Your organization’s chief financial officer 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 key players). You’re feeling the pressure to fill the role with the perfect candidate—and fast. One of the first questions on your mind is likely whether you should work with an executive search firm.
Why? You might have to go external if you don’t have any qualified internal candidates. Or you might want to benchmark potential external talent. However, many CHROs and senior executives wonder about the value of paying for an executive recruiter, knowing that 47% of executive leaders hired externally end up being unsuccessful in the role.
At DDI, we aren’t executive recruiters. But we work alongside executive search firms to help companies successfully select, onboard, and develop their executives.
In this piece, I’ll share some of the key strategies we’ve learned. Keep in mind that executive recruiters are experts in finding great candidates who fit the background required for a role. 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.
Evaluating Candidates from Executive Search Firms: 3 Common Approaches
So back to your problem—filling the CFO slot. Here are three common ways companies might handle using a recruiting firm to evaluate candidates for a key executive role, and the pros and cons of each.
1. Interview the top three candidates.
Here’s a common scenario: The recruiter brings forward the top-three candidates with the most fitting backgrounds. Then the CEO and one or two other senior executives and board members conduct interviews to determine if the person has the right fit for the team.
Here’s how that might play out:
- 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?
The pros and cons of an interview-only approach
This scenario is incredibly common. Executive search firms are typically strong in tracking down potential 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, and know how to say all the right things. But that can make it easy to miss gaps in leadership capabilities or personality derailers.
One way to manage this risk is to have external assessors conduct structured interview assessments. These interviews are done by highly skilled assessors, who ask structured and detailed questions focused on candidates’ behaviors as they’ve solved past business challenges.
In some cases, the interview might also include business scenarios relevant to the role. The assessor can see how the candidate suggests solving the problems, including their strategy, planning, and relationship skills.
This way, you can still get the speed of an interview-based approach, but add substantial objectivity to the process. The assessor can also provide unbiased benchmarking data, given that they interview executives constantly.
Assessors also tend to pull in other data, such as personality data, to give a well-rounded perspective. I’ll cover that in the next section.
2. Use personality assessments in your interview process.
Because of the limits of an interview-alone approach, many companies go a step further to add more rigor. That might include something like a light assessment on capabilities, plus other psychometrics, such as personality testing.
In some cases, a search firm might use their own personality test with executive candidates in the evaluation process as part of their screening tools. In other situations, the interviewing and personality testing could be done by a separate firm that specializes in assessment.
There are a wide range of personality tests you can use, and each one with its pros and cons. What’s important is that you use personality tests correctly within the context.
Now let’s go back to our executive candidates. 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 has become a trusted and valuable strategist. But she struggles 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?
Pros and cons of using personality tests
Personality is almost impossible to change. When we’re aware of our personality derailers, we may be able to manage them by making better choices. However, someone who simply doesn’t have the motivations required for a role will rarely succeed.
When you’re working with an executive search firm, you want to know what kind of personality test they use, and how the results connect to the motivations for the role. Including this data can drastically increase the executive’s chance of success.
But personality is just one piece of data. It won’t necessarily pinpoint the executive’s capabilities. That’s why mediocre leadership performance can be a risk when companies only look at personality and past performance data. Someone might want to do well in the role – but that doesn’t mean they can.
The remedy in this scenario is usually executive coaching. You know that the person is well-suited to the role, but is lacking some key skills. In some cases, you can reach the executive early with proactive coaching, which can help the executive candidate avoid likely pitfalls.
Other times, you might be looking to fill some gaps later on after some potential issues arise. At this point, you are in a much riskier position. In some cases, a focused executive coaching engagement can support the motivated executive to get back on track. Unfortunately, it could be too late.
3. Evaluate candidates using simulations.
Adding a C-suite 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 who 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.
Pros and cons of using a simulation experience
There are a few key reasons why simulations are critical:
- Simulation-driven assessments offer predictive power: When simulations are combined with interviewing and personality data, you get data that is deeper, more accurate, and more holistic than any other method to predict future success.
- Focus on what candidates do, versus what they say they can do: A simulation is the only way to truly test that candidates can do what they say.
- Give unbiased consideration to internal and external candidates: While the recruiter brings external candidates, you may have some internal candidates that deserve at least consideration for the role. Simulations are one of the most unbiased ways to compare internal and external candidates.
- Get broad benchmarks: You can see how candidates perform more broadly against industry and positional benchmarks.
Of course, it’s no big surprise that the more rigor you add to the process, the more likely it is that an executive candidate will be successful in the role. Adding simulation data to your evaluation process is the best way to show predictive success on the job.
However, including a simulation increases the cost and time to fill the role. There may also be some executive candidates that balk at the prospect.
The point is it’s all about how comfortable your company is with risk and the completeness of evaluation in making a decision. The next section includes some factors to consider.
Choosing Your Evaluation Method When Working with an Executive Search Firm
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.
An executive search 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 five factors.
Five factors to weigh in choosing your evaluation method
- Accuracy: Any 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. Companies (and sometimes headhunting firms) might 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.
- Internal competition: While an executive recruiting 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?
It’s All About How You Evaluate the Candidates
In summary, an executive search firm can be valuable in getting qualified C-level executive candidates in the door. These executives will likely have the right background and look good on paper.
But what will really matter is how you evaluate the candidates. And even more importantly is that you do it within the context of your organization and what is specifically needed for the role. Someone who was a fantastic chief operating officer in a highly regulated industry might not be the right fit for a COO role in a company that’s focused on disruptive product innovation.
These roles are simply too high risk to leave to chance. It’s not enough to get the right people in the door. You need to make sure you have the right data from the right sources to ensure they don’t fail.
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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.