Incorporated: 1969 as Korn/Ferry Enterprises
Sales: $373.16 million (1999)
Stock Exchanges: New York
Ticker Symbol: KFY
NAIC: 541612 Human Resources & Executive Search Consulting Services
Korn/Ferry International is the number one executive recruitment firm in the world, with more than 70 offices in 40 countries. The company’s clients include large corporations, nonprofits, and other organizations. Fees are typically equivalent to 30 percent of the salary a new executive receives, although the company also works on a contractual basis for a number of clients. In 1998 an Internet-based middle management recruitment service, Futurestep, was launched in conjunction with the Wall Street Journal.The company, briefly public in the early 1970s, issued stock for a second time in 1999.
Korn/Ferry International was founded by a pair of restless partners at Peat Marwick Mitchell & Co. (later KPMG Worldwide). Lester Korn had earned his M.B.A. from UCLA in 1960 and had begun work on a Ph.D. at Harvard Business School when he left to join “Big 8” accounting firm Peat Marwick as a management consultant. In 1963 he was asked to run the company’s executive search department on the West Coast and several years later was made a partner. Richard Ferry, from Ohio, had earned a degree in accounting from Kent State University and had worked for several accounting firms, including one that he cofounded, before joining Peat Marwick in 1965. He, too, soon moved into the executive search field there, eventually succeeding Korn as West Coast search department manager. He made partner in 1969. Despite the success of both men within the company, each found himself chafing at the constraints encountered in working for a large firm. In November 1969 they made the decision to form their own personnel consulting agency, Korn/Ferry Enterprises.
The initial scope of Korn/Ferry (whose name was soon changed to Korn/Ferry International) included a range of personnel consulting services, only one facet of which was executive search. The two founders’ strong backgrounds in this area and its relatively untapped market on the West Coast, however, led them to concentrate in it. The new partners started out sharing all the work, but over the next several years they hired additional employees, including several from Peat Marwick.
Korn/Ferry was put together in a more rigorously organized manner than the typical search firm of the era, which often worked as more of an “old boys’ network” than a systematically run business. Lester Korn, the more public member of the team, took on the job of promoting the firm to both clients and potential candidates. He hired public relations agencies to get the word out and also came up with the idea of performing surveys of executive vacancies for distribution to the media, which resulted in free publicity. Richard Ferry, working more in the background, specialized in developing methods for running the company efficiently, which included using a research staff to handle many aspects of the search process, keeping careful records of time spent on each search, and creating a clear hierarchy of duties. Many other recruitment firms left the entire work load to a single person whose job included seeking out clients as well as tracking and “cold calling” prospective candidates. Ferry’s systems parceled these tasks out to support staffers, leaving the senior members of the firm free to concentrate on keeping in touch with clients and conducting interviews of final candidates. An innovation during the company’s first year was the creation of a specialty division dedicated to real estate.
The first several years of business were highly successful for Korn/Ferry, which soon opened offices in a number of cities including New York, Houston, and Chicago. By its third year the company’s annual revenues had risen to $1.8 million and its staff had grown to more than 40. Specialty divisions now included petrochemicals/energy and financial services, in addition to real estate. Expansion into Europe was accomplished in 1972 by a merger with the British search firm G.K. Dickinson Ltd., and the company also opened an office in Japan a few months later.
In 1972 the company’s founders decided to take the firm public, selling ownership of a quarter of the business on the over-the-counter market for slightly less than a million dollars. Although highly profitable, and with annual sales growth of nearly 100 percent in 1973 and more than 40 percent in 1974, the stock value dropped from $8 to slightly more than $5. Finding that they were spending large amounts of their time dealing with the responsibilities of being publicly owned, Korn and Ferry decided to buy back the outstanding stock for $7 a share.
