The Headhunter Goes Hunting
When CEO Gary Burnison announced Korn/Ferry's results in August 2008, he had every reason to be pleased. The world's largest executive search company was on a roll, reporting the highest revenues and profits in its 39-year history. "Three weeks later," Burnison recalls ruefully, "the sky fell in." Demand for Korn/Ferry's work — headhunting top executives and providing related services — plunged by half. When the company reported results on June 9, the picture was ugly: A loss of $19.5 million, compared to a profit of $15.7 million for the same period a year before.
Faced with such scarlet numbers, many CEOs would have hunkered down through the downdraft of the business cycle, operating with a minimum of daring. Burnison did the opposite. Two days after publishing those awful figures, he announced the acquisition of Whitehead Mann, a struggling but well regarded private London-based headhunter.
Though the graduate of the University of Southern California enjoys sports, Burnison, 48, is not a long-odds kind of executive. The father of five came to Korn/Ferry as chief financial officer in 2002; added chief operating officer to his titles in 2003, and became CEO in 2007. He had previously been CFO of Guidance Solutions, a private technology-consulting firm. Burnison also worked for more than a decade at KPMG Peat Marwick.
Why did Korn/Ferry decide to make a major acquisition during the worst economic downturn it had ever known? And how did it manage it?
Here's what Burnison has to say:
On Why Korn/Ferry Went For It:
In this economic environment, the debate is whether to invest or hoard cash. We thought Whitehead Mann was a great fit in terms of how we wanted the business to evolve. And there was never a point of no return until we actually signed the contract.
This is a cyclical business. So we set our operating boundaries in advance. Almost two years ago, we told our board and senior management team that there was an economic turn coming down the road. Our contingency plan goes back to that time, when we made comments to Wall Street that we were going to focus on preserving the brand and position the company for growth. That's what we've done.
In this case, creating a platform for further growth in Europe, particularly the UK, has been a specific initiative for years. The acquisition of Whitehead Mann was a means to that end.
A leader has to set the vision, the mission, the strategy. You're always looking at the future. The course may be altered because of economic circumstances, but you've got to remain resolute about the destination.
On the Power of Cash:
I believe that great companies make bold moves in tough economic times. But you can only do that as long as you have cash; your balance sheet has to be pristine.
That wasn't always the case with us. When I came to Korn/Ferry in 2002 [as chief financial officer], we weren't in a very enviable economic situation. I made a decision then to reduce the level of debt, which was at $39 million. That year, we got a convertible preferred placement of $45 million; the idea was to completely de-leverage our balance sheet and to rebuild the business.
Then, as we enjoyed the subsequent economic expansion, we squirreled away money; for seven good years, we hoarded cash. Now we have no debt. That is a result of many decisions, made consistently over many quarters. We did make acquisitions to diversify the business, in particular in the non-search areas; for example, we bought Lohminger and Lore, which are talent management companies. But we were selective. Having decided not to be burdened by debt, we adopted, and kept to, a very disciplined view of capital allocation. I like to say, "Cash is not king; it's God."
Because we were good stewards of our balance sheet during the bull market, we have the financial strength to take advantage of an economic environment like the Great Recession. In some ways, this is an exciting time. We can move the culture of the company; we are transforming the business through our bigger footprint in Europe, for example, and diversifying our business so that people don't see us as just executive search. We can make acquisitions at reasonable valuations — we've done two in the last nine months. (The other was Lore International, which specializes in executive education and talent management.) We are in a position to do this only because we established a principle and have made consistent decisions over many years to support that principle.
On What He Saw in Whitehead Mann:
This wasn't the first time we had looked at Whitehead Mann. The other times we just hadn't been able to work it out; the timing wasn't right. But we stayed in close contact.
For years, our top geographic priority was to bolster our position in Europe, our second-largest market. In Whitehead Mann, which had a strong position in the FTSE 100, particularly in the financial industry, we saw an opportunity to create a more robust platform by combining it with our legacy Korn/Ferry business. I saw fabulous people, great market positioning, and a tremendous brand. Those were the important elements.
On the Personal Element:
My first meeting [with Whitehead Mann CEO Piers Marmion] on this round of negotiations was in Geneva in August 2008, just when the economy was starting to turn. We had dinner and agreed to continue the conversation. About 45 days went by. Then I called and said, "Let's get together again." We each had reflected on possibilities. We did that two or three more times before anybody else got involved, just CEO to CEO, talking around strategy and possibilities.
If you have a one-on-one conversation, can get direct perspective; it cuts through the clutter. Obviously, you have to do the due diligence, but these one-on-ones set the stage.
In making an acquisition, talking to the CEO is the first step; if that goes well, only then do we bring in a handful of top executives and open it up to more people, and eventually announce the deal.
In M&A {mergers and acquisitions} people and culture are often overlooked. But ours is a people-based business; you have to have a pretty good line of sight about these things. That's not easy to do, even more so when you can't do it publicly.
On the Breakthrough in the Wine Cellar:
A small group of us — me, a few executives from both companies, and a couple of people from Whitehead Mann's executive committee, maybe about a dozen people all told — went to the cellars of the oldest wine merchant in London. The business has been operating on the same site for more than 300 years; it's intimate and historic. They took us down to the cellars, and toured us around, with all these dusty old bottles. Then we had a meeting and dinner in the basement.
We were there for seven hours, talking very openly and candidly. Everything was on the table. And we really got to know each other. If this hadn't gone well, I would have known the culture wasn't right. And yes, I would have walked away. Definitely. I've done it before.
After that dinner, there was a series of exercises. I met each of the top leaders from Whitehead Mann, both individually and collectively, spending several hours with each of them. We continued this for weeks, very systematically, and then did the same from the other side; they were interviewing us as much as we were questioning them. We talked with Whitehead Mann about what we were doing and what the future could hold.
In any company, there is going to be a diversity of views. With an acquisition, there is more the fear of the unknown than the fear of the known. The idea was to create a forum to discuss those concerns or anxieties. The mentality was to keep everyone informed; to encourage them to ask questions. That in itself was reassuring to many of Whitehead Mann's people.
On Patience:
Beginning with the dinner in Geneva, this deal was almost nine months in the making. There's another lesson: Integration has to start well before the acquisition is closed. We set up a series of integration teams around different kinds of activities — industry, financial services, how to go to market — more than a month before closing. When it comes to an acquisition, my idea is that it is one part investigation, and nine parts integration planning and management. It is important to start the latter as early as possible.
Editor's Note: The Results So Far
Before the acquisition of Whitehead Mann, Korn/Ferry was ranked seventh in the industry in the UK in terms of revenues; now it is first in the UK and also No. 1 in France.
There are no public numbers available to judge whether Korn/Ferry got a bargain — the company will not even say how much it paid for Whitehead Mann — but Burnison says that so far, the results have been "spectacular," with new business running 50 percent ahead of projections. In addition, all the top talent Korn/Ferry wanted to keep has stayed.
In general, the company may be seeing the faintest of lights at the end of the economic tunnel. The most recent quarter reported a 3.7 percent increase in fee revenue ($101 million) over the previous quarter, though that is still way down (39 percent) compared to the same time the previous year. And it still lost money last quarter, albeit less than before. Still, true to Burnison's fiscal beliefs, it has almost $266 million in cash and securities on its books.
-As told to Cait Murphy