I love CEO searches. Each is a unique opportunity to work with a company’s Board, or owner, to assess a company’s strategic plan, map out the skills needed, and then go out into the market to hunt down the person best able to make those plans come true.

The appointment of Charlie Beck as the new chief executive of the Los Angeles Police Department has transported me back to the last time we picked a police chief and I was a Deputy Mayor.

November 2002: Our administration was grappling with an LAPD in crisis. The city was prey to soaring rates of violent crime, with our poorest neighborhoods the most victimized. After a decade bracketed by the Rodney King beating and the Rampart corruption scandal, people were starting to wonder whether the LAPD were the good guys or the bad guys. The department was being run by those the Los Angeles Times editorial board called the LAPD’s “infamously insular insiders.” Public distrust of the police was matched only by the racial politics around the selection of the next chief; both were at fever pitch.

We ultimately concluded that we needed to bring in a hard-charging outsider who could bring a fresh approach and desperately-needed reform. Our pick was former New York Police Commissioner Bill Bratton.

November 2009: With Chief Bratton’s resignation to join a private security company, current Mayor Antonio Villaraigosa faced a police chief search of his own. Chief Bratton had pushed crime rates to historic lows, introduced sophisticated data-driven policing principles, and dramatically improved community relations.

Mayor Villaraigosa chose Charlie Beck, a 32-year veteran of the LAPD on whose behalf Bratton had vigorously lobbied. Given how closely Chief Beck is identified with his former boss, he has surprised many by outlining a new model of leadership. In his words:

The only way that real change is made is from the bottom up. You can mandate change from the top… but the only way an organization really changes is from the roots up; that’s much more powerful. So what you’ll see is different with me is I’m going to concentrate on the roots of the organization.

Whereas “Mr. & Mrs. Bratton” have been fixtures on the Hollywood circuit (see Mrs. Bratton’s official website here), Chief Beck says:

I think I have a little more of a common touch, much more of a common touch. I think that maybe at the end of the day you’ll think of me more of a cop’s chief rather than a leader-manager.

Chief Beck even jokes about Chief Bratton’s extensive travels to faraway places for conferences, speaking engagements and the like:

I certainly won’t travel as much as [Bratton] did. This is my home. This is where my family is. . . . I’m a local boy, I always have been and that’s the way I’ll be as chief. And, again, with my philosophy of driving these changes down internally, I’ve got to be here to do that. I’ve got to touch people. I’ve got to have conversations with the [officers] and I can’t do that from out of state…

Chief Beck is the kind of guy you could have a beer with. Whereas Chief Bratton will take his Champagne Krug chilled at 38 degrees, thank you.

As I reflect on the week’s news, two things come to mind:

• When conducting a search, resist the urge to look for a carbon copy of the old guy. LAPD now is a dramatically different place than it was in 2002, and this CEO search was an opportunity to find a new chief to take the department to its next phase of growth. Mayor Villaraigosa was smart to focus on the challenges in front of the department now, and to focus on finding the person to lead the department out of the Bratton era. A CEO search should not just answer the question “What does this company need?” but “What does this company need right now?”
• As you move up the food chain, don’t lose touch with the little guys. I’ve been inspired by Chief Beck’s emotional connection with his troops. It’s rare to find a leader who maintains a common touch as he or she has risen through the ranks. Most leaders lose their empathy as they move up the corporate food chain. According to a recent study:

People in power are prone to dismiss or, at the very least, misunderstand the viewpoints of those who lack authority… Power can inhibit empathy, the ability to perceive another person’s emotional states.

Since the Mayor is an elected position, there’s no civic CEO search more important to Los Angeles than that of police chief. I’ve not been privy to the discussions around the selection of Chief Beck, but given the goal that both the Mayor and Chief have laid out – to continue the ambitious agenda defined by Chief Bratton and push it through the ranks – Chief Beck’s deep roots within the department will serve our city well.

