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November 2000, Volume 69, Number 1 |
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Times have changed. As anyone who has tried recently to hire a middle-level executive-let alone a CEO-knows, hiring decisions have taken on a new complexity and urgency. Some of the pressure comes from companies that didn't exist a decade ago but now account for a considerable share of the economy's growth. As young firms try to seize or keep a competitive advantage, they force more established firms to work harder at keeping the people they have and at locking up talented new hires before the competition gets them. The market for CEOs and other senior management for startups is so competitive that one venture capital firm, Bessemer Venture Partners of Menlo Park, bought an executive search firm, while others have hired in-house recruiters or signed long-term contracts with independent firms." Every viable CEO candidate has five to ten offers right now," says Erik Lassila, MBA '96 and managing director at Idealab! Capital Partners in Sunnyvale. For startups, "it's the human talent that makes the difference in the initial 12- to 24-month scramble," says Jana Rich, MBA '96, a partner in the technology practice at Korn/Ferry International in San Francisco and recruiter-in-residence for Softbank Venture Capital. "You hire 'C' people, and 'A' people smell it pretty quick," says William Park, MBA '96 and CEO of Digital Impact Inc. in San Mateo. The 3-year-old company went public in November 1999. All of this has meant a dramatic sea change from Wall Street to Silicon Valley when it comes to recruitment and retention. April's stock market downturn has yet to lessen the demand for senior and junior executives. If anything, companies are competing more intensely for talent to guide them through the increasingly tricky waters of commerce. No longer is the promise of mere wealth enough to make a potential or current employer stand out from the crowd. There's got to be something more, and that applies to seasoned veterans as well as new MBAs, say those who work at executive search firms. Money still talks, but savvy recruiters are being more creative in the way they position their companies, and job seekers intensely research suitors' attributes, including their corporate cultures and job challenges. Perks like concierge services, flexible scheduling, sabbaticals, mortgage payments, an interesting career path, and a fun environment are no longer frills in some industry segments. Among the incentives Wall Street firms now offer are coinvestment venture capital funds and merchant banking funds. Goldman, Sachs & Co. even parceled out a one-time stock grant of 200 million shares to junior employees who missed the firm's initial public offering. At Bain & Co., Business School graduates Michael Laub and Nick Stowe, both MBA '97, and managing director Steve Ellis, MBA '90, devised a somewhat different approach to attracting or retaining those interested in startups. Bain takes part of the fee for projects with young companies in start-up equity and puts the equity into a pool that is shared with younger employees. Meanwhile, according to Investment Dealer's Digest, pay on Wall Street rose an average of 30 percent in 1999 and, despite the ups and downs of the market, increased by 40 percent in 2000. For David Yoon, MBA '00 and a former investment bank analyst, personal opportunity, a company business plan, and the people with whom he would work all had to be weighed in making his decision. "I'd only interview with those companies that had interesting business models," he says. Once he had narrowed his choice to 20 companies, he says, "I made sure I got to know the management. I used the late-night office test-did I want to be working with these people at the office at 11 o'clock at night?" Yoon considered the potential financial upside of being an early employee in a pre-IPO startup but says other factors were key. While he still works nights and weekends with ECtone Inc., an Internet infrastructure startup in Santa Clara, he finds more of his current work interesting and intellectually stimulating than his previous position. "I have more ownership of what I'm doing here-more impact," Yoon said. Sherrie Gong Taguchi, MBA '89, assistant dean and director of the MBA Career Management Center, says she finds three factors are most important to MBA graduates. "They are interested in the people they'll work with and for, in whether the company culture and the job content are intellectually stimulating, and in having as much responsibility as they can handle as early as possible." Demand for graduating Stanford MBAs hit record highs this year, with 1,170 organizations-a 34 percent increase from last year's record 870-competing for the Class of 2000's 362 graduates. Total median compensation, including salary and bonuses, for new Stanford MBAs rose 13 percent from $120,000 in 1999 to $135,000-the