Growing in the 1970s
The company’s growth continued at a rapid clip throughout the 1970s. The 1977 purchase of 49 percent of Latin American search firm Hazzard and Associates took Korn/Ferry south of the border, and the company expanded to Australia two years later with the acquisition of Guy Pease Associates. By the end of 1979, as it celebrated its tenth anniversary, Korn/Ferry had made partners of 59 of its senior recruiters. In 1980 the company was declared to be the number one search firm in the world by industry observer Executive Recruiter News.
The early 1980s saw more strong years for the firm, and by 1985 Korn/Ferry boasted 106 partners, 11 specialty divisions, and revenues of an estimated $58 million. The company employed more than 400 and operated 36 offices worldwide. Income from overseas recruiting accounted for about a quarter of revenues, with a significant amount also derived from the financial services specialty. Korn/Ferry was now performing 1,500 searches per year for executives earning salaries of more than $75,000. The firm’s staff profited from its success, receiving performance-based bonuses that sometimes equaled 50 percent or more of their annual salaries.
The company had several high-profile success stories to its credit, including the recruiting of Peter Ueberroth to head the 1984 Olympic Committee and the placement of CEOs at corporations such as Storage Technology, Seafirst, and Nissan USA. It had also suffered embarrassment when a managing partner, David H. Charlson, resigned after he was discovered to have padded his resumé with a fictional M.B.A. degree from Stanford. Several other Korn/Ferry recruiters also left after they were found to be making exaggerated claims about their education.
The search business was becoming increasingly competitive during these years, with clients seldom remaining loyal to a single firm and staging “shootouts” where competing recruiters had to make pitches to win a search. The financial rewards were great, however, as executive salaries were spi-raling upward and search firms’ one-third commissions, based on first-year salary, were increasing proportionately. Revenues also were being fed by a widespread erosion of employee loyalty and by the many companies that had poor internal systems for developing management talent. Although the majority of open positions were filled by the companies themselves, they were forced to rely on executive recruitment firms when internal candidates and advertising for applicants did not pan out. Executive recruiters, known somewhat sarcastically as headhunters, were sometimes seen as shady operators who brazenly called unsuspecting employees to offer them positions at rival companies. The reality was that recruiters provided a necessary service, as they offered a discreet way for a company to woo needed staff away from competitors. Attention from recruiters became a sign of success for executives, who would wonder what they were doing wrong if they did not regularly receive a certain number of calls from headhunters.
Changing Times in the 1990s
Korn/Ferry’s business had grown to an estimated $103.3 million in fiscal 1989, but the U.S. economy was leveling off and executive hiring, especially in the financial services area, began to decline. Revenues had shrunk to $97.3 million two years later, and the company reportedly trimmed its staff by 20 percent between 1990 and 1992. Korn/Ferry also took other steps to remain competitive, including reducing fees charged to clients, pushing up the pace of searching, and even guaranteeing that its candidates would perform well for up to a year from date of hire. Times were tough industrywide, with an estimated one-sixth of the 2,300 firms active in 1989 having closed their doors just three years later.
Founder Lester Korn, who had temporarily left the firm to serve as a representative to the United Nations in 1987 and 1988, departed for good in early 1991, and his ownership stake was purchased by Korn/Ferry’s 140 partners. Richard Ferry added Korn’s job of chairman to his own roles of president and CEO. With the economy on the mend in the early 1990s, the search business picked up and the company again began to look toward growth. In a move that greatly boosted its European presence, in 1993 Korn/Ferry purchased Carre Orban International of England for $20 million. The move paid off, as international recruiting soon became the company’s largest growth area, amounting to half its revenues within four years. New offices were opened in such far-flung locales as Russia, India, and Asia.
Korn/Ferry International is the worldwide market leader in executive recruitment through the utilization of a seamless global network of the most competent professionals in our business. We provide our clients the highest quality, most innovative and professional counsel and services in a collegial, stimulating work environment.
