Protecting Yourself and Clients from Conflicts of Interest

As executive search firms continue to strengthen their leadership consulting offering, we examine how they can ensure that they avoid conflicts of interest

There are several key components that are required in order to truly earn the moniker of a trusted advisor. Indeed, in order to be a member of AESC, executive search and leadership consulting firms are required to commit to our Code of Professional Practice and Standards of Excellence, which outline several core tenets to ensure our members act in the best interests of their clients, candidates, the community-at-large, and our profession. These are: integrity, excellence, confidentiality, objectivity, diversity & inclusion, and avoiding conflicts of interest.

By expanding their offering of leadership consulting services, executive search firms are able to service their clients in a deeper and more meaningful way. The term trusted advisor is applicable not just to the ability to find the best executive talent to fill an open position, but also to a client’s executive talent needs and overall business and talent strategies. In many cases, the services that are offered have been available for many years, and have been provided in a discreet, confidential and professional manner. In addition, executive search firms have added specialist leadership consultants to their ranks to develop bespoke methodologies for their clients. Because these have been designed with existing clients in mind, firms consider how to proactively avoid potential conflicts of interest.

Executive talent specialists

“When you work with the same clients for many years, they come to trust you with their talent needs,” says Jose Leyun, Chief Executive Officer at AMROP, who spent many years leading AMROP’s assessment practice before becoming CEO earlier this year. “Once you know the organization, the culture, and the talent, you are in a position to provide advice based on your understanding of global talent trends. If you have already gained the trust of your client in terms of executive recruitment, they will come to you and ask for assessment or other leadership services.”

By understanding the executive talent inside an organization, and benchmarking that discreetly against the information that a firm acquires through other searches, executive search firms are extremely well positioned to provide leadership services, which is why they are being turned to ahead of management consulting firms (who focus more on strategy than talent), or HR consulting firms (who focus more on programs than on assessing executive talent). Similarly, if a client just works with assessment tool providers, they may get a narrow focus without the context needed to make the right decisions.

While the market opportunity exists for executive search firms to further cement their positon as trusted advisors and expand their value to clients, it is important to do so with a strong consideration for the professional standards that have given them the platform to do so in the first place. “The pitfall here is that we have to be very careful not to get ourselves into a conflict of interest situation,” says Tim McNamara, Managing Partner, Washington D.C., Boyden. “For example, if you are asked to complete an assessment of several internal candidates for a promotion, and you objectively decide that none of them are in the right position for the role, it wouldn’t be too far-fetched for someone to suggest that there is a conflict of interest because you are looking for a search assignment.”

Krista Walochik, President of Talengo, explains another area where conflicts of interest can arise. “One of the big areas to be concerned about is off-limits,” she says. “Clients are concerned about letting in executive firms to assess top talent because they worry that once we know their executive talent, it will be poached. You need clarity and transparency to reassure the client about this.”

Protecting against conflicts of interest

As a profession that is based on integrity and reputation, allegations of conflicts of interest could be extremely damaging. Jim Hostetler, AESC’s General Counsel, believes that three key considerations for any executive search and leadership consulting firm should be: protecting confidentiality, ensuring data privacy, and handling off-limits in a professional manner that is agreed upon with clients. “Potential issues can usually be addressed through full disclosure to the client at the start of an assignment,” Hostetler explains. “Furthermore, if a firm is working on a leadership consulting assignment and it develops into a situation where there could be a search assignment, they need to have an open discussion with their client about their ability to conduct an independent search.”

Another important way for executive search and leadership consulting firms to protect themselves is by establishing an ethical wall, often known as a ‘Chinese wall’, between services. This is already common practice in most firms, and across the professional services sector. Indeed, McKinsey, known for not publicly naming their clients while working for them, was rumored at one point to have worked for both Coca Cola and Pepsi at the same time. The importance in ensuring that no confidential information about the competitors passed hands internally was clearly paramount to McKinsey’s reputation. As it applies to executive search and leadership consulting firms, Hostetler explains: “It requires a highly sophisticated database, a great deal of diligence from consultants inputting information into the system in a timely way, and highly skilled group of individuals that examine and opine on different situations to monitor and be sure that whatever procedures are in place are being respected.”

Sticking to core strengths

As a largely unregulated profession, AESC can play an important role in ensuring that our members – those that commit to the highest levels of excellence in the profession – adhere to standards and handle leadership consulting services with the same professionalism that they do with executive search. While there may not be the same legal threat that investment banks or audit firms face, there is significant reputational risk to not following professional practices. And while most of the demand for leadership consulting services has come from clients looking to consultants that they trust for additional advice, McNamara explains that it is important to know your own limits as a consultant and a firm. “We play best in being trusted advisors to CEOs and boards,” he says. “If a CEO asks me to undertake an organizational development study, I say no. Not because I can’t do it, but because there are specialist firms out there who could provide much more objectivity and better value to my clients. We should be open to partnering with other professional services firms to provide a cooperative effort in the best interest of our clients.”

Ultimately it comes down to continuing to embody the Code of Professional Practices outlined at the start of this article and adhering to the more detailed AESC Standards of Excellence posted on the AESC website. By operating within these parameters, AESC members serve as trusted advisors to their clients. When that yields additional opportunities, the same values should inform whether or not a consultant or firm can serve the client effectively and in a manner that avoids conflicts of interest. The increased demand for leadership consulting services is an encouraging sign for AESC members, their clients, and the profession as a whole, and demonstrates that executive search firms have built an infrastructure that protects against conflicts of interest and gives them the platform to offer these services in a professional and independent manner.

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