Recently a headhunter approached a member of the fixed-income department of a leading international bank to try to recruit him for a rival. The candidate, intrigued by the sound of the job, decided to pursue the matter. But it soon turned out that the hiring bank was the very one he had walked out of just months before.
The recruitment business is awash with such embarrassing tales of confusion between banks’ business line managers, their own human resources departments and external headhunters.
Recruitment firms are suffering from the general downturn in banking. But there are still bright spots – notably fixed income. These days, hiring the right staff is a serious business. Gone are the boom days when banks needed new bodies to flesh out high ambitions. Now, with mass redundancies, new recruitment has to be guaranteed to boost the bottom line. And the process should be diligent and discreet enough to protect a hiring bank’s reputation.
In response, banks need to get a lot more sophisticated and tactical about how they recruit. The hitch is that this is happening when many HR departments are slashing recruitment budgets and the recruitment process is often rather inefficient and disorganised.
External recruiters cite a lack of communication between business heads and HR about precise needs. The recruitment business itself is being reshaped by uncertainty across banking. Recruiters see a tendency to favour global generalist search firms or in-house expertise over small specialist boutiques. When ever more technical front-office staff are needed, that might be the wrong approach.
The recruitment industry faces contraction. Banks that until recently may have had 10 or 15 external recruitment firms on their calling list now tend to have no more than five preferred suppliers, including one or two on long-term retainers. If a recruiter is not on the list, they don’t get the business. “Each part of the business has a different list and there are four firms on our panel,” says a syndicate head. “We have one global firm we invite to bid for any research, search or advisory work. The other three can bid and are selected on the basis of performance.”
Some specialist boutiques complain that under this system they are increasingly getting shut out, as banks keep the biggest global executive search firms such as Michael Page, Spencer Stuart or Korn/Ferry on the list to the detriment of specialists. Some of the more respected boutiques are finding themselves out in the cold.
Banks certainly need global firms to give them a steady supply of back-office staff – where turnover is greatest – but the danger is that they rely on them to provide specialist front-office staff as well. “Banks all have budgets for recruitment,” says Alan Everett, managing director at Sequoia Consulting, “but most of the money’s going to mass providers or in-house.” He adds: “The recruitment process at banks is terribly inefficient. In no other industry is this function so disparate and disorganized within the corporate structure.”
Although in some banks, such as Barclays Capital, the HR department is a specialist unit that sits within the business, and has a clear idea of what business heads need and vice-versa, this is not always the case. The fact that business heads need to recruit may not even filter down to HR after a period of mass lay-offs, for example, or HR might not be aware of the technical skills needed to fill vacancies.
“There’s often a conflict between which firms the line managers want to organize their recruitment for them and which ones the human resources departments will allow on the preferred supplier list when they are trying to slash costs,” says Everett.
Struggling for growth The pre-tax loss of £20.4 million that Whitehead Mann reported last month – alongside others – may be more to do with the fact that banks and companies’ overall recruitment needs have diminished. The survivors in the business will struggle for growth. Says one fixed-income specialist at a recruitment firm: “It is good if you are one of the preferred suppliers. It means that with existing clients there is probably a bit less competition. The downside is you don’t get calls from non-regular clients saying ‘come and talk to us’.” However, she adds: “If you pitch to global banks it certainly helps to be a big player – you can look laterally as well as internationally.”
As Yann Gindre, managing director at niche fixed-income firm Truffert & Company, another ex-syndicate head, notes: “There’s a huge difference between calling HR and calling one of the business heads. You have the relationship with the business heads and they know what you can offer, whereas HR departments see headhunters as competition and have a tendency to hire the big firms instead.”
Bankers say they still use a mix of global executive search firms and specialist boutiques. “The bigger firms are better the more senior the person, particularly if they will fill a broad management role, but if you need someone on the desk, the boutiques are better for filling specific roles,” says one managing director. As a rule, he says that he gets more efficient service if the recruitment specialist is someone with fixed-income trading or origination background. “If the recruiter knows the business, I can say I need someone to do this very specific job. ‘It will be like what John is doing at so-and-so bank’. The recruiter should then be able to say ‘I know John and I know what you are looking for’.”
