Calculating the Risk of Bad Hiring Decisions

Risk Calculator

 

Estimated read time: 3 minutes

 

If a Chief Executive appointed by a board fails to live up to expectations and needs to be replaced within months rather than years, the repercussions are far reaching.

 

The costs of re-advertising the position, fine tuning the new contract and reprinting business cards pale into insignificance when compared with the wider implications.

 

Significant factors include:

 

Downtime

 

Well before an unsuccessful appointee leaves their role, they may have already been exerting a negative influence on the organisation for a considerable length of time. This is followed by a period of uncertainty as the recruitment process takes its course. However, even when the next incumbent takes up the post, it will be a matter of months before they are delivering at the level desired by directors. This clearly affects the morale of staff and stakeholders alike. Therefore, the issue of downtime does not simply refer to the CEO, but has a knock-on effect throughout senior management and beyond.

 

Reputational Risk

 

News of a failed hiring decision spreads rapidly through any industry, and the not-for-profit sector is no exception. The danger here is that funding organisations and potential donors will have cause to consider their support, and this can be disastrous for the people who really matter, namely the clients and consumers of the services provided.

 

Volunteers may also ask themselves whether or not they are prepared to continue to devote their efforts to an entity which seems incapable of attracting the right leader.

 

Opportunity Cost

 

It must be said that one calculation which boards rarely make is the estimation of the number of hours spent by directors who are participating in the selection sub-committee. Even if a recruitment agency is orchestrating the process, the commitment of the interviewing panel is necessarily significant, and the combined hourly rates of those involved in short listing, interviewing, reference checking and inducting can hardly be overestimated.

 

The reality is that virtually all stakeholders associated with the organisation have their concentration diverted by any unsuccessful appointment, and the cumulative effect is both substantial and difficult to quantify.

 

Conclusion

 

Since prevention is always better than cure, the moral of this story is quite simply that CEO recruiting remains the most important duty of any committee of management or board of directors. Those who fail to devote sufficient time, money and resources run the risk of being accused of false economy.

 

Various studies on the real financial implications of inappropriate hiring vary, but the general consensus is that the economic impost of any failed senior appointment  is between two and four times the salary and benefits package of the ill-fated employee.

 

About Jeremy Wurm

Seven years in senior international roles with pharmaceutical multinationals in England and The Netherlands. Two years with Ruston Poole International, a London based healthcare recruitment firm. After nine and a half years overseas, returned to Australia in 1989, subsequently establishing Brooker Consulting, now a joint venture partner of Ruston Poole. Jeremy has recruited over 100 Directors and CEOs for health, human services, not for profit and research organisations. Former Board member and Director of Vision Australia Foundation for 10 years. Memberships include the Institute of Management Consultants, Australian Institute of Company Directors and Disability Professionals Victoria.

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