Putting due diligence at the heart of hiring

Written by
Chris Molloy

25 Nov 2015

25 Nov 2015 • by Chris Molloy

This new data is from Leadership IQ, showing that up to 48% of senior hires are unsuccessful or fail completely within their first 18 months. Scary, costly and even greater than the 30% failure rate of most business acquisitions. Can we compare M&A with TA? It’s a change in thinking perhaps but the read-across is real enough. Senior-level hiring is - and should be - a risky business decision. For all other risky business decisions like M&A we apply high levels of independent due diligence and make our decisions on evidence. We then work after the deal to understand one another and prepare both sides for engagement and adopt a bespoke plan of post-merger integration to ensure the transaction is supported through the first months. 

HR and line leaders recognise that, in hiring, we fail to do enough of this at any stage of the process. If we think and act in a true due diligence manner for candidate selection, perform pre-employment assessment of needs and use this to target on-boarding, we greatly improve our decision-making and can move the needle on this failure rate. 

The true cost of failure can be catastrophic

It is true that there is a great deal of arm-waving on this topic because real costs are rarely quantified. Mostly people focus on cost of hire and employment followed by their cost of exit and the hire of the next person, because they can point to these in a P&L. These alone add up to over 3.5 times salary for packages around $300,000.  

However, the wider costs are much more concerning. Senior people are hired to take risk-based decisions on behalf of the company. A failing decision-maker is a destructive force – as is a failing leader of others, culturally and commercially. The real cost of senior leadership failure can be over 25 times their annual salary or – in smaller companies – complete business disaster.

Use evidence and focus on the right things. We are all complex creatures with layers of professional, personal and behavioural characteristics that impact on our colleagues, our company and in some cases our industry. The same complexity is true of any business acquisition.  The evidence-base is diverse and dispersed but in today’s world it is more available than ever.

Despite the availability of data, rarely is rigorous Due Diligence seen in critical business hires. Yes, assessment is (sometimes) done, creating vast documents of unstructured and poorly comparable information, security checks and references are taken. Yes, people are reviewed by other people and a synod comes to a view. However this often lacks rigour, structure and objectivity. This leaves ‘personal chemistry and fit’ as too high a proportion of the decision-making process: something that you would not see in any other strategic business decision.

Given the evidence of risk reduction, a failure to perform a structured comparative analysis, whether performed by independent or in-house professionals, of candidates’ professional, personal and behavioural characteristics... seems almost negligent. This is the key point where independent ‘Talent Due Diligence’ adds insight and analysis and should be taken far more seriously than it is today.


Post selection assessment

Once a senior candidate accepts an offer a general sigh of relief is – in most cases – followed by logistics. This period – which may be weeks or months – is the perfect time to deepen knowledge of the candidate and help prepare them and their manager or integration.  However, (again) this is rarely done. Logistics dominate until the first day in the role, when any on-boarding begins. Where Due Diligence assessment has been done prior to selection, areas for future support and skills generation can be built upon or investigated further. If such assessments have not been done then this is the perfect time to build up a baseline of data on the future employee. All parties should be motivated to find this out and use the data to help prepare for their new beginning.

Bespoke onboarding

On-boarding is more than a mechanical integration into the corridors and email systems of a firm. Integration into a new environment should not wait until day one in the role. With an early knowledge of the strengths and support needs of the candidate, on-boarding should be targeted, planned and started before day one. It should involve access to coaches and mentors and extend out beyond the first 100 days. Implicit in this is more structured feedback to employee and employer on how they are adjusting, personally and professionally. Their impact and your business depend on it.

Learn from M&A colleagues

Effective due diligence, early needs assessment and precision on-boarding may increase the nominal cost of bringing in senior executives. However, it dramatically reduces the risk of failure. Our data show that with a due diligence-based methodology Proof of Candidate™ success rates can rise to an average of 88%. 

As with any risky business decision, success will never be assured but adopting the thinking, decision-support and integration approaches from M&A into talent acquisition maximises the chance of business success. Why not give your M&A colleagues a call and talk through how their thinking can help make the next generation of senior hires even more successful?