The Hidden Economics of Executive Search
- chris251714
- 3 days ago
- 10 min read
If Everyone Has LinkedIn, Why Do Companies Still Pay Search Fees?
LinkedIn has made executives easier to find, and AI is making them easier still. Almost anyone can now identify the CFO of a competitor, map the leadership team of a bank in Singapore, find technology executives in New York or build a list of potential CEOs in London. Information that once required considerable research is increasingly available to anyone with the right tools and enough time.
So why are companies still prepared to pay substantial fees to executive search firms?
The answer is that finding the name was never really what they were paying for.
Executive search, contingency recruitment, RPO and internal Talent Acquisition are often discussed as though they are different versions of essentially the same service. Having worked across all of these models during my career, I see them rather differently. They operate under different economics, incentives and capacity constraints, and those differences have a significant impact on how a search is conducted.
This isn't about one type of recruiter being inherently better than another. There are excellent and poor recruiters in every model. The more interesting question is what each operating model realistically allows a good recruiter to do.
The economics determine the behaviour
Consider giving the same senior vacancy to an internal recruiter, a contingency recruiter and a retained executive search consultant. All three may have access to LinkedIn and many of the same sourcing tools, and all three may be capable of identifying broadly the same population of potential candidates. What differs is the economic environment surrounding the assignment.
An internal recruiter may be responsible for 10, 20 or sometimes considerably more live requisitions. Alongside those roles are hiring managers expecting progress, internal processes to navigate and KPIs that may include time to fill, cost per hire, agency expenditure and overall hiring volumes. Spending several weeks exhaustively mapping one executive market might be excellent search methodology, but it becomes difficult to justify when numerous other vacancies are waiting.
A contingency recruiter faces a different commercial reality. They normally carry the financial risk of the assignment and may be competing against other agencies as well as the client's internal recruitment team. They could spend 100 hours conducting an exhaustive search and ultimately receive nothing if another recruiter makes the placement.
It therefore makes perfect commercial sense for a contingency business to consider the probability of a successful placement when deciding how much resource to invest. That isn't a criticism of contingency recruitment; it is rational behaviour created by the commercial model. Contingency can work extremely effectively for the types of hiring for which those economics make sense.
Retained search changes the calculation because both sides make a commitment. The client commits financially to the assignment and the search firm commits time and dedicated resources in return. That allows the consultant to carry fewer simultaneous searches and investigate a market in considerably greater depth.
The important distinction is therefore not simply that retained search costs more. It is what those economics make possible.
What the additional time actually buys
The additional capacity should first be visible in the depth of the search. Market mapping matters, particularly for niche or international appointments, but identification itself is becoming increasingly commoditised. The more valuable work begins once potential candidates have been identified.
At executive level, a proper assessment should go considerably beyond understanding someone's career history. The consultant needs to understand why the executive might move, what their ideal next role actually looks like, what motivates them, what environment allows them to perform at their best and what might cause the appointment to fail.
That requires detailed conversations about what they have actually delivered. It means understanding businesses they have built or reduced, transformations they have led, revenue they have generated, costs they have removed, teams they have restructured and difficult decisions they have made. The context matters as much as the achievement: the size of the business, P&L responsibility, budgets, geography, regulatory complexity, stakeholders and the conditions under which those results were produced.
Leadership style and organisational fit require the same depth. A highly successful executive in one environment isn't automatically successful in another. How do they lead? What kind of CEO do they work well with? How much autonomy do they expect? How do they operate through ambiguity or disagreement? What happened in the roles that didn't work as well as the ones that did?
There are also practical questions that can determine whether an apparently excellent appointment is achievable at all. Compensation needs to be understood properly, including bonus, equity, deferred awards and benefits rather than simply base salary. Notice periods, competing opportunities, counter-offer risk, relocation and longer-term career aspirations can all become decisive later.
A retained consultant carrying a small number of assignments can spend considerably more time developing this understanding, often through multiple conversations before a candidate ever meets the client. An equally capable internal or RPO recruiter carrying 20 vacancies simply doesn't have unlimited hours available to do the same thing with every candidate.
This is also why a proper executive candidate report should not simply be a rewritten CV. By the time somebody is presented, the consultant should be able to explain what that person has accomplished, why it is relevant, what motivates them, where the potential risks sit and why they believe the individual should be considered.
