she was fired within a few months when her inter-personal immaturity in dealing with the founders (which wasn’t obvious when she was a specialist in a big department) became obvious when she was much more personally accountable. A plastics manufacturer was delighted when it managed to land a high-powered sales director from a bigger corporate – but hugely frustrated when he left quite quickly when the job he really wanted appeared.
(b) Expect to pay the price
There seems to be something about hiring people – as opposed to making decisions about other significant investments and risks – that makes us hope that we can cut corners without bad consequences. Perhaps that not-quite-ready internal candidate could save us the trouble of looking outside. Or maybe the recommendation from a friend can save us a search firm fee for a new sales director. And, if my investors are broadly happy with the only candidate we put forward, perhaps we can proceed straight to contracts without all the fuss of referencing.
Unfortunately, these are all examples of ‘magical thinking’ where we hope we can get away with being unhelpfully impatient at best and dangerously lazy at worst. My doctoral work, looking at how companies handled recruitment over several decades, revealed a brutal truth: those who thought the issue was important and worked the problem hard almost always did better over the long-term than those who hoped common sense and relying on ‘silver bullet’ techniques would see them through. The law of cause and effect operates remorselessly here, as elsewhere, in business.
(c) Think about the big picture before worrying about the details
There are loads of things you could spend time on trying to improve recruitment and selection – but time is always limited even if you make more effort than average. That suggests improving your chances by addressing the major potential stupid mistakes rather than trying to pursue an ideal ‘best practice’. Doing those things will generate excellent benefits for the time cost involved.
2. Approach
So, armed with the right mind-set, how can you improve your chances of improving your results over time? We’d offer the following suggestions, chosen for their practical relevance to most situations.
(a) Recruitment trumps selection
Catalysis is sometimes asked to assess a candidate who has become a shortlist of one, for one reason or another. The request is often made tentatively because everyone knows the situation is not ideal and the hope is perhaps that we will discover previously invisible strengths or advise on mitigating visible weaknesses. We will always be constructive, of course, but the odds aren’t great of us finding a solution.
The problem in those situations is that the earlier stages of the process (specifying the role; setting the boundaries of the candidate pool; moving from a long list to shortlist) have more weight in determining the final outcome than selecting finalists. So, spending more time on those will deliver more benefits. Consider two aspects:
Sometimes companies use recruiters who offer speed because they will deliver CVs primarily from candidates currently seeking roles. That is fine in principle, except that it ignores the much larger group of people who are currently in positions and who – on average – will be higher quality than those available at short notice.
Likewise, as former senior investor turned head-hunter, Simon Havers observes in our interview with him, there is a serious risk of limiting the pool of talent too greatly by only considering people with previous experience of the private equity ecosystem.
(b) Think harder about what you need
Writing job specifications is difficult for most people. Faced with a blank sheet of paper we tend to run out of ideas and write down truisms and generalisations – even as we suspect there is probably more to say if only we could remember it. We may define the new person by describing the opposite of the previous guy who didn’t work out. Either way, it can be hard for recruiters to make good use of a brief which is too vague or stuffed with too many criteria. The risk for them is that they head off and ‘boil the ocean’ of candidates – just to be told later that ‘sorry, that’s not quite we meant’. See interviews with friendly recruiters talking about that problem when applied to FDs and Chairs.
In our experience, there are about 100 dimensions of things which could be relevant for most roles – which is far too many to keep in mind for us mere mortals. That is where using checklists of criteria, or the specification tools we have been trialling with some clients, can be really helpful to capture requirements. The advantage of doing that is not limited to briefing recruiters: it also provides a framework for interviews, references and whatever else hiring companies are doing to reach a final decision.
(c) Eliminate the crazies
You definitely don’t want to hire someone who will upset your clients and staff, defraud you or force you to spend your attention sorting them out. I have written a longer piece about this elsewhere but the basic idea is that - although such people are not numerous - avoiding them is worth carrying out background checks through people like our friends at Neotas and doing proper referencing before making offers.
