Worth the Price?

With the economic downturn likely to lead to a significant drop in charitable donations and already taking a bite out of many endowments, many nonprofit organizations have begun to think about ways to cut back their spending. One expenditure that could soon go the way of canceled holiday parties: the use of executive-search firms to recruit charity leaders and workers.

In recent years, the use of such firms by charities has increased sharply. At least 208 search firms serve charitable groups — including major for-profit recruiting companies that take nonprofit clients and individual headhunters, according to the Bridgespan Group, a nonprofit organization in Boston that provides strategic planning advice to charities.

Increasing competition among nonprofit organizations for top talent, fueled in part by a generational leadership shift, has spurred the boom in outside recruiters, says Wayne Luke, managing director of Bridgespan’s executive-search business. “There’s a real shortage of talent out there, and growth in the number of search firms is a direct response to that,” says Mr. Luke. “The days of searching by Rolodex are over.”

But hiring by search firms can also be an expensive proposition. Such firms typically work for a percentage of the first year’s salary of the executive they have been hired to place. Finding a new executive director who will be offered $150,000 a year will cost a charity roughly $50,000. And if recruiting that leader requires a lengthier search — or multiple searches — cost overruns can drive the figure even higher.

The costs will probably not cause charities and foundations to abandon search firms entirely, but to be more cautious in how they approach the process.

“Boards seek the refuge of support and confidence anywhere they can find it, even in tough economic times,” says Kenneth L. Gladish, president of the Austin Community Foundation, in Texas, and former head of the national YMCA, in Chicago. But a new era of penny-pinching will likely force charities to be more thoughtful about how they use such services, he adds: “Knowing how to be really smart consumers is more important now than ever.”

Weighing the Costs

For nonprofit groups facing a search for a high-level position, the first question to ask is whether the assistance of a search firm is necessary. Some experts argue that charities are often better served by conducting their own searches than by spending tens of thousands of dollars to retain an outside firm or consultant.

Carol Weisman, a consultant in St. Louis who advises nonprofit organizations on board development and leadership transitions, argues that certain types of charities simply don’t require the assistance of an outside firm.

“If you’re a small local group, this is not something you need to be considering,” she says.

Another category that should go it alone: charities in the midst of a leadership transition with an obvious “heir apparent.”

“If you have a solid succession plan, it does not make sense to go with a search firm,” says Ms. Weisman. “You don’t need to put the board through that process, and you certainly don’t need to drag unemployed people through it ‘just to be fair.’ It isn’t fair.”

Norman Silber, a professor of nonprofit law at Hofstra University, in Hempstead, N.Y., argues that charities may find that relying on existing social networks to find candidates not only saves scarce dollars but also can be more efficient.

Says Mr. Silber, “If you take the collective experience of the existing CEO and the board and magnify it by various contacts and people in the field who know something, you can create a pool of talent that probably suits the needs of the organization more efficiently than someone who comes in from the outside and has to establish what the group is all about before it can even start.”

Both Mr. Silber and Ms. Weisman say that the decision to enlist the services of a search firm should be made only if charity leaders determine that they cannot find the sort of candidate they are looking for on their own.

Odyssey Networks, a New York nonprofit group that produces and distributes religious television programs, had traditionally recruited new employees by plumbing the networks of its current staff and board members. But with the addition of a fund raiser three years ago, the charity was venturing into brand new territory, recalls Edward Murray, who served as chief executive at the time and later stepped down after many years to serve as an executive vice president.

“Search firms are an expensive proposition — especially for a nonprofit,” says Mr. Murray. “You’re looking at a minimum of $35,000 to $40,000. But we knew that this was something we weren’t going to be able to do on our own.”

Odyssey’s leaders ultimately determined that the cost was worth it, given the importance of the position the organization sought to fill.

“We looked at this as an opportunity to diversify our staff, and we knew that the expense would be worth it if we found the right person,” says Mr. Murray, noting that Odyssey ultimately hired a black woman to fill the job. “We ended up with a great director of philanthropy, and I don’t think we could ever have found her on our own.”

The desire to diversify a charity’s staff may be just the time to consider bringing in the services of an outside recruiter, says Ms. Weisman. “If you need to widen your radar screen,” she says, “a search firm might make sense.”

She adds that charities should take a hard look at the firm’s track record for finding the kinds of candidates sought. “The trick is to make sure they have contacts in the area you want to hire from,” she says. “If you are looking for an African-American, make sure they have hired other African-Americans and ask how they customized the search.”

Internal Recruitment

When Sherri Killins took over as vice president for human development and operations at the Annie E. Casey Foundation in 2005, most of the Baltimore philanthropy’s recruiting — even for administrative positions — was conducted by outside search firms. Ms. Killins decided early in her tenure that she wanted Casey to do much more of its own hiring.

Cost was one factor driving her decision, she says. When she arrived, the foundation was spending more than $200,000 a year on recruitment, most of which was going to search firms.