A CV tells you where someone has worked. Executive search should help tell you whether you should hire them.
Search should also provide advice
The economics of retained search should create another difference: the ability and obligation to advise the client.
I think of this as closer to the relationship a business expects when engaging a professional services firm. If a company brings in McKinsey, BCG or another adviser to examine a strategic problem, it doesn't expect them simply to confirm everything management already believes. Part of the value is an informed external perspective.
Executive search should operate on a similar principle.
A search may reveal that the compensation is below market, the reporting line is making the role unattractive, the specification combines capabilities that rarely exist in one person, or the strongest talent isn't located where the company assumed it would be. Candidates may repeatedly raise concerns about the organisation's reputation, strategy or leadership that the company itself hasn't recognised.
Equally, the search may demonstrate that the executives originally identified by the CEO aren't actually the strongest options available. In some cases, a thorough examination of the external market may even provide evidence that an internal candidate is the better choice.
A retained consultant should be willing to say these things. If the market is consistently contradicting the client's assumptions, the consultant's job isn't to suppress that information and continue searching indefinitely. Market intelligence is part of the assignment.
This is also why I don't think executive search can be reduced to sourcing. The search itself generates information about compensation, competitors, organisational structures, candidate perceptions and the availability of particular capabilities. That information should help the client make a better decision, even when it challenges the original brief.
Why organisations rarely replicate the model internally
It is sometimes argued that organisations should simply build this capability within Talent Acquisition. In theory, they can, and there are internal teams carrying titles such as Executive Recruitment or Executive Talent Acquisition. In practice, relatively few operate in exactly the same way as an external retained search business.
The problem is again economics rather than capability.
To replicate the external model properly, an organisation would need to accept very low requisition loads, dedicated research capability, extensive market mapping, detailed assessment, written candidate reports, long-term executive relationship management and significant amounts of activity that may not immediately produce a hire.
That creates expensive permanent capacity.
Eventually someone inside the organisation asks why an executive recruiter is carrying four searches when another recruiter is carrying twenty. Requisition loads increase, research resources become harder to justify, additional vacancies are absorbed and productivity measures begin to influence the function. Over time, what was designed as an internal search capability can become senior-level internal recruitment.
This is closely related to the economics of talent pipelining. Businesses often like the idea of maintaining recruitment capability that isn't continuously producing hires, but the business case becomes harder when that capability has to be funded year after year.
An external search firm spreads its infrastructure, research capability and consultants across multiple clients. An individual organisation only purchases that capacity when it has an assignment important enough to justify it.
For that reason, comparing a search fee with the salary of an internal recruiter isn't particularly meaningful. The more relevant comparison is the cost of the external search against the cost of maintaining an equivalent capability internally, including the periods when demand for executive hiring is low.
The other side of the search
There is another aspect of executive search that receives far less attention in the predictable lists of reasons companies should use retained search: the candidate is assessing the consultant as well.
Senior executives often have considerably more at risk than simply whether they like the job description. Before engaging seriously, they need to decide whether the person approaching them is credible. Does the consultant understand their industry and career? Do they genuinely know the client? Can they explain why the opportunity exists? Do they understand the market? Can they be trusted with confidential information? And, if the process progresses, is this somebody the executive would trust to represent them accurately and navigate a difficult compensation negotiation?
Put more simply, the candidate wants to know whether the consultant is introducing them to a genuinely worthwhile opportunity or simply trying to fill a difficult role for an unappealing company.
This becomes particularly important when the candidate isn't actively looking, and even more so when the appointment involves a major career or geographical change. Senior executives don't engage with every recruiter in the same way, and expectations can differ significantly across sectors, geographies and cultures. The credibility of the individual making the approach can therefore have a material impact on whether the conversation happens at all.
Once it does, trust becomes increasingly important because the decision may extend far beyond the role itself.
An executive may be considering leaving a company where they have spent 10 or 15 years, sacrificing deferred compensation or equity, entering a new industry or relocating internationally. A partner may need to leave their own career, children may change schools and the family's financial circumstances and lifestyle may change significantly.
At that point the consultant isn't simply asking someone to accept a job. The candidate may be trusting that consultant with a decision affecting their career, reputation, finances and family life.
