Discussion 3: Internal Alignment of HR practices – Egon Zhender International
In 1964, Zehnder started his own executive search firm and specialise in filling top managerial level
positions for the client firms. Since inception Zehnder was very particular about maintaining few
values, which he thought was critical for firm success. Some of these values are summarised below:
1. Clients come first in everything they do
2. Charge clients a fixed fee (depending on value, complexity and geographic scope)
3. Operate as one firm, rather than a collection of distinct profit centre.
4. Maintain confidentiality and high ethical standards
Firm owned wholly and equally by the partners. The firm relied on organic growth, depending on its
existing partners to lead new office expansion, rather than acquiring local firm. Cash from operations
was used to finance growth without recourse to debt. “It took us a good decade to begin gaining
sufficient momentum of reinvesting our modest capital to begin increasing our geographic coverage,”
reflected Zehnder. In 1978, the firm was converted into a corporation. All partners, including
Zehnder, were given equal equity stake and one vote each in partners’ meetings. “As a result of this
shift in ownership, the partners assumed the full character of equals in voice,” Zehnder observed
subsequently
Recruitment
Candidates underwent between 25 and 40 interviews at five of the firm’s international sites. If two of
the interviewers expressed doubts about a potential candidate, no offer would be made. Typically,
only 10% of candidates successfully made it through the interviews. Zehnder outline his recruitment
strategy “Whenever we recruit for this firm . . . we are naturally looking for growth. But we are also
attempting to select those who have already shown their ability to survive and contribute significantly
to society and to the advancement of our practice.”
Performance Management
Each consultant was expected to conduct an average of 12 searches per year. Average billings per
search ranged from $60,000 to $120,000. Two consultants were assigned to each search, one taking
the lead and the other acting as backup. Working in tandem assured clients that there would always be
a consultant with whom to talk. Moreover, this approach prevented consultants from operating as
individual practitioners. They eagerly share information and ideas about existing and potential clients.
Similarly, they pass around information about the executives who might best meet a client’s needs.
Compensation
EZI followed a partner compensation system, unique to the search industry, of distributing profits on
a “lockstep” basis—depending only on the firm’s worldwide profits and seniority. EZI partner
compensation had three constituents: salary, equity stake in EZI, and profit shares. No records were
kept on individual performance, and no commissions or performance-based bonus were paid. Upon
retirement, partners sold back to the firm their shares at existing economic value. According to
Zehnder “Second, our seniority-based system requires us to find people who want to stay with a
company for the long haul. . . . Nothing benefits a client and its executive search firm more than a
consultant with a well-developed network of executive contacts and a finely honed intuition. The
seniority principle did not extend to consultants who were not yet partners because “they [were] still
proving their partnership qualifications on many levels,”
Change in business environment and strategic review
The Internet’s growth had triggered a new wave of competition, causing some within EZI to question
the firm’s high-touch approach. Job-placement sites such as Monster.com had grown quickly into
viable businesses for matching candidates with jobs. Additionally EZI’s competitors had begun to
expand aggressively into Europe, often by entering into high-profile mergers with boutique search
firms.
Internally, Zehnder announced that he would retire from the firm in June 2000, triggering concern
about the firm’s future. Now we felt that we were approaching an inflection point in the history of the
firm,” added O’Brien, “and so, we should re-examine carefully the direction of the firm. A worrisome
generation gap was also emerging. The younger consultants especially were feeling unsettled by the
market changes. They were concerned that the older consultants were not paying much attention to
these changes.