But Ms. Killins was also concerned that by relying so extensively on outside recruiting help, Casey was effectively closing the door on worthy potential candidates to be found beyond the search firms’ networks.

“People often turn to search firms because they think they’ll get access to an expanded pool of candidates, but it can also end up limiting just who has access to jobs,” says Ms. Killins. A conversation she had with a colleague who worked at another area foundation neatly summed up the grant maker’s dilemma, recalls Ms. Killins: “He made a joke about having always wondered how you could get hired at Casey.”

By putting Casey staff members back in charges of searches, Ms. Killins hoped to realize cost savings — the amount of money Casey spends on search firms has dropped by half since Ms. Killins’s arrival — but she also sought to increase the number of Baltimore residents on the grant maker’s staff. “We still view ourselves as a national organization,” she says. “But if a position can be filled locally, that’s important.”

Ms. Killins, who recently went on leave in order to lend her services to a Casey grantee, the Family League of Baltimore City, enlists the aid of a search firm only if she is convinced that her organization cannot find the appropriate candidate on its own. One recent example: Casey’s search for a new vice president for finance. “This was a really important hire for us, and we were committed to the idea of finding a diverse candidate,” she says.

Ms. Killins looked at six search firms until she found one that matched Casey’s needs. “We went with a firm that had a strong history of placing diverse candidates. They did a fabulous job,” says Ms. Killins, noting that the grant maker hired a black man for the position.

Special Offers

If nonprofit employers are rethinking their dependence on costly outside recruiting help, one kind of search firm may be poised to profit from the tough economy — one that is itself operated by a nonprofit entity. Such nonprofit firms typically charge far less than their for-profit counterparts, the largest of which are publicly traded companies, and offer services that go well beyond traditional recruiting.

Third Sector New England, for example, a nonprofit organization in Boston, advises charities and operates its own search firm. It charges $20,000 for its executive-transition services: an assessment of the charity’s needs, a complete search for a new leader, and support for the new executive after he or she is hired, including coaching for a full year. Hez Norton, who oversees the executive-transitions program for Third Sector, said the group offers training for the new leader because “we figure that the board is tired after going through a long search, and they’ve already made a big investment in terms of time and money.”

The Connecticut chapter of the Alzheimer’s Association, in Kensington, turned to Third Sector New England in 2006 when board members tried — and failed — to find a replacement after its executive director stepped down.

“We were getting people who didn’t seem like they’d be able to do the job, and we ultimately decided not to hire any of the candidates,” says Eric Rennie, the chairman of the charity’s board.

Third Sector paired the Alzheimer’s Association with a consultant who first helped the group assess its goals and then oversaw the search process.

“It was a very different kind of search than what I’d seen before,” recalls Mr. Rennie. “There was a lot of emphasis on using existing networks — something that we didn’t do the first time around.”

Still, even working with a nonprofit entity can be expensive, especially if the search drags on. Mr. Rennie notes that Third Sector supplied the charity with three interim directors during the year and a half that was spent searching for the right leader. But it was worth it, he says.

“We ended up with an executive director who had 20 years of senior management experience at nonprofits that work with the elderly,” says Mr. Rennie. “We couldn’t be happier.”

Smart Choices

When the executive director of the Massachusetts Immigrant and Refugee Advocacy Coalition, in Boston, decided to leave the group last year, staff and board members quickly determined that finding a suitable replacement for him was not something they could do on their own. The intense interest in immigration policy had catapulted the organization into the national spotlight, and the new executive director would need knowledge of a host of immigration-related issues at the local, state, and federal levels.

To find the right search firm, the charity did something unusual. It conducted a search of its own. Ali Noorani, the departing executive director, sent out a request for proposals and asked interested recruiters to send in what were essentially résumés. The charity wanted answers to specific questions, says Carly Burton, the group’s interim deputy director.

Among the queries: Would the firm be able to reach a diverse pool of potential candidates? What kind of expectations did the firm have with respect to the charity’s staff and board? How much would the search cost, and how would cost overruns be handled? Finally, the charity asked for a list of references from nonprofit clients with which the search firm had worked in the past.

Ms. Burton notes that although her organization had previously used outside recruiters, asking such questions enabled the group to go into the search process knowing what it wanted and what the headhunter could provide.

“It was really helpful for our board members who hadn’t worked with search firms before,” says Ms. Burton, who adds that the search for a new leader is now in its final stages.

As for whether it was necessary to hire a search firm in the first place, Ms. Burton and other board members say that they are not so sure — especially after they witnessed the process up close. “We could probably have found the candidates on our own,” she says.

Such a conclusion doesn’t surprise Mr. Gladish, of the Austin Community Foundation. “Sometimes boards underestimate the depth of their knowledge and understanding about what it takes to select a new leader,” he says. “Who better than board members to really be in control of the process?”