Shaun Springer, CEO at one of the smaller executive search firms, Napier Scott, argues that in the current market the boutiques are better suited to banks’ needs. “It’s not as if the banks are in mass recruitment mode where they might need a global executive search firm. They don’t want loads of CVs – they want an intimate knowledge of the product by someone who can demonstrate it.”
The boutique firms also tend to be a bit cheaper, although everyone’s fees are coming under pressure. “For a specific project, there was a time when you would get 33% of a candidate’s salary to be retained to search and place a candidate but those days are gone. Now it’s more like 20%,” says one consultant.
Annuity income and easy money is drying up. Fewer recruitment firms are on full-time retainers, and banks are less likely to pay for services on specific projects up-front. “Before, everyone handed out retainers of £100,000 apiece to firms to produce a list of names in three weeks,” says a head of HR. “Then the banks used to find they’d paid out £200,000 in search fees and not recruited anyone. Now search firms get a third up-front, a third halfway through and a third on placement of the candidate.”
But a consultant at one headhunter believes the banks are being even more hard-nosed. “Now some banks want to give us about a fiver up-front, nothing for doing the search and most of the fee just for placing the candidate, but that means we can spend three weeks producing a list of candidates, the bank can suddenly decide that they don’t want someone, and we get virtually nothing.”
The other major change is that nowadays if you get called up by a specialist fixed-income headhunter, it is as likely to be someone like Guy Gronquist at UBS as it is an external, independent firm. In-house fixed-income headhunting is in vogue in a big way and is another squeeze on the external firms.
Some banks used to see headhunting as a distasteful necessity. They wanted to distance themselves from headhunters, where staff often use false names when approaching institutions to research lists or contact potential candidates. However, HR staff say that this is a quick and confidential method, particularly when dealing with senior hires. “If we call them up, people immediately feel comfortable,” says the same HR head. “It’s discreet and not going to get back to the market.” The banks can either spread this task among the personnel in the HR unit or hire specific individuals to this role, as in the case of Gronquist at UBS.
The banks that have been on the biggest hiring drives recently have done a lot of in-house fixed-income recruitment. Royal Bank of Scotland is one, as is Barclays Capital. Michelle Rajkumar, associate director in human resources at Barclays Capital, says a good proportion of headhunting is done directly in-house; the rest is supplied by vendors or referrals from the employee referral scheme. UBS, which recently hired Gronquist, is also on a recruiting drive.
The model has many sceptics. In-house recruitment staff are costly, particularly if recruitment needs wax and wane. “There’s also a long-term credibility issue,” says Napier Scott’s Springer. “Just one example would be if a headhunter from Goldman calls you and you are rejected – you are never going back to Goldman. There’s room for blame with a headhunter from the candidate’s perspective.”
Discreet liaisons There are many other advantages to using external headhunters. They often operate in a special-agent world of complete secrecy, anonymity and confidentiality, for themselves and for their clients, a valuable commodity for banks that don’t want it broadcast that they are hiring to expand into a new area of business, for example.
Rajkumar acknowledges there is always going to be demand for both global executive search firms and specialist boutiques. “I think every firm is becoming smarter about direct headhunting. However, there is always going to be a need for external suppliers. A boutique firm can focus all its resources towards research, while an in-house team won’t necessarily have the time to do that when they are consistently interviewing, modelling and negotiating offers.”
And banks now use external companies for other functions than straight candidate searches, from advisory work to research – for example mapping the top 10 players in any particular market.
The banks could yet live to regret freezing out some recruiters – when the markets do pick up and they need to bulk up again. The latest talk among recruiters is that, following a mini equity revival – some banks are quietly preparing to hire again in that field.
