Protect your Profit - Top 5 legal pitfalls to avoid for recruitment

From Shortlist reporting on Captain’s Table – 5 Legal Pitfalls

Inadequate and inarticulate terms of business are the chief source of disputes and disagreements with clients, according to a legal advisor.

It may “seem pretty basic”, but the actual terms of business – what recruiters do and get paid for – are not articulated very well to employers, says Corvus Group director and former Adecco general counsel Martin Richardson.

Part of the problem is that organisations outsource not only the writing of their business terms, but also the understanding, he told a recent Navigator Consulting Captains Table

“Where did your terms of business come from, did you borrow them? That’s OK, but do you actually understand them?”

Instead of being “overawed by a legal document”, Richardson suggests creating Q&A-style documents for recruiters and clients, to ensure all parties understand the terms.

Terms of business should include robust clauses around the following:
*         What services are being provided – and how well is this articulated to clients about “what it is you get paid to do, and what it is your contractor is delivering onsite”?
*         Introductions and fees – How long is an introduction period? Is there a period of exclusivity? What is an introduction? What is an engagement? What are the client obligations?
*         Replacement policies – Are timeframes clear? What events give rise to a replacement, eg is it just termination? Are exemption terms and credit notes clear?
*         What costs are passed on to the client? And how are these passed on?
*         Supervising and managing contractors – when it comes to contractor performance and management, is it clear who controls the relationship?
*         Replacing contractors – What do terms say about passing through notice periods?
*         Safety – Are the obligations of both recruiter and client clear?
*         Who is liable for the acts and omissions of contractors? Richardson asks, “if you are not supervising and controlling your contractors, then should you be accepting liability, just because they’re your employee – does your margin cover that?”.
*         Non-poaching clauses – Is there an inclusion in the terms excluding poaching of client employees? He doesn’t recommend including these clauses: “I wouldn’t do it; your business is recruitment.”
*         Payment terms, including passing on interest and debt recovery costs – “More often than not, I see permanent invoices on commencement of employment. I don’t know why you do that… Why would you wait that long?” Instead, Richardson recommends payment terms that start when the candidate is supplied, and if they don’t work out, it is covered by the replacement policy.

He also suggests developing clear strategies around recovering bad debts, including a process with timeframes, scripts and templates, training staff on how to act on overdues, and knowing the “walkaway position”.

Importantly, contract terms cannot be introduced after commencing the transaction, Richards advises, recalling the case of a recruiter who sent a candidate’s details to a law firm, unsolicited, with the terms of business attached in a separate email.

“The law firm gladly took the candidate, on a six-figure salary, and in turn said ‘we’re not paying the fee because we didn’t agree to the terms’.”

That recruitment company took the dispute to court, where it was ruled in the client’s favour.

An industry advisor has developed a new checklist to help agency leaders assess their business’s performance and highlight early warning signs of distress.

From Shortlist March 2019

Navigator Consulting MD Tony Hall created the 10-question survey to help leaders identify specific areas where there is room for improvement, and recognise potential problems early.

With sustained economic growth resulting in profitable performances for many recruitment agencies, now is not the time to be complacent, he warns.

“A lot of people think their recruitment company is doing really well, so I really thought about the 10 most important questions owners should be asking themselves to really benchmark whether the business has potential for improvement and as a reality check to whether it is performing well,” Hall explains.

Questions agency leaders are asked to consider include:

Is your gross profit/net profit margin greater than 25%?
Is staff turnover less than 10% per year?
Are your average debtor days owing less than 35 days?
Is not more than 15% of your net revenue or billings from a single client?
Hall says recruitment agency owners and managers doing the survey should consider 80% a “pass mark” to feel comfortable and start developing strategies around improving weaknesses in the business identified by the survey results. Anything less than 80% calls for a serious assessment of the business.

“Profit margin needs to be greater than 25% to be a high-performing recruitment business,” he explains.

“And staff turnover, some people think it’s acceptable for 40% staff turnover because they are still doing well financially, but that’s actually not acceptable for so many reasons.

“The last [question] is a psychological one, which people don’t think about as much: does your business keep you up at night? Do you worry about all the things you have to do, the problems you have, the staff issues, the cashflow problems?” he says.

“If that’s happening, then there is some psychological support that’s required too.”

Hall, who has 20 years’ experience consulting to the recruitment sector, admits not everyone will feel comfortable to honestly assess their business.

