February 7, 2007
Paul Reilly

Ipek Cem recently met with Paul Reilly, Chairman and C.E.O. of Korn Ferry to discuss global trends in business and recruitment.

Ipek Cem: Our guest today is Paul Reilly, Chairman and Chief Executive Officer of Korn Ferry International. Welcome to "Global Leaders".

 

Paul Reilly: Thank you. It's good to be here.

 

Ipek Cem: When I was looking at your web site and making research about the Human Resource industry, the business was defined as "executive search". And then recently I came upon a press release which called, or defined, your business as "talent management". Can you tell me about this evolution? Is there such an evolution?

 

Paul Reilly: Yes. There is. I think that if you look at our industry, typically people would come to companies like ours to help them find executives. But if you really think of what a Chief Executive Officer is worried about at night, he has a strategy, and a group of people, and he really thinks about "how do I train them? ...assess them? ...develop them? ... how do I pay them? ... and how do I keep them? And by the way, if I don't have the right person on my team will you go find him for me?". And we've been in that  business, and work well in our business into a full consulting and advisory business for the people we place. Because we believe that if we can be a better partner to help them out the other side of the business, they'll hire us for the recruiting almost automatically.

 

Ipek Cem: You know. Oftentimes people wonder: How can you assess a person's leadership quality, their work ethics, and other qualities that are required on the job without actually seeing them work for you, because every company is different, even though a person may have been very successful at leading a certain corporation, the next corporation maybe a complete set of different rules. What are some of the tools that you have?

 

Paul Reilly: That's a great question. The first part of that is, you can check how people have performed in the past. So we take references from old bosses, old colleagues, people that have worked for people, and ask them how they acted, how they led, and to really get a sense of their leadership style. But probably more importantly is the science that has developed for this over this last 20 years. We use a tool that was actually written up in the Harvard Business Review last February to assess people's, kind of psychological make-up. How do they think? How do they react? How do they read people? We've also acquired a company called Lominger who is the leader in competency based research. And we find that, you know, that people with certain psychological profiles behave in certain ways. And the reason that is critical is that most executives don't fail because of lack of skill-set, you know, we can research and  look at the resume, and talk to colleagues and see if they have the experience. The reason that they usually fail in a company is that they don't have the right cultural fit, they don't fit right into the company. So that's become just as important for us, researching the cultural fit, as the skills side.

 

Ipek Cem: How about this notion of emotional IQ? How important is emotional IQ, or can you solidify a set of attributes as emotional IQ?

 

Paul Reilly: Yes, we can test that. But that emotional IQ is becoming very important, because, you know, our business, global business, is so complex today. Now we have a world with almost 200 country and almost 7000 spoken and sign languages. Many, many different cultures, even within countries. People have to have the emotional intelligence, and the willingness to understand people if they are going to be effective and motivate people to work together from different cultures, who speak different languages, who have different experiences around the world.

 

Ipek Cem: Now you know in the world, and especially in the US, some CEOs have exuberant pay cheques that many people are angry about. And with some scandals like Enron and Parmalat, certain negative sides of CEO pay or superfluous spending have become public. How does one justify, as a corporation, as a nation, to pay somebody tens of millions of dollars, almost? Do you feel that the compensation – of course I'm talking about perhaps the highest bracket – do you feel that the CEOs are qualified for what they are earning? Especially in the US, because that's where we see the radical numbers.

 

Paul Reilly: I think that first the press, and people, have focused – and rightly so – on some pretty exuberant pay packages. Recently a CEO who left got a pay cheque of over 200 million dollars for leaving. You can understand why, if they explain why they got it, but I think you know that if you just sit back and say it doesn't make sense, it doesn't. So we have to take those aside. Now the average CEO pay, for the Fortune 500, last year, was 12 million dollars, in the US. Now to most people, that's a lot of money. Are they worth that? In the US and most countries, CEO market place is a free market system. I mean there is a competition for people in the CEO. So is David Beckham a good football player? He was once a great footballer. Maybe still is a great footballer.... Signed a five year contract for 250 million dollars. Is that fair? I don't know. You know. Is it socially fair? Now that's a different question. But our markets work... there is, you know, the market for these people - a free market, and they bid us with each other, and that's competitive pay. Now, one of the issues is also that there hasn't always been complete disclosure, people feel, on CEO pay. What are the pensions, and the severance pay, what are the expenses for corporate jets, or other perks they may have? So this year in the US, we're going to have to disclose it all in a table. So at least the information will become more available.