While Chief Bratton has been lauded for his brilliance at defining a new path for the LAPD, Chief Beck looks like a fine choice to shepherd the department into the next decade.

Congratulations to Mayor Villaraigosa and Chief Beck. You have all our best wishes and support.

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Hat tip to strategy consultant Dave Brock for the link on leaders and empathy.

Lots of talk this week on executive compensation, with fascinating trajectories for American culture, business, society and public policy. I followed the debate so you don’t have to.

As you might expect, much of the conventional wisdom has focused on a potential Wall Street brain drain should comp restrictions be put into place (examples here, here and here).

The week’s best commentaries came from The Economist and compensation expert Frank Glassner.

First, The Economist points to big investment bank bonuses and introduces the concept of “employee capture:”

Such rewards, in the face of public protest, feed the impression that banks are victims of what some call “employee capture”. The top ten investment banks at the start of 2008 made an average return on equity of just 8% between 1999 and 2008. Four made cumulative losses. Staff got four times as much as shareholders did in profits. In 2008 Merrill Lynch paid cash to staff equivalent to over 100% of the capital left by the year-end.

Normally, this would be just a problem for shareholders. But because the public had to get involved, it’s now everyone’s problem. Next, the newspaper debunks the banks’ revisionist protests that, because they’ve repaid public subsidies, their bonuses should revert back to those of 2007. Fact is, they continue to operate on public support:

It is not just that they were saved from destruction. They got public capital (much of it now repaid), short-selling bans on their shares and rescues of counterparties, such as American International Group, which the public otherwise had no interest in saving. Today they enjoy laxer accounting, loose collateral rules at central banks, explicit debt guarantees and asset-purchasing schemes. And, critically, they can borrow cheaply because they are deemed too big to fail. All of them-from comparatively healthy Goldman to the nationalised weaklings-are being subsidised by the rest of us. As a way to keep cash flowing to the wider economy and help banks rebuild their capital, this subsidy made sense; nobody intended it to go to employees.

The heads-I-win-tails-you-lose aspect of all this has got America steamed. But The Economist argues that the answer is not simply to tax the banks’ highest earners:

In the longer term the bonus mess underlines the importance of getting the state out of finance: setting a time limit for the explicit guarantees and finding ways to lessen the implicit promise of support through living wills and the like…. Retrospective taxes are usually bad news. They distort incentives, and scare investors in other industries who fear they may be next. A wholesale cap on pay would lead regulators further into the swamp of micromanagement. And symbolic caps on a few top executives, as the White House is threatening, are too feeble a response.

The resident expert on pay on CNN, Bloomberg, and elsewhere is Frank Glassner, who’s been omnipresent this week on TV, newspapers and across the blogosphere. Frank is CEO of Veritas, the top pay consulting firm to Fortune 1000 companies. Because our firms share clients in common, I’m on his private email list. Frank this week sent his clients a manifesto advising that when it comes to pay, it shouldn’t be a matter of “how much,” but “how.” I sought his permission and bring that note to you here. An excerpt:

[G]overnment regulation will probably have unintended consequences, without curbing excessive pay. For example, if the maximum ratio of CEO pay to worker pay were mandated, companies would likely respond by outsourcing the work of the lowest paid workers, rather than curbing CEO pay.

For the rest of us who are not recipients of public largesse, the lesson we can take away is the delicacy with which we should approach compensation, and how it needs to be situated within a broader human capital strategy. Company directors will be under greater scrutiny than ever. Says Frank:

[C]ompanies should design compensation packages to attract the right people for implementing the company’s strategy. For instance, below market salaries coupled with aggressive incentive pay linked to individual performance is likely to attract self-motivated entrepreneurial individuals, however, that very type of pay strategy may create increased risk taking as well, and would need to be designed with appropriate checks, balances and controls.

