Are banks' off-limits agreements killing diversified headhunting firms?
If you're a bank, it's totally understandable that you wouldn't want a headhunter who's hiring staff for you to be simultaneously poaching staff from you.
To avoid this outcome, banks impose 'off-limits' agreements on the headhunters they work with. In the past, these have been business focused: if you're a headhunter hiring for a bank in fixed income, you can't poach from it fixed income, but you can poach from it in equities.
However, now that HR departments are flexing their muscles in the hiring process, off-limits are becoming more strenuous. And this is causing a few problems.
"Some houses are now demanding that if you're hiring for them in equities in one market, you sign a global hands-off and can't poach anyone from any business in any market," says Simon Hughes at Highview Search.
This is the extreme end of the spectrum.
More moderately, headhunters say regional off-limits agreements are now prevalent. A headhunting firm who's hiring for a bank in EMEA equities can't poach anyone from any business in that bank in EMEA, but can poach from it in Asia...
Death of the diversified boutique?
The steroidal expansion of off-limits agreements is a particular nightmare if you're a boutique search firm with consultants working across equities, fixed income and investment banking.
In the past, it might have been possible to have relationships with different banks in all of these business areas, thereby ensuring individual consultants were able to work with the banks currently doing the hiring in their area of focus.
Now it's only possible for headhunting firms to have relationships with two or three banks. And these relationships are often determined by the biggest billing consultants.
Some diversified boutiques are fragmenting as a result.
Whither Principal Search?
The best example of this fragmentation is Principal Search, a leading London headhunting boutique, which has this year spun out two new sector-focused progeny: Riverhouse Partners (capital markets and investment banking) and Engage Search (FX).
The remainder of the Principal Search Business is particularly orientated around commodities (but is hiring new consultants to replace those who've left).
"Frankly, off-limits agreements p*ss people off," says one disgruntled consultant from another broad-based headhunting firm. "If you're being paid based on the business you bring in personally and are being told not to work with someone because of a relationship another consultant holds, you're not going to make any money."
There are three ways around this. 1) Don't have diversified search boutiques. 2) Pay consultants based on the profitability of the firm overall. 3) Get rid of all your experienced consultants and hire new juniors who only have relationships with your key clients.
None are particularly palatable.