 

Ipek Cem: If you're appointing a CEO for a Chinese company, or an Indian company, versus a US company, or a Swiss company, what are some of the differences? What are some of the anecdotes you've come across that made you think, "I really have to understand the local market before..." – of course I know you have local people doing that, but are some of the anecdotes that came to you that you may want to share with our audience?

 

Paul Reilly: Well, you know it's funny, but as "globals", we become in the world, almost CEOs or CEOs of a native origin, for that company. That is changing, and we've seen changes. In fact half the top ten Swiss companies are being run by non-Swiss nationals today. And you can find that in almost every industry, examples of non-nationals running global companies. But still, most Boards relate to people of their own origin, and their own background. It is easier to communicate. So there is obviously a natural bias. The way you operate, in different regions of the world, are different. You know the Chinese culture is much more hierarchical in nature. The way you portray yourself, in China, is different than you may in the US, or here in Turkey. Interestingly enough, we did a study of 40 CEOs in China, and compared them to Western Executives, CEOs, and the Tiger countries' CEOs. And what we found is that their thinking styles, and the way they make decisions were very similar to Western CEOs, but the way they acted on the outside portrayed was very, very different. Much more hierarchical, where Western CEOs work much more team oriented, but once you take the surface out actually the decision making was very, very similar.

 

Ipek Cem: Even though we are becoming more global and more and more companies are operating in many countries, would you say that the US style of management and corporation building is a little bit dominating, or is becoming a model, has become a model for the world? Could we say that?

 

Paul Reilly: Well, I think, you know, there is a blending of styles. So what was traditionally all-American management, Japanese management 20 years ago there was so much research on. Today we're seeing a blending of styles. I think the US companies were always admired for their agility for making quick decisions, and moving quickly, and so for entrepreneurial companies, companies that started from nothing: Microsoft, Cisco is king of a model to go from start up to some of the world's biggest companies. But I think American companies have also found some of the European models of getting consensus, getting buy-in by management first, and moving is important. And I think you see modern CEOs as a blend of that, being strategic, getting people to meet, getting them to buy-in, and then to move very quickly. Because in today's world change is very quick.  You operate in multiple markets which are moving, and you have to make quick decisions to be successful against very agile competitors.

 

Ipek Cem: You ran you own business, and you worked professionally at one of the worlds largest consulting and accounting companies KPMG and then moved to Korn Ferry. I wanted to ask you: sometimes the attributes of an entrepreneur, or a person starting a business tend to be different than that of a good CEO. Is that the case? What happens when somebody has a great idea, builds a great business, but then is not able to cope with that business. Is that usually the case? What is your sense of that?

 

Paul Reilly: There are some similarities when I started my own firm I used to tell people I was "self unemployed" because there was just me. And as we grew the company, you know I think what happens in smaller companies is you tend to build a company with people like you. You know them. You know their families. You're close, because you work day and night. You're on a mission. It's a small company. And then you learn as you get into – and I sold my business to KPMG, and became the CEO there over the years – is to grow big businesses you have to accept a lot of diversity, a lot of different people. And how do you get people to think very differently, who may not agree, who come form different backgrounds, to work for a common goal. So that's the big change in the skills set. The part of strategy and execution doesn't really change, whether it's a small company, or a big company.  The key for leaders of big companies if they get people to buy in and get the right people to execute quickly even though you are very large, and that's an attribute and skills set that is very different. Many people from small companies can't make that transition. Or they haven't had the experience, you know, to work in a bigger company. For me when it came to selling my company to KPMG, it was a great experience because I got larger, and larger levels of responsibility, and so my last job was running a company of over a hundred thousand people in 160 countries. With a great group of professionals. It was a great learning experience for me.