Companies also need to assure their executives longer tenure and horizons – without the necessity of pay guarantees. A CEO who is afraid of being fired for not making short-term financials will not focus on the long term. A board that is actively engaged in strategy formulation and implementation and compensates a CEO for strategy implementation milestones, along with monitoring long-term performance, is more likely to understand, appreciate, and encourage a CEO’s efforts, even if they yield short-term financial results that are below expectations. Thus there is an urgent need for boards to evaluate their executives’ performance annually to determine their progress on long-term goals.

What I like most about Frank’s note is the premise that when it comes to compensation, one size does not fit all. When business strategies differ between companies, their compensation strategies ought to differ as well.

Companies should have the fortitude to set their compensation strategies according to their corporate strategies, not simply based on external markets for pay, and not simply based on internal ideals of what’s “fair.” To accomplish this, you’ll need first to identify how pivotal to your company strategy an executive really is.  For my earlier post on how to do that, click  here.

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An article entitled “Managing Your Career as a Business” in today’s New York Times business section discusses my career experiences and what I’m seeing in the job market:

Joy Chen followed her own entrepreneurial career path. Ms. Chen, with a master’s degree in business administration from the Anderson School of Management at the University of California, Los Angeles, had been a deputy mayor of Los Angeles and then went to work for Heidrick & Struggles, the management search firm. She left to start her own recruiting firm, Chen Partners in 2007, just as the economy started to slow. Business was initially scarce, she said. “Many employers were even then hunkering down.”

Then this year, Ms. Chen said, things changed. “Many companies noticed that after all the layoffs and uncertainty, skilled people were available at lower salary demands than in former years. And now business is very active.” The lesson of the economy’s ups and downs, she said, is that workers cannot let hard times or lower pay discourage them. “It’s a change in the market, not a depreciation of who you are as a person.”

The article points out that you need to develop a more entrepreneurial mindset about managing your own career.  The recession has laid to rest the notion that your company will take care of that for you. I’m always meeting people who make the mistake of being highly strategic on behalf of their companies, but not at all strategic for themselves.  Certainly, when a company gives you a set of responsibilities you should identify with your job and try to excel in it. But just as the recession is forcing companies to innovate, people should innovate on their own behalf.

One way to be entrepreneurial, of course, is to go out and create your own company. My very first boss, Yue-Sai Kan (靳羽西), is China’s most famous woman, having built a media and retail conglomerate there over the past 30 years. When I started Chen Partners, I recalled her advice: “Never just work for other people. They could fire you!”

Candidates sometimes ask me what it’s like to own a small business. I never discourage them from exploring it, though if everyone ran off and started a business, I myself would be out of business. Being an entrepreneur is an exhilarating experience, and headhunting is a special joy. It’s exciting to help great people grow their companies.

This recession has turned many of our previously-held assumptions upside down. One lesson we may take away is that now, we’re all working for ourselves. That’s true whether we’re doing so within a larger company or in one that we’ve created ourselves.

• What jobs are companies upgrading?
• What jobs should I consider upgrading?”

These are the two most common questions people have been asking me following my last blog post “Behind the Layoff Numbers, Companies are Upgrading Their Talent.”

The answer in both cases: jobs that require “pivotal talent.” “Pivotal” is not synonymous with “important.” Pivotal talents are those game-changing employees whose performance can make or break the bottom line.

Two of the best thinkers on this subject are John Boudreau and Pete Ramstad, whose book, Beyond HR: The New Science of Human Capital, has helped shape my thinking on how to connect business strategy to human capital strategy.

In a workshop I once attended, John and Pete offered a fictitious case study involving FedEx and pivotal talent. The board of FedEx pronounces Asia as their #1 growth market and key to the company’s future. Many companies make such pronouncements, and then fail to put in the people they need to succeed there. FedEx next analyzes their Asia growth processes, identifying the most important bottlenecks to that growth. (You may recall from business school that a “bottleneck” is a key constraint which, if removed, causes the entire process to work better.) A major bottleneck is the periodic assigning of landing rights at key airports in the region. By securing those landing rights, FedEx could grow in Asia; without those landing rights, growth of the entire enterprise would be compromised.

