Business Law

“Hiring is your most important task,” said the late Steve Jobs. Considering a wrong hiring decision can be extremely expensive to repair, let’s look at some recruiting options.

Ideally, a succession plan will have an internal candidate ready for promotion: advancing a rising star’s career and providing continuity with minimum controversy and a positive message to the workforce that capable people who do well will be recognized and rewarded.

Often, however, hiring from outside is required. If the company has a competent HR recruiting function, direct ads and in-house screening may be effective for lower and some midlevel positions.

For more important midlevel management or specialist positions, outside assistance may be needed. There are many recruiting companies. By going to any networking event, it is hard not to collect business cards from such firms.

Most recruitment firms offer contingency searches. Usually the process begins with interviewing the hiring managers and agreeing on a job description and compensation range. The recruiter ideally provides a long list of candidates and works with the client in coming up with a short list. In reality, the contingency recruiter usually relies on names from their database, or active job seekers. The recruiter may do some fundamental reference and credential checking before the final offer is made. The success fee is normally in the range of 20 to 30 percent of the first year compensation, including regular bonuses.

For lower-level positions the contingency approach is preferred, since a wrong hire is not likely to be a strategic setback. However, a hire of the wrong senior manager can be costly in terms of negative impact on the organization and lost time.

Some recruiting companies claim they do both retained and contingency searches. In reality, these are contingency recruiters that are thrilled to be paid up front – but still deliver a contingency-class service.

There is also a small number of retainer-only search consultancies that focus on identifying, evaluating and attracting “C-suite” executives (CEO, head of region or country and positions reporting directly to the region/country head) – and sometimes accept engagements one level lower. These senior professionals partner with the client in a consultative process aimed at selecting organizational leaders. Success in these partnerships depends upon a shared focus built on trust, candor and responsiveness throughout the process.

The search is conducted through an exclusive engagement with fees billed at the start and throughout the process. Consultant and client collaborate in determining leadership needs and defining executive positions. The consultant leads in identifying well-qualified individuals, selecting those best suited through a comprehensive evaluation process, and convincing them that the company/opportunity is a proper step in their career progression. Meanwhile, retained search consultants provide employers regular, detailed progress briefings.

This methodology proves to be the wisest option for senior leadership and other strategically critical hires. Some employers avoid retainer search due to the perceived costs, although in reality the total amount is not significantly higher than a contingency fee, and the risk of lost opportunity cost or reputation damage is greatly reduced. Most retained search firms are paid the equivalent to 33 to 35 percent of the total annual compensation, or in some cases a fixed fee not linked to compensation.

According to the Association of Executive Search Consultants, “Retained executive search consulting is a specialized form of management consulting. In addition to locating high-quality candidates, the retained search firm should provide information and feedback that not only helps direct the client’s search for executive talent but can also be used to run the client’s business more effectively. This feedback may include general market research regarding how the client’s organization is perceived in the market, competitive intelligence, and what kind of recruiting strategies may or may not be working at any given point in time.”

Retained searches most commonly take place when one or more of the following conditions apply:

Replacement of incumbent: There are times when a very high level of confidentiality must be maintained. As with other professional services firms – attorneys, accountants and strategic consultants – disciplined senior executive search professionals fully understand how to work with total discretion.

Difficult to find individual: Access to high-level executives who are not on the job market is fundamental, as is capability to invest time and resources thoroughly researching the target universe to identify key players.

Difficult internal promotion: Shareholder compliance (or internal debate) may necessitate a thorough look at external candidates in conjunction with independent evaluation of internal candidates.

The retained consultant will invest much more time than a contingency firm in understanding the client’s corporate culture, key executive personalities, vision, strategy and business objectives, and will be able to communicate this effectively to qualified individuals. Out of this process may emerge the “compelling story” critical to attracting a star executive.

A retained search firm will rigorously conduct reference checks with a broader range of people than those suggested by the candidate. It is in the best interest of the consultant as well as the client to flag concerns before an offer is finalized.

Most companies say “people are our most important asset,” yet often default to hiring friends of friends, applicants from newspaper or Internet ads, or resumes thrown at them from many sources. This may work for lower/midlevel positions, but tossing the dice when filling any key leadership role isn’t acceptable in today’s corporate environment.

In summary, there are a broad range of situations requiring different hiring strategies. The hiring executive has several options, and one recruiting strategy rarely fits all needs.

I remember watching a cartoon on Saturday mornings called Hong Kong Phooey. It was about this kung foo fighting dog that battled crime in Hong Kong. Now, I didn’t know where Hong Kong was or how to get there or if I would ever go there, but, I dug that kung foo dog and the way that good prevailed over evil.

Now that was the early 70’s and I was probably a burgeoning teenager with two karate lessons under my belt, which I quit because I couldn’t touch my toes and would rather have been playing basketball. 35+ years later and here I am in Hong Kong drinking coffee on a Wednesday morning before the organized chaos begins and I’m reading an article in the Asian Wall Street Journal about the influx of foreign (outside of Hong Kong) companies desiring to list on the Hong Kong stock exchange.