largest increase in five years. While much of the competition focuses on hiring the best people, retaining current talent may be even more important. As an example, Investment Dealer's Digest reported that 60 bankers have left Morgan Stanley Dean Witter in the last year, and 70 have left Goldman Sachs. "They're golden," Linda Bialecki says of in-vestment bankers. Bialecki, MBA '79, is president of Bialecki Inc., a New York firm specializing in placing investment bankers. "Every dot-com would love to have an investment banker who knows how to run a road show." Some urge caution, however. "People get so caught up in this war for talent," Business School professor Charles O'Reilly says, "that they'll forget that long-term success will depend on the people they have now." Generous options and salaries may lure hot new recruits, but they don't create the kind of loyalty needed for long-term success and may, indeed, alienate those already at the company, says O'Reilly, the Frank E. Buck Professor of Human Resource Management and Organizational Behavior. "People confuse financial ownership with psychological ownership," he says. "People have forgotten in the last two years that it's hard work to build a company," adds Lassila of Idealab! "The dot-com boom set expectations — if you're 28 years old and smart, you should be able to make $3 million a year." While Wall Street's loss may seem to be Silicon Valley's gain, the reality is not so simple. The dearth of top-level candidates has affected recruiting practices among startups and established high-tech firms as well. Thanks to April's shakeout, for example, job candidates aren't quite so ready to see stock options as guaranteed riches and are asking for higher salaries at the get-go. "This year we're seeing the theme among dot-coms of no discounting," Taguchi says. "Startups are paying up-front the salaries that one would get in a more established company, on top of the options." Park of Digital Impact concurs. "You have to structure the compensation package so they don't take a hit to their wallets. You try to come up with a base compensation that's not too far off what they're currently making. You also have a premium benefit package." Because there are so many opportunities for top talent, it has become less a question of whether job candidates can get rich than how much they'll enjoy doing so. As a result, many of those looking to hire emphasize nonfinancial factors — particularly opportunities for growth and teamwork. Indeed, the latter can be the deciding factor in whether an employee stays with a company. "I actually had a young person say, 'I really love my team. It sounds kind of scary to move by myself,'" Bialecki says. "To attract people, you have to be willing to hire a team." Less seasoned executives and new MBAs look for jobs that offer them the kinds of experience that make them even more desirable to future prospective employers. While an MBA from a top school is valuable, an MBA with a few years at an established technology company or with investment banking or the right consulting experience is priceless-especially to startups. Chip Conley, MBA '84 and founder of Joie de Vivre, a San Francisco-based hotel and restaurant management company, says he has found that young go-getters "believe their ultimate security comes from building a collection of portable skills that make them superemployable." In his forthcoming book, The Rebel Rules, Conley writes that "the new contract goes something like this: We will make you a prized free agent by offering you good compensation, a challenging project, and a chance to learn some valuable skills while you're with us. The more entrepreneurial the learning, the better." Consulting remains attractive because it offers a range of experience, says David Palecek, MBA '98, an engagement manager for McKinsey & Co. who helped recruit at Stanford last year. "You get to see 10 different [business] plans, some of which succeed and some of which fail," Palecek says. And while startups recruit from consulting firms, "we've hired a lot of people out of dot-coms." "I almost always counsel people to work for two to three years in a well-managed technology company," Lassila says. "That background is invaluable. You're exposed to what works and what doesn't. . . . There's no substitute for working with great managers." Adi Mannor, MBA '00, says she was bombarded by emails and other attention from aggressive recruiters last year. The former investment banker finally chose a marketing manager position at Sunnyvale Internet infrastructure startup Loudcloud Inc., best known for its founder, former Netscape guru Marc Andreessen. Mannor says she chose Loudcloud because of the opportunity for growth. "It all came together for me in choosing a learning environment," she says. While a large proportion of Stanford business graduates always have stayed in Northern California, a solid learning environment will draw them elsewhere. "I'm