Vol. 49, No. 1
In cadidates' eye, public and private firms each have their drawbacks.
Public or private employers? For the past several years, job applicants have decided between these options in very different ways, depending on the times.
First, the dot-com fervor fizzled, spurring qualified candidates to seek security in large, public companies that offered steady growth opportunities.
But then corporate scandals rocked the business world and decimated stock market values. Employees were burned, losing billions of dollars from their retirement funds. As a result, many potential applicants view even publicly traded companies that have been untouched by scandals or financial calamities as being susceptible to such problems.
“The embattled economy and a year of scandal in high-profile public companies have altered the image of the big, safe, steady U.S. conglomerate,” says Jeffrey Christian, chairman and CEO of Christian & Timbers, a New York-based executive search firm. “Executive-level candidates who swarmed to public firms post-dot-com now report that they are reconsidering smaller firms,” Christian says.
Further compounding the difficulties for public firms is the fact that private companies are currently doing more hiring, thereby drawing more talent.
“Most of the new opportunities have been in smaller privately owned firms,” reports Rob Steir, CEO of MBA GlobalNet, a recruiting network of 18,000 MBA-holding members. “These firms often continue to grow when the big guys are laying off, so it’s natural that job seekers would be looking there.”
Despite this fact, larger companies are not exactly facing a labor crisis. In fact, Steir says, “There’s no shortage of people who want to work for them. These companies don’t have to search hard for good candidates.”
For the moment, there seems to be no clear winner in the race for talent. What seems apparent, however, is that both public and private employers should prepare now to address concerns job applicants may have today—and in the future when the economy rebounds and the war for talent begins anew.
One deterrent that large, public companies may face is the perception that they are megacorporations sustained by bloated, ineffective leadership.
Harold Etterman, CEO of Knight Financial Plans and Services LLC in Danville, Calif., and an affiliate of MindForce Consulting, MBA GlobalNet’s consulting arm, recalls running operations for a company with more than 400,000 employees. “After many years with this firm, I saw firsthand the truth of the famous ‘Peter Principle.’ People tend to be promoted to positions for which they are not qualified,” Etterman says.
“Don’t get me wrong, networking is crucial for finding a new opportunity, but in large firms this leads to someone being hired simply because they were introduced by the ‘right’ person—‘If Joe knows her or him, then she or he must be qualified.’ ”
Etterman says a casual attitude toward human capital, coupled with the crushing pressure to deliver good results, helps create the kind of corner-cutting, truth-stretching environment that led to the spectacular downfall of major corporations such as Arthur Andersen, Enron and Global Crossing. “My observation is that there are no bad companies, just bad people working in these companies,” he says. “But how did these people get there? A few answers are: politics, friends hiring friends, peer pressure to bend the rules, etc.”
Some applicants will demand that employers address their concerns regarding such practices. “While I can accept that a bad apple shows up at even the best companies from time to time, a company that fails to respond decisively in removing the bad apple is without honor,” says John Klein, project director and information technology architect for Klein Consulting Group LLC in Susquehanna, Pa. “I personally hold myself to high standards and expect my potential employers to do the same.”
Public employers should be prepared to address such perceptions. And, to their credit, some appear to be doing so.
“There is now a lot more transparency in how companies conduct themselves in terms of hiring and promoting,” says Beth Patterson, Dallas-based director of the Human Capital Practice for the global consulting firm Deloitte & Touche, which is based in New York.
A similar transparency is manifesting itself at many firms subject to the Sarbanes-Oxley Act of 2002—a law aimed at, among other things, improving corporate financial accountability. The American Management Association (AMA) reports that since passage of the law, many companies have revised their financial reporting and accounting practices and have updated their codes of ethics.
Companies that have taken such efforts can use them to demonstrate the company’s emphasis on ethical and fair business dealings. Of course, it falls to recruiters to communicate an organization’s ethics policy as it relates to fair hiring and advancement policies when applicants express such concerns. And employers should be ready to offer examples of how these policies play out in the real world and should train managers to anticipate such questions as well.
