Why the safest looking candidate isn’t always the lowest risk hire
When I first started in recruitment, I was incredibly optimistic, not particularly cynical and, to be perfectly frank, didn’t really understand investment banking corporate culture.
More specifically, I didn’t understand how banks viewed people who were out of work or had been out of the market for a period of time.
After more than 20 years in recruitment, I’ve learned a lot about what gets people hired, what doesn’t, and how institutions assess risk when making senior appointments.
One of the most revealing conversations I’ve had came this year.
I was advising a client on a senior hire and strongly recommended someone who was probably the best candidate in the market. He was expensive, certainly, but he was working in a very similar environment, had an exceptional track record and, in my view, would have been a huge success.
My argument was pretty straightforward: pay the big salary and, if you’re right, get the big return.
The client’s response was equally straightforward:
“Banks don’t think like that.”
And that’s exactly the point.
Why don’t they?
I think a large part of the answer is that nobody wants to stick their neck out.
Perhaps that’s understandable. Hiring decisions inside large institutions often have asymmetric risk. Hire the obvious candidate from a direct competitor and it doesn’t work out, and everyone can understand why you made the decision.
Hire someone who’s been out of the market for two years and it doesn’t work out, and suddenly the question becomes:
“Why did you hire them in the first place?”
The hiring manager isn’t necessarily rewarded for taking the more intelligent risk, but they can certainly be punished when an unconventional hire goes wrong.
That’s precisely why good hiring requires conviction.
The safest looking candidate isn’t necessarily the lowest risk candidate.
Being out of the market doesn’t erase a track record
Don’t get me wrong. I strongly believe in a rigorous recruitment process.
But I’ve seen institutions completely rule people out simply because they’ve been out of the market, or because they made a move to a lower tier firm and need a better platform and another shot to demonstrate what they can do.
People make bad career decisions. Someone sells you a dream, you accept the job and on day one you realize you’ve been sold a pack of lies.
It happens.
Firms restructure. Businesses close. Management changes. Two companies merge and suddenly there are two people doing the same job. Sometimes an extremely successful person simply makes the wrong move.
None of that automatically makes them a bad hire.
If someone has previously achieved a very high level of success in an investment bank, why should we assume that ability has disappeared because they’ve spent some time away from the market?
Perhaps they ran a successful sales team. Clients loved them. They were one of the best people in their market. They know the product, understand the clients and have already demonstrated that they can perform at the highest level.
Give the right person another opportunity and there’s every chance they’ll become one of the best at what they do again.
There’s also potentially a very attractive risk/reward equation for the employer.
People trying to re-enter the market often aren’t asking for enormous guarantees. Many are willing to come in on a reasonable base salary because they have something to prove.
Compare that with paying a substantial guarantee to move someone directly from a competitor.
One candidate costs considerably more because the market currently validates them. The other may have 20 years of demonstrated success but happens to have spent the last year or two outside the market.
Which one is actually the bigger risk?
Out of the market isn’t the same as out of date
There is, of course, a difference between being out of the market and being out of date.
That’s where the assessment comes in.
How long have they been away? Why did they leave? Have they maintained their client relationships? Do they understand how the market has changed? Is their technical knowledge still current? Were they consistently successful? Were they promoted? Would former colleagues hire them again?
Most importantly, is there evidence that the qualities that made them successful the first time are still there?
Those are legitimate questions.
“They’re out of the market” isn’t an assessment. It’s a shortcut that avoids making one.
I’ve seen what happens next many times.
A bank rejects a candidate because they’ve been away from the market. Another firm gives that person an opportunity.
They spend a year or two getting back up to speed. Clients start talking about how good they are. Their numbers come through. Suddenly they’re regarded as one of the best people in the market again, just as they were before.
Then the institution that wouldn’t hire them two years earlier wants them.
Except now the economics have completely changed.
Instead of hiring that person on a reasonable base salary when they were hungry for an opportunity, the bank may now have to pay a significant guarantee, offer a promotion and potentially buy them out of deferred compensation.
And the candidate might not even want to join.
The person hasn’t fundamentally changed.
The market’s perception of them has.
Don’t lower the bar. Do more due diligence.
I’m not suggesting banks should indiscriminately hire people who are out of work.
Far from it.
People can be out of the market because of performance problems, compliance issues, conduct problems or other legitimate concerns.
The answer isn’t to lower the hiring bar.
It’s to increase the level of due diligence.
Speak to former managers and colleagues. Where appropriate, speak to former clients. Understand exactly why the person left their previous positions. Look at their historical numbers.
Were they promoted? Were they genuinely a top salesperson or trader, or is that simply how the story is being presented?
Ask which clients they believe they can reconnect with and test those assumptions. Find out what they’ve done to remain relevant while they’ve been away.
If the answers don’t stack up, don’t hire them.
But if they do, don’t dismiss 20 years of demonstrated performance because the last 12 months of someone’s CV aren’t perfect.
Investment banks should understand this better than anyone
There’s an irony here that I’ve always found fascinating.
Most investment banks have a distressed assets business. In some cases, it’s one of the most profitable businesses in the firm.
These businesses exist because sophisticated investors understand something very important:
An asset being unwanted by the market doesn’t necessarily make it a bad asset. Sometimes the market has simply mispriced the risk.
Yet when it comes to hiring, many of those same institutions seem unwilling to apply the same thinking.
An experienced banker who’s temporarily out of the market shouldn’t automatically be viewed as damaged goods. They should be viewed as an opportunity that requires proper due diligence.
Look at the person’s history. Were they successful? Did they get promoted? Did clients value them? Why did they leave? What do former managers and colleagues say about them?
If the answers are compelling, perhaps the question shouldn’t be:
“Why would we take the risk of hiring this person?”
Perhaps it should be:
“Why are we giving someone else the opportunity to hire them first?”
I’ve worked with a small number of major financial institutions that are prepared to make these hires. In my experience, it isn’t because they’re reckless. It’s the opposite.
They have rigorous hiring processes and the confidence to make decisions that aren’t simply dictated by what the rest of the market thinks.
They know how to separate the wheat from the chaff.
They understand what success looks like.
Fortune may favour the brave, but I’m not advocating bravery for its own sake.
I’m advocating measured risk taking backed by proper due diligence.
The best hiring managers I’ve worked with don’t simply follow the market. They have the conviction to recognize talent before the market validates it for them.
And, just like distressed investing, by the time everyone agrees it’s a great asset, the opportunity to buy it cheaply is usually gone.