FedEx realizes that the people who secure those landing rights are pivotal to the future growth not only at those airports, but of the enterprise as a whole. Those community liaisons are pivotal talents.

How much compensation should FedEx pay to recruit and lock up the few individuals in each market with the knowledge, skills and connections to secure those landing rights? Further, what if they could poach those individuals from DHL or UPS and not only secure their competitive advantage for years to come, but also neutralize their competition?

This chart demonstrates the talent pool of pilots versus community liaisons:

Pilots are unquestionably important to the business of FedEx. Assuming the pilots have a basic level of competence, though, improving pilot quality yields little additional value. But at key airports where landing rights are at stake, the difference in value to FedEx between the worst and best community liaisons is huge.

Who are the FedEx community liaisons at your company?

Before reflexively deploying traditional strategies like across-the-board layoffs and pay cuts, evaluate your approach to “pivotal talent,” those game-changing employees whose performance can make or break the bottom line. As market conditions evolve and business objectives quickly change, you’ll need the right blend of critical skills to succeed. Focusing on your pivotal talent can provide you a major competitive advantage over the next 18-24 months.

Consider:

• What processes does your company need to win in your marketplace? Which are potentially pivotal? What are the key bottlenecks?
• At those pivot points, which are the jobs where performance quality will determine success?
• Do you have the people you need in those pivotal jobs?

If not, now is the time to upgrade. The job market, while brutal for job-seekers, has never been better for employers. You can access talent now that will set up your company for years. If you’d like to discuss whether Chen Partners can help ensure that you get the right talent in those pivotal roles, shoot me an email.

If you do have the right pivotal talent, invest in them now. Wrap your arms around them. Lock them up with incentives. Focus on their development. Otherwise, the next call they take could be mine.

Bullies. We know they exist. We know we should fire them. But can we afford to? And what happens if we don’t?

A friend from a major law firm in town recently told me about a senior litigation partner of hers who was famous for being rude. No secretary wanted to work for him. It was always f- this and f- that, and f- this person and all that. Not only did this guy cuss, but he was a mean cuss.

His partners sat him down and told him to shape up.  His response? As a litigator, he needed the f-word to do his job.

You know the type.

What did the firm do?  Decided he brought in too much revenue to reprimand too harshly.

He’s a classic “Destructive Achiever.” That’s a great term coined by retired management professor Chuck Kelly in his 1988 book of the same name.

Chances are you’ve met a Destructive Achiever. The typical American worker has a 50 percent chance of working for a bully in his or her lifetime, and one in five Americans works for a bully right now.

Bullies thrive during a recession, and have thrived in this one, because in bad times companies especially focus on their achievements while forgiving their bad behavior.

But new research shows that in fact, bullies cut a swath of destruction far worse than anyone imagined. Management professors Christine Pearson and Christine Porvath conducted a study of 4,000 employees at the receiving end of bullying behavior and found:

48%  decreased their work effort,
47%  decreased their time at work,
38%  decreased their work quality,
66%  said their performance declined,
80%  lost work time worrying about the incident,
63%  lost time avoiding the offender, and
78%  said their commitment to the organization declined.

Turns out that it’s during a recession that companies should beware the collateral damage caused by bullies.

My primary message regarding that megalomaniacal jerk in your ranks is: Cut Him (or Her) Loose.  That said, I understand that, like the law firm above, you may conclude that your bully brings too much benefit to cut loose, at least in the short term. It’s a recession, and revenue is revenue.

It’s a deal with the devil.  But if you have to make it, you don’t have to lose your soul – or leave your colleagues in harm’s way. Focus on gaining the benefits of the ‘achiever’ – such as his ability to bring in new business or solve technically demanding problems.  Meanwhile, remove his management responsibilities.  Reassign his direct reports and otherwise isolate him to minimize his destructiveness to the rest of the organization.  You’ll be doing your people, and yourself, a favor.

