Staffing Industry Report - Succession Planning

March 30, 2007

Search firms 'coach' new business from clients

Tom Sadvary had been an executive with Scottsdale Healthcare for 20 years, but he’d never been CEO. When he was picked to succeed the retiring top executive, the board and search committee signed up Korn/Ferry International Inc. to give him a personal coach.

While coaches are normally thought of in a sports context – Tiger Woods to Little Leaguers have them – they are increasingly becoming common in executive suites. Once a tiny industry dominated by boutique firms, coaching has now grown to an estimated $2 billion business worldwide, with significant investment from the top executive search firms.

Korn/Ferry last year bought one of the oldest stand-alone coaching firms, LeaderSource of Minneapolis. That came on the heels of its August purchase of Lominger, a leadership development company also in Minneapolis, for $24 million.

“The firm has embraced a strategy of being a true talent management company with a strong focus not only on recruiting leaders but developing leaders internally,” said Tim Dorman, senior client partner.

Prime competitor Heidrick & Struggles International Inc. also has moved into the leadership coaching space, though less aggressively. For the past five years, the firm has offered coaching as a complement to its consulting around onboarding and succession planning. The leadership consulting division is a small part of overall sales.

Other search firms such as Spencer Stuart, Egon Zhender and Russell Reynolds do coaching to some extent.

The U.S. coaching business has been slower to catch on than in Europe, where so-called management appraisals have been done for more than two decades. A recent Hay Group survey of 170 human resources professionals revealed that more than 50% had set up a coaching program in the past 18 months and that coaching is growing at a rate of about 40% a year. Reports say about 60% of U.S. corporations currently use coaching, and the International Coach Federation reports more than 11,000 members in 80 countries.

Korn/Ferry’s leadership development business rose 40% last year, outside of its acquisitions, Dorman said. It’s been doing coaching for the past four years, mostly through a partnership with an outside firm led by Marti Smye, who has since joined the company. The group now has 50 full-time “leadership development partners” and about 150 other coaches on contract.

The executive search business can be a volatile one – hurting during periods of recession – so it makes sense that diversifying into coaching would help cushion any downturn in business. But most partners will tell you that they got into the business because their clients asked them to.

“Clients were saying, ‘You know how to evaluate our execs, can you help internally?’” Dorman said. He added, “We did not enter the leadership development business when search was down, but the desire to have multiple flows of income as a public company makes sense.”

Stephen Miles, regional managing partner for the Americas at Heidrick, said it’s natural for search firms to want to make their relationship with clients “deeper and stickier. We can help with all talent management, not just when they need to fill a position.”

He adds, “It may reinvent the way search looks like.”

The trend is partly driven by demographics. Companies are recognizing that there is a limited supply of talent and that they need to start focusing on developing internal leaders as top officers approach retirement.

The nucleus of Heidrick’s leadership development practice is helping groom CEO successors. “In the olden days, the CEO picked the successor,” said Miles. “Today, the board takes the successor very seriously.”

While it’s most common for coaches to be called in when there has been turnover in the executive team, in Sadvary’s case, “I’d been the COO and part of the transition plan included coaching for me,” he said.

For three months before he stepped into the CEO role and three months after, Sadvary met with Tim Dorman for about half a day every two weeks. “We looked at every skill a CEO needed to have to be successful, and we put that together with action items. It was very real – nothing esoteric.”

Despite the risk that it might be perceived as a negative, Sadvary told everyone in the company he was getting coached. “I didn’t keep it a secret. I told people I’m fully competent, but I’d never been a CEO before and I need to hone my skills.”

Coaches also may be brought in to help an existing executive perform at the next level, or in cases of a merger and acquisition, when new skills might need to be learned in a hurry. They can also be part of the headhunters’ package.

Executive Connections LLC, a Salisbury CT-based retained search firm, offers its candidates six months’ worth of coaching after they’re placed as part of the fee. “It helps improve their track record because 50% of hires fail in the first 18 months,” said CEO Jeff Gundersen. It’s also a way to set the firm apart from the competition.

“It’s such a hot talent market with people getting three offers. A candidate may take our offer if he knows he’s supported by our team,” adds Lorraine White, the chief coaching officer.

Costly, but beneficial
Coaching can also be defensive – to keep an executive from getting off track, or to keep someone in the company. Either way, it can reap real benefits for a company, says one expert.

Kevin Cashman, who started LeaderSource 30 years ago and will remain president of the division within Korn/Ferry, said the return on investment for a coach can be “six to seven times investment over 12 months. It can bring a team together, or it can transform a company.”

The typical cost to a company for a coach is $20,000 to $40,000 over four to six months. But some coaches charge as much as $100,000. And some, like Cashman, even have a CEO camp, where top execs spend three to four days in an intensive workshop with one session a week thereafter.

Cashman is an advocate of proactive coaching – and not just for the guy at the top. He thinks the next wrinkle in coaching will be a holistic one – treating the individual, the team and the organization. “Coaching has been much too transactive – give me somebody to coach and I can improve performance,” he said.

But that’s not sufficient today, Cashman said, and coaches should treat the patient in the context of where the company is heading and why. It’s almost like being a management consultant, he agrees, “except you’re treating the human dynamics.”

