Russell Reynolds Associates Inc. History

Company Perspectives:

At Russell Reynolds Associates, our commitment to assisting our clients in building their human capital base is reflected in our single, seamless global approach, one in which industry expertise is central to exceeding client expectations. More than 40 specialized industry and functional practice groups provide our clients with in-depth market knowledge on both multinational and local levels. And our 'one firm' collaborative culture, in which a shared, global proprietary database is an essential tool, means that we can deliver results with the speed that today's marketplace demands. Key Dates:

Key Dates:

1969:

Russell Reynolds founds his eponymous firm.

1977:

The firm is one of its field's Big Six, with $6.7 million in annual revenues.

1984:

The firm's annual revenues reach $36 million.

1993:

Russell Reynolds is the leading recruiter on a revived Wall Street.

1999:

Reynolds is the fastest growing of the major executive search firms.

Company History:

Russell Reynolds Associates Inc. is one of the world's leading providers of executive recruiting services, with 35 offices in the United States and other countries around the world by the year 2000. Teams of professionals provide expertise in more than 40 industry, functional, and geographic specialties. On average, the firm conducts more than 3,000 recruiting assignments a year, at levels ranging from chief executive and outside directors to senior managers in all management functions. Nearly half of these are for positions based outside the United States.

Quick Rise to the Top Echelon: 1969-77

A Yale graduate, Russell Reynolds was a commercial banker with Morgan Guaranty Trust Co. for nine years before joining an executive recruiting firm in 1966 and established his own firm in 1969, using his background and banking connections to advantage. He was fortunate--or shrewd&mdash-ough to launch his enterprise during a period (1967--77) when the annual number of executives hired worldwide through search firms rose from 4,000 to 16,000. This was attributed to several factors, including the decline of 'old boy' networks in an era demanding specialized knowledge and experience; the growth of multinational corporations, requiring the casting of a wider net to fill positions around the world; and a talent gap arising from the low birth rate of the Depression years.

Russell Reynolds Associates was a 'white shoe' firm that distinguished itself from run-of-the-mill 'headhunters' by an air of class, exemplified by young, aggressive Ivy Leaguers in pinstriped suits and monogrammed shirts. ('These guys all wear suspenders and cookie-cutter suits,' a rival later grumbled to Joann S. Lublin of the Wall Street Journal.) Staffers were expected to make contacts at cocktail and dinner parties and to share inside information with their colleagues. Russell Reynolds's image extended to its Park Avenue office, which in 1984 sported a Steinway baby grand piano in the reception area and a Winston Churchill painting in one of the meeting rooms. Correspondence with clients was sent by messenger rather than through the mail.

Russell Reynolds Associates' first customer was the brokerage and investment banking firm Oppenheimer & Co., which was still a client in 1977, when Reynolds told Reba White of Institutional Investor, 'About 80 percent of our assignments is repeat business.' As a member of the Association of Executive Recruiting Consultants, Russell Reynolds Associates subscribed to a code of ethics that forbade competing assignments, approaching an employee of a client firm, working with a member of a client firm without prior approval by the firm's managers, or making false statements for 'research' purposes. In practice this meant that a member firm hired by a client could not recruit an executive working for that client for at least two years. Russell Reynolds was the first executive search firm to successfully establish a business predominantly based on retainers paid in advance and credited against the eventual tab, rather than on a contingency basis with a commission on each position filled.

By 1975 the firm's executive searches included 25 for chief executives and presidents (including those of subsidiaries). Russell Reynolds Associates had revenues of nearly $6 million in 1976, with some 44 percent from the financial field, 30 associates, and an administrative staff of more than 50. There were offices in Chicago, Houston, London, and Los Angeles. A Paris office was added in 1977, when company revenues reached $6.7 million. By this time junior partners at Russell Reynolds were being hired at $35,000 to $40,000 a year, with the possibility of $60,000 in two years. Salaries reached as high as $200,000 to $250,000, and Reynolds himself was earning $350,000.