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For more on this subject, read:

• The Cost of Bad Behavior: How Incivility Is Damaging Your Business and What to Do About It
• The No Asshole Rule: Building a Civilized Workplace and Surviving One That Isn’t

A growing body of research on happiness in the workplace finds that optimism and cheerfulness have a measurable effect on the bottom line.

The chart below is from Wharton finance professor Alex Edmans, who has found that companies with happy employees perform better than other companies.

Makes sense that happy workers are motivated, and that efficiency ensues.  The good news is that happiness is a muscle you can strengthen.

The happiest employees are those who believe they get to do what they do best every day. Only one-third of working people feel that way.

Ensuring that people’s jobs are well-aligned to their strengths is an ongoing process. As your employees grow and broaden their skills, seek to evolve their work to ensure a continued fit with their skills. To achieve “flow” — complete absorption in a task — their workloads should be challenging but not too tough for them.

For those among you who are recruiting amidst this recession, hire for people’s strengths, and not just for their resumes. I will address how to do this in future blog posts, but in the meantime, you can see an overview on our website here.

Robert Aliota, founder of parts-maker Carolina Seal, says happiness science has led him to make lasting changes at his company. He regularly analyzes his own moments of triumph, “times when I was truly in the zone, utilizing my natural strengths and having fun,” as a sort of happiness fuel.

That’s the sort of fuel that can power the success of your company.

Companies everywhere are trying to reinvent themselves for a future they could not have imagined a year ago. Problem is, their human capital practices are not keeping up with their shifts in strategy.

I was out drinking with a senior partner at a well-known global consulting firm. He was leading a campus-recruiting project to hire students from China as they graduated from American universities. After all, it’s the era of the global consumer, and 53% of executives say that China and India will be vital to their success in the next five years. This project sounded like a good way for his firm to stay ahead of their clients’ needs.

He and his team had just been to UCLA. I asked how things went. Not well, he replied. Now I happen to know that UCLA is commonly called the “University of Caucasians Living Among Asians,” so I wondered why all those Chinese students didn’t fit the bill.

He said that they were uniformly smart and ambitious, but lacked “cultural fit.” In fact, he complained, one student came into the interview in a pastel suit, his hair in a pompadour. Elvis on top, Miami Vice below.

Research shows that, as a matter of human nature, when we meet someone, we size him up within five minutes, and then that initial impression colors not only our entire meeting, but also our recollection of that meeting. In recruiting, we call it the “Halos and Horns Effect.”

A Brooks Brothers model would have had a better chance getting past those crucial first minutes with my friend’s firm.

But this begs the question: What culture is this firm is recruiting to?

The Chinese students at UCLA now are China’s brightest, richest, most connected, best English-speaking, young people. For a firm that has tied its future to winning and executing China business, these candidates could be exceptionally well-equipped to helping the firm execute on those strategies.

It’s in the boardroom that companies announce new strategies and organizational structures, but it’s on the frontlines of people-management that the rubber meets the road.  Companies should routinely review their human capital practices to ensure they’re aligned with their strategies.

Otherwise, that Elvis lookalike who gets away could be the one who walks across the street to help your competitor eat your shorts.

Former Los Angeles Mayor Dick Riordan used to say, “You don’t have to get serious about business until you turn 40.”

Well this weekend, I turn 40, so watch out.  If this week is any indication, this recession will continue to power continued growth at Chen Partners. This week, we completed a VP Sales search at a portfolio company of a private-equity client who bought the company intending to create value by upgrading its sales function. And, at another company, the CEO signed us up to find a strategic new VP Human Resources to replace an administrative type.