By the mid-1990s the company also had begun pursuing a strategy of signing long-term agreements with major corporations. These recognized Korn/Ferry as the client’s primary search firm, which helped reduce the dreaded “shootouts,” but also limited the company’s ability to recruit executives from its clients, which included AT&T, Johnson & Johnson, and General Electric. The deals typically guaranteed Korn/Ferry a minimum of $1 million a year in business, with the company promising lower fees and better service as part of the bargain. Korn/Ferry reported that it was realizing 20 percent of its revenues from such arrangements in 1995 and expected this share to double by 2001.
Going Online in the Late 1990s
In 1997 the company began to offer an Internet-based recruitment service in California, initially called Korn/Ferry: Careerlink. This targeted middle management executives, an area that Korn/Ferry had previously ignored. The trial run proved successful, and the company quickly moved to expand it nationally under a new name, Futurestep. The service, which was provided with assistance from the Wall Street Journal (which took no ownership stake), asked prospective candidates to register online. If they were being considered for a specific job, they would be interviewed later by a Korn/Ferry staffer. The number of people who chose to put their resumes online grew to more than 500,000 within the first 18 months.
Korn/Ferry had begun contemplating going public again and, after a slight delay, issued stock on the New York Stock Exchange in 1999. Following a disappointing start, by year’s end Internet-dazzled investors had bid up the company’s stock price significantly. Korn/Ferry later issued a “tracking stock” for subsidiary Futurestep, Inc. Following the public offering, the company began a round of acquisitions, purchasing Amrop International Australasia of Australia, Hofmann Herbold & Partner of Germany, and Crist Partners of Chicago. A number of other acquisitions were also reportedly in the works. Co-founder Richard Ferry still held the title of chairman, with former COO Windle Priem now filling the roles of president and CEO. He had replaced Michael Boxberger, who succeeded Ferry at those jobs in the mid-1990s.
As it passed the 30-year mark, Korn/Ferry International looked to be in good health. The company’s successful Internet-based recruitment service and ongoing international expansion were strong additions to what was already a solidly run operation. Korn/Ferry appeared likely to retain the position of number one recruitment firm for some time to come.
Amrop International Australasia (Australia); Avery & Associates, Inc.; bgu Beratungsgesellschaft fur Unternehmensentwicklung AG (Switzerland); Carre Orban & Partners, Ltd. (U.K.); Continental American Management Corp.; Crist Partners; Didier, Vuchot et Associes (France); DRF-Beteiligungs AG (Switzerland); DR-Miro AG (Switzerland); Hofmann Herbold & Partner (Germany); Korn/Ferry International Futurestep, Inc.; Korn/Ferry Worldwide, Inc.; Pintab Associates Ltd. (U.K.); Postgraduados y Especialistas, S.A. de C.V. (Mexico); REMCO Research & Management Consulting Services S.A. (Switzerland). The company has other subsidiaries in Argentina, Australia, Brazil, Canada, Chile, China, the Czech Republic, Denmark, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Italy, Japan, Korea, Malaysia, Mexico, The Netherlands, Norway, Peru, Poland, Romania, Singapore, Slovakia, Spain, Sweden, Switzerland, Thailand, Turkey, the United Kingdom, and Venezuela.
TMP Worldwide, Inc.; Heidrick & Struggles International, Inc.; Christian & Timbers; Russell Reynolds Associates, Inc.; Spencer Stuart Management Consultants N.V.; Egon Zehnder International; Electronic Data Systems Corp.; FMR Corp.; StaffMark, Inc.
- Company is founded by Lester Korn and Richard Ferry.
- First specialty division is created for real estate recruiting.
- Merger with G.K. Dickinson Ltd. of England; initial public offering.
- Return to private ownership.
- Merger with Hazzard and Associates extends presence to Latin America.
- Korn/Ferry ranks as number one search firm, according to Executive Recruiter News.
- Founder Lester Korn leaves.
- Merger with Carre Orban International.
- Formation of Futurestep online recruitment service.
- Company goes public for the second time.
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——, “Korn/Ferry IPO Gets Mixed Reviews,” Los Angeles Times, August 24, 1998, p. Dl.