Russell Reynolds Associates was now one of the world's 'Big Six' executive recruiters, which in 1977 accounted for 27 percent of all such searches, including more than half of all searches involving positions paying at least $100,000 a year and bearing the titles of chief executive, chief operating officer, or executive vice-president. All were said to use the same three-stage process: first, drawing up a profile of the executive wanted; next, finding three to six individuals who most closely fit the profile; last, landing the individual chosen by the client. The first phase alone often took much time, as the recruiting firm sought to understand the requirements of the position to be filled and the corporate culture of the client, in the interests of a compatible match. Next, after a suitable profile was drafted, the recruiting firm turned to its research department, which housed closely guarded data banks of 50,000 to 100,000 or more names. Some of these names came by combing periodicals or directories; others, from unsolicited resumes; still more, from staffers who had filled out 'contact forms' after meeting someone who seemed to be a prospect. Dozens of candidates might then be approached and screened--without disclosing the actual job and company--before a culled-down list would be given to the client, usually ranked by desirability. At this point the recruiter would commence what one called 'shuttle diplomacy' to bring the client and candidate together.

Prosperity and Problems: 1979-92

By the 1980s no-raiding rules were being honored more in the breach than the observance. 'Flexibility' became the watchword as big executive search firms like Russell Reynolds Associates told their clients that while they would not raid personnel within a division, they would henceforth not consider other divisions of a client firm off-limits. Their argument was that their revenues were in danger of shrinking because too many clients were taking unfair advantage of the rule by hiring each of the Big Six search firms at least once every two years to fill a relatively low-fee position in order to keep all the other personnel off-limits.

Russell Reynolds Associates added a Washington, D.C. office in 1979 and a San Francisco office in 1980. It ranked fourth among U.S. executive recruiters in the latter year, with $17.6 million in revenues. The firm opened its first Asian office, in Hong Kong, in 1981, and added offices in Boston, Dallas, and Madrid the same year. In 1984 it opened offices in Singapore and Sydney. By that year the company's annual revenues had reached $36 million. Most of the 29 managing directors were earning at least $150,000 a year. These were heady days for Russell Reynolds, with after-tax profit margins estimated at 15 percent a year. The company moved its headquarters to the Pan Am Building and opened offices in Frankfurt, Melbourne, and Tokyo in the mid-1980s. Oriental rugs sprouted on the floors of its offices. In keeping with the founder's emphasis on image, a barber was hired to give New York employees a free haircut each week. An associate explained to John A. Ryan of Forbes, 'Russ sweats the details, worrying whether the receptionist in Dallas chews gum.'

Following the stock market crash of October 1987, the financial community underwent severe retrenchment, especially in New York City, where this sector lost 45,000 jobs in three years. Russell Reynolds Associates, which was receiving one-third of its business from financial firms, reduced its number of employees in the United States by eight percent in 1990. That year, of the company's global revenues of $93 million, the U.S. total stagnated at $54.5 million. The next year was even worse, and by early 1992 some 15 to 20 percent of U.S. staff had been let go in the last 18 months, according to an industry newsletter. By the end of 1992 Russell Reynolds had chosen to expand its international business rather than move into other types of consulting, opening offices in Milan, Brussels, and Edinburgh. A Toronto office was added in 1993, the year that Russell Reynolds left the firm. Hobson Brown, Jr., who was already president, succeeded him as chief executive.

Renewed Impetus: 1993-2000

The increased pace of international banking and global business in the 1990s proved most advantageous to Russell Reynolds Associates. It was the top recruiting firm in Great Britain in 1994, with $16.4 million in revenues. Among its British clients was National Westminster Bank plc, for whom it found staffers for its investment banking operation in the United States. Another was the London office of Bankers Trust Co. Because this bank insisted that no search firm working for one of its offices recruit executives from another office, the firm kept its hands off Bankers Trust's New York operation. Russell Reynolds had, at this time, 24 investment banking recruiters in New York, London, and Tokyo, and 13 more in Brussels, Frankfurt, Hong Kong, Madrid, Milan, Paris, Singapore, Sydney, and Toronto. Most of these recruiters were specialists knowledgeable about the talent available in a particular area, such as derivatives or capital markets.