When they eventually ask, "What do you really think?", the answer matters.
Sometimes the responsible answer is that the opportunity isn't right for them.
The consultant sits between two sets of risk
The client is taking an equally consequential decision from the other direction. It needs to know whether the consultant genuinely believes the executive can perform the role, fit the organisation and work effectively with the existing leadership team.
That creates an unusual two-sided relationship.
The client pays the search firm, but the client isn't the search firm's only relationship. At the beginning of the process, the consultant is effectively an extension of the business. Before the candidate has met anyone from the organisation, the consultant is representing it in the market. The quality of the approach, understanding of the company and ability to answer difficult questions all contribute to the candidate's first impression.
As the process develops, the consultant also becomes an extension of the candidate in the other direction. The candidate hasn't paid the search firm, but they are trusting the consultant to represent their experience, motivation, concerns and value accurately to the client.
This becomes particularly important during the conversations that neither party necessarily wants to have directly.
A candidate may like the company but have concerns about the CEO's leadership style. A client may think someone is exceptional but worry about how they will work with two existing members of the leadership team. A candidate may be prepared to compromise on one part of the compensation package but not another. The company may have flexibility that hasn't yet been communicated. One side may need more time while the other is simultaneously involved in another process.
The consultant's role isn't to repeat every conversation verbatim. It is to understand what needs to be communicated, what should remain confidential, how concerns should be contextualised and what needs to happen next to establish whether the appointment genuinely makes sense.
This is the bridge between the two parties, and trust is what allows it to function.
It also explains why candidate relationships matter economically even though candidates don't pay search fees. Executive markets are remarkably circular. Today's candidate may be tomorrow's CEO, board member or hiring manager. They may already be a client elsewhere. Someone who doesn't get the job may ultimately become a more valuable long-term relationship than the person who does.
A consultant who pushes an executive into the wrong role may complete today's search while damaging a relationship that could have lasted decades. Equally, overselling an unsuitable candidate may secure one fee and destroy the client's confidence in the consultant.
Long-term reputation therefore creates its own economic incentive to tell either side when the answer should be no.
A retainer does not guarantee executive search
None of this means retained search is automatically superior, and the search industry should be honest about that.
Paying a retainer doesn't transform a mediocre recruiter into an excellent search consultant. A retained firm can still conduct weak research, carry out superficial interviews, fail to challenge the client and produce impressive-looking candidate reports containing very little meaningful assessment.
If a firm takes a substantial retainer, searches LinkedIn, sends InMails, conducts a cursory interview and forwards CVs, the client is entitled to ask what exactly the retainer is paying for.
The commercial model doesn't guarantee quality. What it does is create the economic conditions in which proper executive search can take place. Whether the consultant actually uses that time and capacity to provide research, assessment, judgment, market intelligence and advice is what determines the value.
This distinction is becoming more important because technology is progressively commoditising the parts of search that were once difficult.
LinkedIn transformed identification. AI will accelerate that process dramatically. Market mapping will become faster, research will become cheaper and information that once required days of work may increasingly be assembled in minutes.
Any executive search firm whose primary value proposition is "we know people you can't find" should therefore be concerned.
Clients increasingly can find them.
But identifying someone is not the same as understanding them, engaging them or hiring them.
Technology can identify a CFO. It doesn't automatically tell you whether that CFO actually created value or happened to be sitting in the organisation while value was created. It doesn't tell you whether their leadership style will work with your CEO, whether they genuinely want the role, whether moving country is sensible for their family or whether the company is capable of providing the opportunity they think they are accepting.
Those questions require context, judgment and, above all, trust.
That is where I believe the economics of executive search continue to make sense. The retainer shouldn't be paying for access to a database or a list of names. It should be buying the capacity to investigate an important leadership decision properly: to map the market, engage credible executives, understand and assess them in depth, challenge the client's assumptions, provide market intelligence, navigate the interests of both parties and advise when the right answer is no.
As technology makes finding people progressively easier, search firms will increasingly have to demonstrate that this is what their clients are actually paying for.
LinkedIn can tell you who someone is. Executive search should help you decide whether you should trust them with your business and help them decide whether they should trust you with their career.
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