 

Ipek Cem: In the world today, what are some of the sectors you see that are growing rapidly? Sectors, and regions, I'd like to ask you countries specifically- that people should consider.

 

Paul Reilly: You know, I was telling people in Davos on the panels they asked me this same question. I said I can't remember in my business career a period where every country that we're into, 42 countries, and every product was growing and profitable at the same time. Usually somewhere in the world it was lagging. So it is interesting that we seem to have a global economy where everyone is participating most people are participating today. But certainly, you know, areas of India, China, Eastern Europe, Turkey, you can see a lot of the, you know, the up and coming economies is doing very, very well. I think that's for two reasons. One, is the more mature markets have become more costly, the developing markets have people. If you look at the demographics of the world, in the next 20 years, the 35 to 50 year old population segment, which we consider the leadership segment, is going to be flat in the US, the UK, and Australia. It's going to be down 10% in France. 20 % in Germany, it's going to be up 15% in China, 67% in India, and 62% in Turkey. Now we look at this as the group where we next to get the next generation of management for. So just the availability of people, you know, who are educated, and can learn and are able to work in these very complex multi-dimensional companies, is key. So I think that's why you're seeing such an interest in these economies today.

 

Ipek Cem: We're seeing that more and more people with international backgrounds are leading global companies, including some Turks moving up the ranks. What are some of the examples of people and companies you can think of that you feel are fitting this new profile of leaders coming from emerging markets' backgrounds, but leading global companies?

 

Paul Reilly: Well you see it, you know, all over the world. You have an example here in your backyard, the President of Coke worldwide. That people that have this global experience and have worked for big companies, and have worked in many regions of the world become the natural CEOs, because they understand the different markets and cultures, environments you have to work in. And I think the bias has gone away from "you have to be from such a country and have such an education", where people are looking at experience. The research that Lominger, the company that we acquired recently, has done, has said that with all the training and development that someone has, the number one thing that really develops somebody for the future, is experience. So you can put people through training, you can give them instruction, and you can coach them. But until they've been in the job and actually have done it, that's the best learning tool for anyone. So people that have been deployed globally, and have had multiple business opportunities that's the best teacher. That's why you're seeing more international, multinational people become leaders.

 

Ipek Cem: You've just mentioned you were in this year's Davos meeting. In your opinion, what were some of the ideas that you left with, especially pertaining to globalisation, and to your segment, you sector?

 

Paul Reilly: Well, I think the reinforcement from our sector was still this need to find and develop talent. Most companies, if they look into the future will.... Let's start back a minute... If you look at the number one issue for succeeding in business is the Price Waterhouse survey this year they would say "finding and retaining good talent is more important than growing revenue, finding capital". The number one issue is finding and retaining talent. And it's been reinforced in Davos, that people are short of global talent everywhere in the world. They're worried about turnover, because everybody is trying to recruit everyone else's good people. And so that's become a major topic, which is a reinforcement, I think, of our strategy. Davos was also very interesting this year. It was the most attended, I think, in terms of number of business executives, and Heads of State, so there was a very good attendance this year, but if I took something away. It seems that what dominated the agenda was the environment, empowerment of people, how to alleviate poverty, and I think one of the signs when business is good people focus on, there's a better focus on the social issues. And when business is bad, in Davos, they seem to focus more on the business issues. So maybe it's a good sign of prosperity that we can do more to try and help the world.

 

Ipek Cem:  When you're talking about talent, you're actually talking about people who have gone through some education, some development. What are some of the countries, in your opinion, who are doing a better job at this? I'm not asking about the traditional ones, but rather the new countries that are paying a lot of importance to this and are reaping the benefits from this outlook.