Public companies that haven’t engaged in such transparency should seriously consider doing so. One reason: With easy access to information on public corporations via the Internet, candidates often come to interviews chock-full of data gleaned from the company’s web site, news articles and other sources.
Privately Held Companies
Privately held employers can hold their cards closer to the vest because their financial information is not public knowledge. However, this can sometimes work to their disadvantage.
“At least the public company has much more information available for study,” Etterman says. “The private firm only reveals itself through its press releases, web site or what it has disclosed to the prospective employee.”
In the interview process, recruiters at private companies should be forthcoming about information that will impress candidates, such as ethics policies. However, financial statements are another matter.
The inability to show candidates a financial statement as proof of corporate stability means that “I must do a good job of selling our historic pattern of growth,” says Cathy Devlin, HR compliance director at one of the nation’s largest privately held companies, Koch Industries, based in Wichita, Kan. The company is a conglomerate in many industries, including petroleum, natural gas, chemicals, minerals and finance.
“We work with candidates to help them understand our company’s management philosophy and our management’s commitment to reinvest 90 percent of the company’s earnings and how this has led to our success over the years,” Devlin says. To that end, she might showcase the company’s top credit rating, longevity, growth record and market diversification. “These are our selling points, and we use them to differentiate our company in the recruiting process.”
Another perceived weakness for privately held companies is that they offer less vibrant, secure benefits packages.
That’s a perception that has skewed Michael Shouse’s search for a senior management position in the Kansas City area. “The losses suffered in my 401(k) and other investments since 9/11 tell me that if I want to recover, I need to be in a large company that offers different choices for retirement options,” he says. “I do not feel I can get such options from a private company.”
Shouse says the private market has provided him a steady, secure income source for the past two years, but with none of the key benefits.
Private employers need to work harder to counter the perception that their hires lose out on lucrative retirement plans, Devlin says. “A few years ago, before the dot-com bust, not offering stock options was a bigger competitive factor for us, and it will be again when the job market picks up.”
But the rules about how much company stock can be used to fund employee retirement plans have changed, and good employers—private or public—now offer workers a range of investment options, she says. “Any investor can do very well in private companies these days if the employer offers a range of choices.”
Back and Forth
Several other potential issues may emerge for candidates of both private and public firms.
For example, even when large companies pass the ethics exam, offer sufficient benefits and seem to promise job security, many candidates simply won’t want to “get lost” inside a megacorporation.
“Personally I still prefer the smaller privately held firms that can be more dynamic in their growth, and where my experience and expertise can have a greater impact,” Etterman says. “It is much harder to stop an oil tanker than a speedboat.”
On the other hand, he notes, “Smaller firms have a higher risk and mortality rate. Don’t be surprised if one day the boss informs you that the company is experiencing a severe cash problem and that everyone is going to have to accept a salary cut for an extended period.”
Some applicants have more personal reasons than financial for being choosy about where they work.
“I am not a political animal, a skill required in large corporate environments,” says marketing consultant Don Rodriguez, president of Customer-Driven Profits Consulting LLC in Fanwood, N.J. “And my functional skills tend to be broad and deep, making them more attractive to small and midsize firms. I believe there is more opportunity to directly impact the business in a smaller company.”
For such personality types, smaller companies can play up that advantage while larger companies can demonstrate how these candidates can thrive through smaller departments or teams.
The bottom line is that during difficult economic times, people have to take chances and accept opportunities as they appear. “It’s a buyer’s market today, so most candidates do not have the luxury of being selective,” Etterman adds.
But that situation is bound to turn around when the economy does.
“Employers from both sectors need to be aware of the prejudices among potential hires and be ready to address them—while also playing up the benefits of their public or private status—as part of the recruiting process,” says Patterson.
For example, private companies should stress their stability and offer benefits that can compete with stock options. Publicly held companies should demonstrate compliance with regulatory requirements, while truthfully answering candidates’ questions about job security and growth.
Martha Frase-Blunt is a freelance writer based in Shepherdstown, W.Va.