in the American heartland," says Vivian Ling, MBA '98, manager of business development in emerging markets for Timken Co., a maker of heavy industrial equipment in Canton, Ohio. Sounding a theme similar to that of classmates who went to dot-coms, Ling says she was motivated by Timken's openness to change and its "fast-track opportunities," which fit with her desire to someday run a company in China. "They said, 'When you come into this 100-year-old company, we expect you to effect some changes.' They appreciate my different-ness," Ling says of Timken, where she is scheduled to transfer to China in the first quarter of next year to help manage a Timken joint venture. And while she admits to envying classmates who become millionaires, Ling says she is not envious "when I see the personal stress and the sacrifices." Ling's, Mannor's, and Yoon's approaches to the market are typical of recent MBAs, according to Taguchi. "We're seeing a more holistic view. The majority of new MBAs do not accept their highest offer." As a result, Taguchi has spent a fair amount of this year brainstorming with companies on how to recruit candidates, often re-styling the image of older, established companies that might appear, well, stodgy next to their start-up brethren. One Wall Street firm handpicked associates from eclectic backgrounds to mingle with students over margaritas and chips during study breaks, in hopes of demonstrating that investment banking wasn't just for gray-suited conformists. A Midwestern pharmaceutical firm sought to debunk its white male, conservative business image by emphasizing the global aspect of its business and the fact that 40 percent of its executives were born overseas. A cosmetics company emphasized the creative possibilities involved in developing and marketing its products. Even as companies try to put on a more human face, however, one basic working condition of Wall Street and Silicon Valley has not changed-in return for the lucrative opportunities, new employees are expected to put heart, soul, and most of their waking hours into the job. "The majority of people understand that they are going to work those incredibly long hours," Taguchi says. At least for a while. When it comes to making it big, slow and steady is no longer seen as winning the race. Yet an unwillingness of some experienced executives to plunge back into the start-up maelstrom is one of the factors contributing to the executive crunch, says Carol Dressler, SEP '75 and CEO of Dressler Associates, a Palo Alto search firm. "There are a number of people who have been very successful VPs of marketing, who would be the CEOs in the next round of companies, but they're taking time off," Dressler says. "I find it refreshing." Executives looking to leave the fast track sometimes turn to Alison Davis, MBA '89 and executive director of MBA-Nonprofit Connection in Palo Alto. Davis's nonprofit specializes in placing MBAs in other nonprofit organizations. "It's hard to fight the lure of the Internet economy," Davis says. "I don't even try." Three years ago, half of the candidates who came to her seeking work in the nonprofit sector were fresh out of school; now almost none of them are, she says. Instead, Davis relies on those already in the nonprofit sector or those who have been through the grind of the private sector and made their fortune. "They want to do something they really care about," Davis says. "They're tired of 80-hour weeks." Keeping Talent
In this tight labor market where companies are desperate to find more talent, two Business School professors suggest a novel approach: Find talent in your own backyard, shop floors, or office blocks. Too many companies waste the talent they have on staff by using systems like the old command-and-control leaders of Communist countries-they don't really know how to instill shared values and then train and support their people to take on responsibility for success. That's the thesis of a new book, Hidden Value: How Great Companies Achieve Extraordinary Results with Ordinary People (Harvard Business School Press, 2000), by Charles A. O'Reilly III and Jeffrey Pfeffer. The two use case studies of innovative companies to demonstrate how they have created added value by fostering the creativity, motivation, and commitment of their people. The companies profiled are Southwest Airlines, Cisco Systems, The Men's Wearhouse, SAS Institute, PSS World Medical, AES, New United Motors Manufacturing Inc., and Cypress Semiconductor. "In a world in which all work is knowledge work and intellectual capital is crucial for economic success, it is logical that the ability to attract, retain, and use the talents of people provides a competitive edge," the authors write. The faster pace of competition and technical change, they say, means that "local adaptations are quicker" when employers are not "mired down in hierarchy, rules, and buckpassing." — MARGARET YOUNG
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