 

Paul Reilly: We're seeing a lot of investment in two big countries: China, where they're actually going out of their way, paying above market salaries to get leading professors to come into universities. The same in India, in fact if you look at their top schools that the graduates are getting the same types of opportunities that the graduates at ENSIAD or the London Business School, or Harvard or Stanford are getting. So that top tier of education has been very, very important for them. But you're also seeing in India an interesting trend where a lot of private for profit schools are opening up for training. Because there are so many people that are coming up through the system they are developing new ways of getting them educated. Which is really key. I remember telling people that I went to Beijing University about 5 years ago and spoke to their MBA class, and about 2000 people showed up. And their interest was about how do I get a job in the US or in Europe. But the interesting thing was that today, people want to go back to China and India. So I think that the development of people and talent is key, and here in Turkey the economists say that 40% of your MBAs are leaving the region and going to international jobs. Well that's going to be a huge source of talent in the future, because you're going to be able to recruit those people back who are educated and have international experience and I think will help fuel the growth of Turkey in the future.

 

Ipek Cem: I was going to ask you. We focused a lot on corporations, but I know there is a lot of work also being done with not for profit organisations, with universities, and even with public entities. Can you give us a sense of how this kind of search and development differs from the core corporate side?

 

Paul Reilly: Well, I think, obviously, the mission is different. NGOs, not for profits, they are on a social mission. But a lot of leadership skills are very similar. You have to be able to lead a group of people. Maybe there's a kind of higher goal, or energy, around the leader because they're on a very specific mission. They have sometimes more of a political interface, because they interface with governments, so you have to have people that are very good. But their leadership skills are generally very similar. And we've done work, too, with governments. Helping them find cabinet ministers or...

 

Ipek Cem: Can you give us some examples of governments or NGOs that may be interesting?

 

Paul Reilly: I probably don't want to go into too many details, especially the governments, but I mean they... we had one country where we helped them find 7 of their cabinet members. It wasn't.... it wasn't choosing them, but it was bringing them to a process of understanding the skills, and the backgrounds, and how those people may fit. So when they made the choices, they felt that they would fit into the mission their new president was trying to create. But most of our work is in the private sector.

 

Ipek Cem: When I was going through some of your speeches, I came across the differentiation "international corporation vs. global corporation". We often times use the word almost as a synonym. What is the difference between the "international corporation" and the "global corporation"?

 

Paul Reilly: An international corporation is a company that does business in many countries and jurisdictions, so basically most of the management, or all of their key management is at the centre and they king of give out instructions to people on what to do. They kind of standardise their products and exports. A true global company is different in two ways in that the leaders and the markets and regions have a lot of authority. That the centre, you know, takes their input as important as the input from the centre, and there's a 2 way communication. Which makes, actually, a CEOs life very difficult. I tell people when I'm on the East coast of the US, for example, I get up in the morning and I'm dealing with Europe and Eastern Europe, and then in the afternoon I'm dealing with the Americas, maybe I get to spend a little time with my family in the evenings I'm dealing with Asia. So you have a 24 hour business if things are happening, and it's important for global companies to be getting input from the regions, because the advantage of being global is that you have technology, your products, and a brand, you know, that's very leverageable. That people want. But: you have to understand local cultures, and nuances, in order to vary the products or offerings in order to be a successful global company.

 

Ipek Cem: The job of a global CEO, and there are also executives who work on a global level is very taxing. Do you see some burn-outs in these jobs?

 

Paul Reilly: Absolutely. The average CEO, for example, half of the largest companies, in the US is less than 6 years. It's going down every year. And I think the problem is that travel is very difficult, that I am you know, on the road 5 or 6 weeks. That there is a lot of pressure today with stockholders and earnings and a lot more push, and I think it's a tiring job. Seeing people burn out, some want to take some time off to get refreshed, and they go into it again. So I think there is more of a burn out and more of a pressure on those jobs.

 

Ipek Cem: And the issue of women executives, and women in leadership positions, I think this was also a topic in Davos? Why is it that it's still not up to the level that we'd like to see? Even in the developed world.