The other issue is that often we cannot believe – from a generous desire to think the best of other people – that someone is as mad or bad as evidence is suggesting and so we brush them under a mental carpet. One effective and inexpensive way of probing such suspicions is to start talking about potential references early on and asking whether there is anyone we can’t have access to – and why. Strong candidates may set some boundaries but will engage with the approach; flaky or dangerous ones will become evasive and prickly.
(d) Worry mostly about fit not person
When it comes to hiring people into mid-market PE investees, the biggest issue we face is not the crazies discussed above but, rather, good people ending up in the wrong roles. The main issue is what Boris Groysberg, who carried out extensive research on it, calls ‘portability’, i.e. the ability of someone who has been successful in one context to do that elsewhere. It turns out that the change in context (size and sophistication of company, sector, business situation et al) is a major determinant of the likelihood of success in the new role.
I remember an extremely talented lady being appointed as COO into an IT services firm having been a high-flier in an international oil company. Her general competencies were high – but she left the position within a few months as she struggled to adapt without the structure and support she was used to. The question which wasn’t addressed properly up-front was ‘what does this business need right now?’ and the answer which was overlooked was that the business needed someone who could introduce basic operational disciplines – not a big ideas person.
(e) Gather facts not just impressions
Even the best interviews and questionnaires can offer us only incomplete glimpses into a person and their work capability. Moreover, those glimpses are controlled, at least to some extent, by the candidate. So, if we ask whether they can tell us about a time they successfully led a team, they may provide a great example but not reveal that that was a one-off. The implication is that we need independent sources of information - and that needn’t be complex.
A successful Chair once asked me to assess a sales director candidate whom he thought very promising. The candidate came across well indeed, but a ten-minute look at Company House data showed that he appeared to know how to grow volume but not profits. Probed on this in interview, it became clear that he hadn’t ever created sales strategies and lacked the ability to influence colleagues. The other potential source of insight is people who have worked with a candidate for years – i.e. referees. So, leaving references until after a decision has been made is unhelpful, not mainly because they may reveal ‘bad stuff’ (although you never know!) but rather because well-chosen conversations can give us a three-dimensional view of someone we’re looking to back.
(f) Use what you’ve got before relying on others
Involving professional recruiters and assessment advisers can be value-adding both because that can add technique to the process and also inject additional capacity alongside a busy board. However, there is a lot which can be covered internally at low financial and time cost. For example:
Ironing out the differences in views on requirements can not only focus the specification but also prepare interviews and decision-makers for later stages.
Proper preparation discussions can ensure that a set of interviews don’t end up covering the same topics multiple times.
Wash-up sessions can generate more rounded understanding of candidates and their fit – but also focus topics for referencing.
Ensuring proper debate at the moment of appointment can also validate patterns of insights and address the inevitable gaps and potential mitigants. Using the specification throughout the process reduces unfocused discussion.
The presence of a devil’s advocate can make sure that key questions like ‘Are we 80% sure we will get what we need from this person’ are addressed.
The Catalysis punchline
Over the last couple of years, we have followed our clients in working on ever greater numbers of transactions (44 since the start of 2020). However, we enjoy helping to build teams and, as Catalysis, we have carried out over 150 individual assessment projects for investors and investees. Individually, we have done more, including as owners, NEDs and executives. But there is always room to get better and meet the growing demand for support.
So, we are very happy that Caroline Gourlay has agreed not only to review our assessment activity to make sure we are keeping sharp, but also to play an on-going role supporting clients making high-stakes appointments. You can learn a bit more about Caroline here and about her thinking on assessment, coaching and development here. Hopefully, you will have the opportunity to meet her in the next few months.
Get in touch
If you would like to find out more about how we work with investors and leadership teams, feel free to ask us for introductions to clients who know us best.
