Screening Out Bad High-level Hires

A year ago, Kennametal Inc. could have served as a textbook example of how big companies hire senior executives. The $1.8 billion multinational tooling and engineering company used search firms to identify prospects, then invited top candidates to its Latrobe, Pennsylvania, headquarters. There they’d spend a half-day interviewing with key executives and human resources managers. “It was a fairly traditional and typical interview process,” says Jeffery Holst, Kennametal’s organizational effectiveness director.

    But over the past few years, as executives sought to improve talent development for the western Pennsylvania company’s 13,500 employees, they concluded that to get higher-performing mid- and upper-level managers they needed to ask better questions in interviews. So in August 2003, Kennametal retained industrial psychologist Bradford Smart and his firm, Smart and Associates, in Wadsworth, Illinois, to conduct a two-day workshop on his “Chronological In-depth Structured” interview process for the publicly traded corporation’s top 65 executives. In the session, staff who typically interview job candidates–human resources and other top-level execs–learned to administer a series of highly formatted interview questions covering candidates’ education and career achievements and how they behaved to accomplish what they’d done. “It’s more than what 95 percent of corporate America does,” Holst says. Kennametal followed up by licensing interviewing guidelines and other materials from Smart and distributing them to human resources managers globally via CD-ROM.

    It has paid off already. Since August, Kennametal has used the technique “dozens” of times in interviews with top-tier job finalists, Holst says. “In several situations, people who we thought were the right people we decided after more in-depth [interviewing] weren’t right after all,” he says.

    Kennametal isn’t an isolated case. Companies large and small are putting middle- and upper-level management candidates through more hiring hoops. Organizations that once considered a recruiter’s recommendation, interviews with senior staff, some solid references and perhaps a skills test good enough are now requiring that finalists for top-tier jobs go through even more vetting. Blame it on the fear factor. Nobody wants their company to be the next corporate scandal splashed across the front page. The bad economy, the stock market decline and security concerns after 9/11 also helped push companies to adopt more stringent executive-hiring practices, according to human resources directors, executive recruiters and other industry watchers. Even as the economy appears to be on the mend, hiring for the corner office will never go back to what it was in the old days.

    “People are scared, boards are scared because they’re being held accountable,” says David Pfenninger, president of Performance Assessment Network, a testing company in Carmel, Indiana.

    Another driving factor is money. One mishire can cost a company 14 times the salary of a manager making less than $100,000 a year, and up to 28 times the salary of someone making $100,000 to $250,000 a year, according to Smart’s 1999 book, Topgrading: How Leading Companies Win by Hiring, Coaching and Keeping the Best People, based on 4,000 interviews with people at public and private companies. By that estimation, firing a single ineffective top manager making $200,000 a year could cost a company roughly $5.6 million. “It could be even more than that,” says Holst, “if you hire someone like a sales manager who alienates all your customers and then leaves after six months. That [cost] is hard to measure, but it’s huge.”

    In the post-Enron world, experts say, candidates for senior posts can expect to be put through a battery of assessments, including tests that measure intelligence, problem-solving ability, people skills, management style and fit with a particular corporate culture. Group interviews are popular, as are workplace simulations in which a candidate may have to assemble facts for a boardroom presentation.

    Web-based tests such as those administered by Performance Assessment Network and a growing pack of executive-search firms are on the rise, giving human resources managers a low-cost method of screening job candidates before forking over big bucks to hire them. Biodata testing, in which testers gather biographical and personal information and match it against normative databases to predict a potential employee’s future performance, is also gaining popularity. Procter & Gamble Co., which has used biodata testing on job candidates at all levels for decades and administers more than 100,000 such tests a year, began marketing the measurements to other businesses late last year.

    Implementing more stringent executive-hiring programs isn’t always cheap. At Kennametal, the Smart and Associates workshop and licensed materials have cost about the same as a single mishire, Holst estimates. The bigger expense has been taking busy managers away from their jobs to go through the interview training. To help cut those expenses, Holst has traveled to corporate divisions in the United States and China to conduct follow-up workshops, and will travel to Kennametal offices in India and Europe this year.

    To Smart and Associates’ basic interviewing protocols, Kennametal added questions designed to identify competencies that the corporate culture considers important, including management integrity, Holst says. Screening potential managers for ethics is especially critical outside the United States because standard operating procedure in some countries can be “rough and tumble,” he says. Kennametal started 66 years ago in a small town outside Pittsburgh, “and small-town beliefs, ethics and behaviors were at the formation of this company, and we’ve hung on to them even though we’ve grown.”

    The popularity of extra pre-employment analysis has been a boon for testing companies and consultants. Pfenninger, a clinical psychologist who markets Web-based assessments from 47 publishers to a client base of 5,000 companies and consultants, says that sales of management tests have increased 40 percent in the past four years. Jill George, consulting vice president and assessment practice leader at Right Management Consultants in Philadelphia, says that the number of companies using her services has tripled since 2002. Interest is coming from a variety of industries, including banking, pharmaceuticals, manufacturing, food, financial services and health care, she says.

    One of Right Management’s customers is DuBois Regional Medical Center, a $120 million nonprofit medical center that owns two hospitals and several physicians’ groups in the city of DuBois, in rural west-central Pennsylvania. Executives at the 291-bed medical center were blindsided when several department heads who had performed superbly in pre-employment interviews fell short on the job. The mistakes were costly. When the managers were let go, the medical center lost $100,000 in recruiting fees, relocation expenses and severance packages–per person–according to Susan Grady, human resources vice president. That sum didn’t include what Grady refers to as “the hidden costs” of leaving a hospital department with no leader, causing employees to fret and disrupting patient care.

    At a time when DuBois was growing quickly to cement its spot as the region’s No. 1 health-care provider, but facing the usual government and insurance reimbursement squeeze, wasting money on more bad hires wasn’t an option. So in 2000, DuBois hired George to perform intensive pre-employment screenings of upper-level job candidates. George also created benchmarks based on existing hospital execs’ characteristics. Those traits included high levels of integrity, strategic thinking, innovation, a passion for customer service and a “workaholic” nature, Grady says. Now, when a spot opens up for, say, a cancer center manager or heart surgery department head, candidates won’t move on to interview with senior executives unless they pass the screening and meet the benchmarks.

    The results have been outstanding: the hospital’s ability to pick top performers has risen 30 percent to 50 percent in the past four years, George says. Without such testing, Grady says, “sometimes you get so involved in thinking ‘I’ve found the right person’ that you don’t ask the right questions.”

    Since 2000, DuBois has spent $125,000 to put 25 job candidates and current managers through Right Management’s assessment program. To Grady, it was money well spent. “Assistance in making the right decision to hire or promote is worth much more than the original investment,” she says. In fact, DuBois senior managers were so pleased with the results that they’ve brought the program down to the supervisor level. The medical center also is using information culled from more rigorous pre-employment screening to map out career paths for the managers they hire. “It’s a good retention strategy because the candidates will feel they’re interested in them,” George says.

    In the past year, DuBois also has begun putting existing managers who’ve been tapped to take over spots on the executive committee through the same assessment program. Grady is using the information to teach the director of human resources, who has been tapped to be her successor, what work he would need to do if she were to leave. “We’re in the middle of a building campaign, and if someone should leave, the board wants someone who could step in who understands our philosophy and traditions,” she says.

Workforce Management, May 2004, pp. 70-72 — Subscribe Now!