I thought, of course they want to list in Hong Kong because of the lower cost of listing, fair but not burdensome compliance – unlike the U.S. Sarbanes Oxley laws which make it cost prohibitive to list on the NASDAQ or NYSE for many firms. Also, the transparent and safe banking system and the access to capital. Why wouldn’t they want to relocate their company or alternatively set up a new company to handle their international or Asian business?

Freest country in the world. Easiest to do business. 16.5% flat corporate tax. 15% flat personal tax rate – even lower if it means you can pay less tax. No death tax, no capital gains tax, no tax on dividends, no sales tax, no consumption tax. No graffiti. World class medical care, world class schools, clean, safe, a bit crowded for those accustomed to living in a rural or suburban environment, but, a very livable city. In fact, Hong Kong was ranked number 1 in the Heritage Foundations 2011 Index of Economic Freedom.

I have to think that Hong Kong Phooey had something to do with this. Now, unlike Hong Kong Phooey, I don’t have a Phooeymobile to travel around Hong Kong, but I don’t really need it because the public transportation is the best I’ve ever experienced anywhere in the world – and it’s cheap. Anyway, if I had a Phooeymobile I would certainly get confused driving on the wrong side of the road, and those roundabouts would have my head spinning. I do have something similar to Hong Kong Phooey’s Hong Kong Book of Kung Foo which he consulted to fight bad guys, only to be saved each time by his trusty sidekick Spot – go figure a cat saving a kung foo fighting dog. What I have is a book of knowledge gained from being on the ground here in Hong Kong, advising my clients on Asian (specifically China) market entry via Hong Kong and on numerous transactions, mergers and joint ventures.

What I know is I am big fan of Hong Kong Phooey and a bigger fan of Hong Kong. I was with one of my clients yesterday and we were talking about Hong Kong – she’s been spending more time here as her global business grows. She said, “Hong Kong has everything, it is safe and easy and a world class city, I love it here.” What you should know about her is that she is a very experienced, talented and successful entrepreneur and has chosen to base her new ventures in Hong Kong specifically because of the economic freedom. She didn’t mention that her country, which is supposedly the “freest” in the world comes in at a distant number 9 on the list, which is generous and just one slot ahead of the economic megalopolis of Bahrain.

So, next time you and your business are feeling overburdened by regulations and taxes and lack of capital, look to the kung foo fighting dog and his trusty sidekick Spot. Look to Hong Kong Phooey!!

The post was written by Frank Caruso, the chair of the China Practice Group at IPG Legal.

It’s been a busy Fall here in the Jungle (Shenzhen). With the rest of the world economies crumbling as a result of too much debt and their populations getting bigger because of too many carbohydrates, business and baking is booming here in China. The government continues to support an economy that is growing at somewhere between 8 and 12% and the people can’t get enough Ferrari’s, Mercedes, BMW’s, LV and Gucci bags, not to mention apartments and commercial office space. You really have to be here on a daily basis to see it, understand it and then appreciate it as the consumption is unlike anything most of us have ever seen in our lives, or will ever see again.

That being said, while we have been busy helping our clients enter and exit the manufacturing business in China, we seem to be advising an increasing number of clients on entering this market to sell their products to distribution or even at retail. As I have been telling anyone who would listen for the last 10 years, we are in the midst of the greatest (largest) economic boom that the world might ever see, purely because of the number of people here and their desire for the things that the rest of the world has. China will soon surpass the United States as the largest economy in the world.

One of my friends and clients, although he rarely requires my counsel, is one that is taking advantage of the Chinese quest for things that the rest of the world has, like Pizza. Thomson Ly is the founder of NYPD Pizza in Shenzhen, China and Hong Kong. We met many years ago when he opened his first delivery pizza place in a back alley here in the Jungle. I was shocked to see a picture of his pizza in the English language newspaper, Shenzhen Daily, and a story about his new venture. So, I called the pizza shop and he answered the phone and I asked him if his pizza was really as good as the picture made it look. He suggested I come over and try one and find out for myself. So, after an hour trying to find the back alley where he was located next to the tire repair shop I walked in on a diminutive Chinese American in jeans and a baseball cap. I checked again and thought, “this can’t be the place” “a Chinese can’t make a pizza as good as the one in the picture”.

Lo and behold not only can this ABC (American Born Chinese) who speaks fluent Mandarin, Cantonese, English and several other languages make a fantastic pizza, but after several years, multiple awards and a growing customer base of carbohydrated Chinese and foreigners he recently won an award in Hong Kong for the best pizza. He even beat out a place called Paisano’s which makes a pretty darn good pie.

Best Pizza in Hong Kong 2011 – NYPD

As the four of you who read my blog know, I like to write about my entrepreneurial friends and clients who are willing to take big risks and go all in here in the Jungle. Lot’s of people said that the Chinese wouldn’t like pizza or even order delivery pizza. Tell that to Thompson at NYPD and the next time you are in the Jungle, try ordering The Caruso http://www.nypdpizza.com.cn/ it’s my favorite.

The following post was written by Frank Caruso. Frank is the head of the China Practice Group at my Firm. Yes, the pizza is good. Not as good, of course, a Pepe’s in New Haven, Connecticut, but still great pie and the best I have had in Asia. The owner is also one of the nicest guys you will meet in the world.