 

Paul Reilly: Well it is, I've sat on a group on the Global Empowerment of Women, and there's progress in most places in the world. And there's two parts, there's certainly a lot of developing, and developed countries both with some bias, but I think that's going away. Sometimes more slowly in places than others. There's some social systems, too, where countries don't have day care. Still people want to have children and family. How do they do both, because they're both very demanding jobs? And if they don't have the social systems, or the day care and help systems, it's also very difficult. But you know I believe that this isn't going to right itself, necessarily, maybe for the right social reasons. But economically it's going to happen. Today, if you look at the workforce, women's participation is going to be key. And may countries, like even the US, where half the class in the graduate class and MBA schools these schools are women.  Yet, if you look at even the top business schools, one out of three women are dropping out of the work force in 5 years, one out of twenty men. And we need the women, who are often top of the class, and doing very well, to be participating if the economy's going to grow. So it's becoming both a social fairness issue, and an economic mandate at the same time. And I think that's what is really going to solve it over time.

 

Ipek Cem: When you were talking about some of the trends in your industry, one of the topics you just mentioned it at the CEO level, was a general trend, you mentioned "velocity". Now the speed with which people change jobs is much different from the past. They take more risks, they're not pensioners anymore, they're not in a job for life. How is this affecting the work-force?

 

Paul Reilly: Well, I think that it's what you said there's a lot more velocity or turnover that people leave jobs. It used to be that people stayed in jobs for security, or you know you came out of school, joined a company, and were there for life. Then people hung around because they had pension or benefits. But as those have gone away, the long term benefits, most employers are saying: in this job, am I learning? Developing? ...am I doing better? If not, I'm going to go somewhere else where I can find that. So you're getting more of what I call a "free agent" type of environment where employees  - it's not that they dislike the companies, but if they think that the company's not providing them with learning and development experience, they're going to go somewhere else. So people are changing jobs much more quickly. It wasn't 20 years ago you would see someone with three jobs on a resume, you'd say, "what's wrong?". Today you would say if people hadn't had 3 or 4 jobs, "what's wrong?". So it makes it difficult for employers that they have to figure out how to retain people, and take their top talent and always challenge them and give them learning experiences, or they're going to get up and move somewhere where they can get those experiences. So theirs is more of a demand on employees. Now for our business, that's great, because every time some one leaves, there's an opportunity to find someone for somebody. But again, as we work to be partners with our business we're trying to figure out how to be consultants to help them manage that pool as well as to find people.

 

Ipek Cem: There is also the issue of specialisation. People often wonder, should they stay in one industry and become experts at that industry, or should they gain very varied experiences. Which one is looked upon more favourably?

 

Paul Reilly: Well, you know I think it's both. It depends on the industry, and the person. That there are certainly experts that rise up from engineers in mining, energy, oil and gas, and become technical experts, and grow up and learn management skills and become leaders. There is also people who have bounced from, you know, industry to industry, and have a very broad view of business, that have become leaders. So, I think you can go both ways. Clearly to be a CEO I think you have to have some broad based experiences, even if it's in one industry. You need to have an industry job, or a something across a company job, to be able to run one. But you can do them in an industry focus, or you can do it by having a broad experience.

 

Ipek Cem: When you look at your own journey, in terms of leadership in corporations What are some of the turning points that made you develop these skills?

 

Paul Reilly: Well, if I look back, I always remember one thing is that it's not about me, it's always been mentors or people to help me. And I think that's where a lot of companies actually fail. I look at every turn of my life, there is always someone that would help me, or coach me, or develop me through that. And I think that it's a responsibility for those who have had that opportunity to do it for others. You know the interesting part of our business is that most companies want to retain their best people, but the truth is they are very bad at succession planning. And when you talk to employees that leave, and the bosses, the bosses will say, "I don't understand why they want to leave. I thought they were very valuable.", and the employee will say, "Well, they never told me that. They never showed me that.". Because you're thinking someone's good, you have to show them, and mentor them, and develop them in order to retain them. And I think if I have learned anything in my career, that's really been it.

 

Ipek Cem: On that note, I'd like to thank you very much for this candid interview.

 

Paul Reilly: Thank you.

 

This transcript was typed from a transcription unit recording and not copied from an original script. Because of the possibility of mis-hearing and the difficulty, in some cases, of identifying individual speakers, NTV networks and Ipek Cem cannot vouch for its accuracy.