In New York, Russell Reynolds Associates was&mdashø a greater degree than its rivals--trying to persuade its Wall Street clients to allow the firm to meet all of its needs for elite personnel, bypassing line managers if necessary. Morgan Stanley & Co. already had done so in the early 1980s, and Lehman Brothers became the second in 1990. Whenever a senior-level job became open at Lehman, the firm's operating committee gave the assignment to Russell Reynolds. In return, Lehman received volume discounts on recruiting fees. Institutional Investor rated Reynolds first in 1993 among recruiters in Wall Street revenue ($31 million), Wall Street searches (570), and Wall Street recruiting professionals (39).

An unusual 1994 search by Russell Reynolds Associates was a well-publicized one to replace cofounder Ben Cohen as chief executive officer for Ben & Jerry's Homemade Inc., the Vermont ice cream maker. Ben & Jerry's, which received 22,500 applications by first conducting a 'Yo! I Want To Be Your CEO!' essay contest, hired the firm to winnow a dozen finalists from 500 being considered. (The entry that came in the form of a squawking parrot probably did not make the cut.)

A more reliable source of new business in the 1990s was the healthcare field, which in 1995 accounted for about ten percent of Russell Reynolds Associates' revenues. A staff of 20 based in seven of the firm's offices completed more than 300 searches in this field during 1993 and 1994, spread evenly between the United States, Europe, and the Asia/Pacific region. The average such search was taking four months. Clients paid a retainer ranging between $100,000 and $200,000, with this sum subtracted from the commission, which was 35 percent of the hired executive's first-year cash compensation.

Russell Reynolds Associates received $130 million in revenue in 1994, of which financial services was believed to account for nearly half. Three managing directors in the financial services sector resigned that year to start their own firm. One of the three told Alex Markels of the Wall Street Journal that the firm had become 'more institutionalized' since the founder's departure. Russell Reynolds opened offices in Hamburg, Mexico City, and Menlo Park, California, that year. A Warsaw office was added in 1995, a Shanghai office in 1996, and five offices--in Amsterdam, Buenos Aires, Calgary, Copenhagen, and Sao Paulo-- were added in 1997. That year the firm won an award from the International Women's Forum in recognition of its leadership initiative and achievement in the advancement of women.

In 1999 Russell Reynolds was the fastest growing of the large executive search firms. Its revenues rose 22 percent that year, to $230.6 million, of which U.S. revenues increased to $123.1 million, 32 percent more than the 1998 total. It was believed that more than 70 percent of this sum represented repeat business with existing clients. A Munich office opened in 2000. Russell Reynolds staffers were providing expertise in such specialties as industry concentrations in financial services, technology, and healthcare; regions such as Eastern Europe and Japan; functional specialties such as nonexecutive directors and financial officers; and assessment of human capital and its alignment with business challenges.

Principal Competitors: Boyden Associates Inc.; Egon Zehnder International Inc.; Heidrick & Struggles; Korn/Ferry International; Spencer Stuart & Associates.

Further Reading:

• Byrne, John A., 'How to Leverage Style,' Forbes, June 4, 1984, pp. 164--65.
• Carey, David, 'Ascent of the Headhunter,' Institutional Investor, May 1994, pp. 86--93.
• Day, Kathleen, 'Global Perspective Aids Search for Pharmaceutical Executives,' Washington Post, April 10, 1995, Washington Business Sec., p. 11.
• 'Don't Call Us, We'll Call You,' Economist, March 28, 1992, pp. 78--79.
• 'How Success Cramps the Headhunters' Style,' Business Week, May 5, 1980, pp. 66, 69.
• Markels, Alex, 'Russell Reynolds Loses Three Officials Who Resign to Form Their Own Firm,' Wall Street Journal, August 29, 1995, p. B7.
• Meyer, Herbert E., 'The Headhunters Come Upon Golden Days,' Fortune, October 9, 1978, pp. 100--02, 104, 106, 110.
• Shao, Maria, 'The New Emperor of Ice Cream,' Boston Globe, February 2, 1995, pp. 35, 46.
• Temes, Judy, 'Layoffs Lop Heads at Headhunting Firms,' Crain's New York Business, January 7, 1991, p. 4.
• White, Reba, 'Headhunting in Wall Street,' Institutional Investor, February 1977, pp. 32--33.

Source: International Directory of Company Histories, Vol. 38. St. James Press, 2001.

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