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While coaches are normally thought of in a sports context – Tiger Woods to Little Leaguers have them – they are increasingly becoming common in executive suites. Once a tiny industry dominated by boutique firms, coaching has now grown to an estimated $2 billion business worldwide, with significant investment from the top executive search firms. Korn/Ferry last year bought one of the oldest stand-alone coaching firms, LeaderSource of Minneapolis. That came on the heels of its August purchase of Lominger, a leadership development company also in Minneapolis, for $24 million. “The firm has embraced a strategy of being a true talent management company with a strong focus not only on recruiting leaders but developing leaders internally,” said Tim Dorman, senior client partner. Prime competitor Heidrick & Struggles International Inc. also has moved into the leadership coaching space, though less aggressively. For the past five years, the firm has offered coaching as a complement to its consulting around onboarding and succession planning. The leadership consulting division is a small part of overall sales. Other search firms such as Spencer Stuart, Egon Zhender and Russell Reynolds do coaching to some extent. The U.S. coaching business has been slower to catch on than in Europe, where so-called management appraisals have been done for more than two decades. A recent Hay Group survey of 170 human resources professionals revealed that more than 50% had set up a coaching program in the past 18 months and that coaching is growing at a rate of about 40% a year. Reports say about 60% of U.S. corporations currently use coaching, and the International Coach Federation reports more than 11,000 members in 80 countries. Korn/Ferry’s leadership development business rose 40% last year, outside of its acquisitions, Dorman said. It’s been doing coaching for the past four years, mostly through a partnership with an outside firm led by Marti Smye, who has since joined the company. The group now has 50 full-time “leadership development partners” and about 150 other coaches on contract. The executive search business can be a volatile one – hurting during periods of recession – so it makes sense that diversifying into coaching would help cushion any downturn in business. But most partners will tell you that they got into the business because their clients asked them to. “Clients were saying, ‘You know how to evaluate our execs, can you help internally?’” Dorman said. He added, “We did not enter the leadership development business when search was down, but the desire to have multiple flows of income as a public company makes sense.” Stephen Miles, regional managing partner for the Americas at Heidrick, said it’s natural for search firms to want to make their relationship with clients “deeper and stickier. We can help with all talent management, not just when they need to fill a position.” He adds, “It may reinvent the way search looks like.” The trend is partly driven by demographics. Companies are recognizing that there is a limited supply of talent and that they need to start focusing on developing internal leaders as top officers approach retirement. The nucleus of Heidrick’s leadership development practice is helping groom CEO successors. “In the olden days, the CEO picked the successor,” said Miles. “Today, the board takes the successor very seriously.” While it’s most common for coaches to be called in when there has been turnover in the executive team, in Sadvary’s case, “I’d been the COO and part of the transition plan included coaching for me,” he said. For three months before he stepped into the CEO role and three months after, Sadvary met with Tim Dorman for about half a day every two weeks. “We looked at every skill a CEO needed to have to be successful, and we put that together with action items. It was very real – nothing esoteric.” Despite the risk that it might be perceived as a negative, Sadvary told everyone in the company he was getting coached. “I didn’t keep it a secret. I told people I’m fully competent, but I’d never been a CEO before and I need to hone my skills.” Coaches also may be brought in to help an existing executive perform at the next level, or in cases of a merger and acquisition, when new skills might need to be learned in a hurry. They can also be part of the headhunters’ package. Executive Connections LLC, a Salisbury CT-based retained search firm, offers its candidates six months’ worth of coaching after they’re placed as part of the fee. “It helps improve their track record because 50% of hires fail in the first 18 months,” said CEO Jeff Gundersen. It’s also a way to set the firm apart from the competition. “It’s such a hot talent market with people getting three offers. A candidate may take our offer if he knows he’s supported by our team,” adds Lorraine White, the chief coaching officer. Costly, but beneficial Coaching can also be defensive – to keep an executive from getting off track, or to keep someone in the company. Either way, it can reap real benefits for a company, says one expert. Kevin Cashman, who started LeaderSource 30 years ago and will remain president of the division within Korn/Ferry, said the return on investment for a coach can be “six to seven times investment over 12 months. It can bring a team together, or it can transform a company.” The typical cost to a company for a coach is $20,000 to $40,000 over four to six months. But some coaches charge as much as $100,000. And some, like Cashman, even have a CEO camp, where top execs spend three to four days in an intensive workshop with one session a week thereafter. Cashman is an advocate of proactive coaching – and not just for the guy at the top. He thinks the next wrinkle in coaching will be a holistic one – treating the individual, the team and the organization. “Coaching has been much too transactive – give me somebody to coach and I can improve performance,” he said. But that’s not sufficient today, Cashman said, and coaches should treat the patient in the context of where the company is heading and why. It’s almost like being a management consultant, he agrees, “except you’re treating the human dynamics.” © 2000-2007 by Staffing Industry Analysts, Inc. - All rights reserved - Unauthorized copying, distribution, or alteration is strictly prohibited by law. Click here for more information from Staffing Industry Analysts, Inc.
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