Over three years, from 2013 to 2015, Ohio State University contracted with a dozen executive-search firms to conduct 33 searches at a cost of nearly $3.9 million. The costs varied from a modest $30,000 to nearly $500,000 and included searches for the president, vice presidents, deans, associate deans, directors, financial officers, development staff members, and executives for the medical center. And Ohio State is far from being an outlier.
Based on responses to public-records requests filed by the Dayton Daily News, we have estimated that over a 10-year period, the 14 public universities across Ohio spent nearly $25 million on search firms. Such an expenditure of public funds should be noted at any time, but in a period when higher-education costs have become a major issue, those expenditures are especially noticeable.
Colleges and universities in all states are increasingly reliant on executive-search firms, commonly known as “headhunters.” When a president announces she is leaving, chances are good that one of the first calls the board chair receives will be from a search consultant. If a provost leaves for a presidency, the president may well turn to a search firm to fill the position. It is increasingly common to see ads for deans and even assistant/associate deans being led by headhunters.
What has led to this growth in a comparatively new area? We cannot be sure, as there is surprisingly little research about the role and cost of headhunters in higher education. According the Association of Executive Search Firms and Leadership Consultants (AESLC), the worldwide search-firm industry is nearly a $13-billion enterprise, with the United States market share worth just under $4 billion. Of the 25 members of the American Council on Education Executive Search Roundtable, four are listed as among the top 50 U.S. recruiters by an industry tracker, Hunt Scanlon Media. Across all sectors of their practices, combined total revenues for just those four firms approached $390 million in the past year. This year, AESLC estimates that the nonprofit, government, and higher-education sectors of the industry will grow by 19 percent.
With that in mind, last fall we undertook a study of contracts between executive-search firms and public universities and community colleges searching for a president, chancellor, or provost/vice president. Looking at only the 27 presidential searches at four-year universities, we found that about two-thirds involved a headhunter. According to the proposals and agreements we reviewed, the fees (excluding expenses) totaled more than $2.5 million, with some approaching $170,000 each. While a presidential search is the brass ring of the business, as the Ohio data indicate, headhunters are involved at virtually every level of many universities’ hiring practices.
Of the presidential-search contracts we studied, fewer than half of the institutions issued requests for proposals and conducted a full and open competition. Of those that did, fewer than half published detailed requirements. The other universities found their headhunters in one of four ways. Some already had a specific firm on contract or had a pre-qualified group of firms. Others issued a formal request for proposals. Finally, some sent a letter to firms inviting them to submit a cost proposal. Roughly 60 percent of the firms submitted some form of proposal, and just over half of those were detailed. For instance, only about 40 percent of the submissions contained a list of specific tasks to be completed, a timeline, or specified key personnel. The others merely provided some general background about the firm and its approach to conducting searches.
The absence of fundamental information was compounded by the fact that the written solicitation materials rarely specified criteria for evaluating the proposals in a systematic manner. So how a firm is selected remains something of a mystery.
Another big question remains: What are universities “buying” when they hire a search firm? The scope of services provided by the firms as part of their basic fee was underwhelming: Outreach to candidates was provided by less than half (48 percent) of the firms; screening candidates, general communication, and research by 44 percent each; developing a position profile, communicating with candidates, and scheduling candidates by 41 percent each; copying/publishing information and developing/maintaining a web portal by 30 percent each; developing advertising and general background checks on candidates by 30 percent each; and training the search-committee members by only 7 percent.
We also found while reviewing the written agreements that only 60 percent would be considered formal contracts. Many were simple letters that the institution was asked to sign and return. Whatever form the agreement took, the search firms originated almost half of them, and given that searches can cost well into the six figures, we thought it noteworthy that the vendors were providing the instrument of agreement, especially given that the purchaser was a state or public agency.
Our data indicate that the cost of a presidential search is based on three factors. First, the base fees varied from $60,000 to $160,000. While a majority were on a fixed-fee basis, about one-third were contingency-based, with the fees calculated as a percentage of first-year compensation. Further, about half of the firms charged an additional administrative fee that varied from $6,000 to more than $16,500. Finally, expenses for travel (by both the candidates and the search firm), advertising, and additional services outside the base fee (such as background checks, videoconferencing, and communications) are reimbursed to the firm and have the potential to add substantial costs to conducting a search.
For the most part, our study suggests that universities may be putting the cart before the horse. Instead of asking a search firm what it will do and how much that will cost, governing boards, administrators, and search-committee members first should ask, “What exactly do we want the search firm to do? What is the specific scope of work we want them to perform?” (Hint: This should not be merely “to lead a successful search.”) Instead, the institution should determine the detailed tasks the firm must complete, including whether it wants only advice and counsel or wants the firm to conduct only a defined portion of the search process.
The next step would be a formal request for proposals, complete with terms and conditions, for a full and open competition; firms also may be invited to apply. It is most important to require firms to define who will do each task, when each will be completed, and how much each will cost. Also, universities should develop a set of evaluation criteria, weighting each section by its degree of importance, and be aware of any extra fees that might be added to the cost.
Finally, the institution should develop the contract with the assistance of counsel, which may mean hiring outside legal help. In other words, don’t just sign something provided by the search firm.
The purpose of our study and this analysis is not to name names or argue for or against the use of search firms. Rather, we hope in sharing what we have learned that governing boards and higher-education institutions can make more-informed decisions about hiring search firms, that faculty members will understand their use, and that administrators and governing boards will have a greater understanding of their own responsibilities when employing a search firm.