That our firm is growing in this recession comes as a surprise to many. That’s because of all the news headlines blaring these half-truths:

1. It’s a brutal job market out there.
2. The recruiting industry is getting decimated.

Certainly, the recession is radically reshaping how companies are hiring. But here’s the whole truth:

1. It’s a brutal job market out there IF you’re a job-seeker. But for employers, the market has never been better.

Hidden in all the layoff reports is the fact that companies have been taking advantage of the chance to dismiss the low-performers and cherry-picking from the many good people out there. But the expanded talent pool means that there’s more work involved to find the best.

If you’re hiring, take care to avoid these seven common hiring pitfalls. In the future, I’ll blog more on how to recruit the best. Meanwhile if you like, click on “recruitment process” in the tag cloud at right.

2.  The retained-search recruiting firms are in trouble. That’s because the total recruiting pie has shrunk, and with their remaining recruiting dollars, companies are reevaluating longterm vendor relationships in search of results and efficiency.

It is indeed true that the retained search industry has shriveled in this recession. My old firm, global executive search firm Heidrick & Struggles, was trading at $52 in July 07, and is now at $18, a 65% decline versus a 33% decline in the Dow in the same period. The other publicly-traded retained search firm, Korn/Ferry, has similarly shrunk. But the decline in the industry has a lot to do with the retained search business model. Retained-search firms collect their fee up front, regardless of whether or not they ultimately deliver a viable candidate. The industry’s average completion rate is only 60%, and search firms do not return fees for uncompleted searches.

The retained-fee structure creates a conflict of interest between clients and shareholders, since revenues come from selling new searches, but the resources to work on those searches are booked as costs. That these firms are publicly-traded creates inexorable pressure to continually increase revenue by selling more searches, while at the same time reduce expenses by cutting the resources needed to complete those searches.

The retained-search business model has remained unchanged since the search industry was created in the 1950s. And, as the shareholder value destruction in this industry attests, the model is increasingly out of step with the increased transparency and value demanded by companies in this recession.

Two years ago, we established our firm with the intent to align our success with the building of our clients’ businesses. We accept only those assignments we feel confident we can complete. Then we dedicate the resources to complete each one.  We strive for excellence in all our work. And we back up our pledge with a pay-for-performance fee structure.

This recession has brought wrenching change for all businesses, but surviving companies will see lasting benefits. First, having cut to the bone and backfilled some of those cuts with better talent, they are leaner and more focused. Second, having reevaluated all their expenses, they are driving for greater efficiency and effectiveness in their recruiting value chain. Both these trends will continue to fuel the expansion of our work.

I’ll honor Mayor Riordan’s advice about turning 40 with a renewed commitment to helping our clients take advantage of this recession by priming their companies for renewed growth.

To all our clients, thank you for your trust and partnership. It’s by helping you build your businesses that we grow ours.

The latest unemployment news to get my attention: Not only is unemployment at historic highs, but also the percent of people who have been unemployed more than six months is 50% higher than at any time since the Great Depression. This will have long-term implications for unemployed Americans and the economy at large in terms of damage to psyches, checkbooks, and skills. At the thought of all this pain, my heart aches. I’m sure yours does too.

Some CEOs assume that, with all this bad news, people who are working feel lucky to have a job.  So they’re focused on what they need to do to get through the recession: manage cash and cut expenses.  Employees, as the biggest expense for many companies, are getting short shrift. Companies are lowballing job offers, cutting pay, denying bonuses, and generally putting a lower priority on their people.

The problem with ignoring your people is that your most important assets also are your most tenuous. And having a job does not equal job satisfaction.  Over half of working adults say they are likely to look for a new job after the recession ends.

The numbers are staggering:

• 66% of American workers are currently dissatisfied with their compensation
• 76% are dissatisfied with future career growth opportunities at their company
• 48% are dissatisfied with the relationship they have with their boss
• 77% are dissatisfied with the strategy and vision of the company and its leadership

CEOs looking hopefully toward economic recovery may be shocked by an unprecedented exodus of talent when that time comes.

Better rev up your retention efforts now. And, start with your pivotal talent!

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* Hat tip to HR Chief Bill Budzinski for sending me the worker dissatisfaction data.