“I think some people will be too scared to do [the survey], and some people might go through it and then not identify themselves because they are too embarrassed,” he says. “But I say just do it because it could be an eye opener and it could dramatically improve your business [with] just a couple of tweaks.”

At a recent Captain’s Table event, Hall asked attendees if they had a business plan. Of the 25 or so people in the room, just one hand was raised.

“A lot of people are doing kind of well and they are not in ‘business improvement mode’ right now,” he says.

However, he adds that now is the perfect time to build a solid foundation to sustain a recruitment business through any potential economic lows.

“I think it’s a really good time to get some strong financial reporting in place now so that if the market does change, you have plenty of warning and you can adjust accordingly,” Hall says. “What can happen, is if you don’t have good financial reporting in place and the market changes, by the time you realise there is a problem, you are six or seven months down the track and it takes longer to adjust.

“So it’s a good time to get good financial discipline into a recruitment business I believe. Budgeting, cashflow are the very basics. Almost no-one does cashflow statements but they are critical because if there is a downturn and you have a lot of debtors, and your clients stop paying you, you run out of money.”

The survey was built during the development of Navigator’s new Recruitment Business Accelerator Program, which covers 10 topics, he says.

Access the 10 questions here:

Technology hype blinds leaders to marketing ROI

Recruitment leaders are wasting too much money and effort on marketing that doesn’t align with their business fundamentals, often blindly following trends that deliver little or no return on investment, according to an industry advisor.

“Technology is a really easy way to get caught up in a [marketing] hype cycle,” Navigator Consulting director of marketing and research Matt Fink told a recent Captain’s Table event.

“Marketers use the same tactics used to help your business on you,” he says. “It means that we tend to do things that we don’t necessarily apply the same level of due diligence to.”

By way of example, Fink draws on his own experience as head of marketing for a multinational office supplies business, where he took three-to-four months to define and accurately work out the return on investment of a marketing automation platform – during which time he was fielding daily sales calls from providers trying to sell him the latest and greatest platform.

“Blindly falling into those decisions does a number of things. One, we fall for it every time, and two, it distracts us away from the fundamentals,” he says. “You need to have strong fundamentals in your business, and marketing is no different.”

And while marketers are very good at finding the next opportunity, they don’t necessarily look at the things that haven’t worked as well, Fink adds. So when looking into the ‘next big thing’ in marketing tools and technology, he suggests leaders spend as much time looking for what doesn’t work with the technology as what does.

Another mistake agencies make is failing to differentiate their service offering from the rest of the market, particularly through company websites.

“This is the biggest mistake I’ve seen in my time,” Fink says. “There’s a disparity between what you say when you go out and sell and what appears on the website.”

Going further, he says there is often inconsistency between how leaders or owners describe their service offering compared to other people in the business.

“Leads can come from anywhere,” Fink says. “And if somebody in your organisation can’t communicate even the elevator pitch, there’s a missed opportunity.”

Marketing and sales need to be in concert with all parts of the organisation, he adds.

Same same, but different

Fink also sees too many organisations using “cookie cutter” approaches to marketing, which just do not work. “If you want your business to grow, you don’t want to be following exactly what everyone else is doing.”

If organisations take the same approach with marketing for every client and candidate, without taking into account variables around who they are and what makes them unique, this leads to another key marketing faux pas: misalignment.

“This is not just misalignment between marketing and sales,” he says. “It’s also a misalignment in the way in which we execute [work]… from sales through to marketing through to management and leadership through to the support functions of the business.”

When alignment between business functions breaks down, Fink says organisations end up producing marketing material that doesn’t support the sales effort and drive value within a business. It also makes them more susceptible to marketing phases and fads. Instead, he reminds leaders to keep marketing strategies simple, and keep them aligned to the business.

Looking back over his 20-year career, Fink says marketing basics haven’t changed. “Technology’s changed, the way we take it to market has changed and the platforms have changed, but there are still the same fundamentals.”

He says the key marketing fundamentals to consider are:

  • Define what makes an offering unique;
  • Clearly demonstrate value;
  • Share the wins;
  • Be where the audience is – look at alternative channels to reach candidates and clients;
  • Choose smart and invest wisely in technology and tools;
  • Don’t automate relationships – people buy from people;
  • Act now, prepare for tomorrow.

Matt presented at Navigator Consulting’s recruitment industry leaders forum – Captain’s Table, kindly supported by Job Adder and A Positive.

From Shortlist: Thursday 04 October 2018 2:47pm

Recruitment’s shift away from employing ‘outdated’ 360-degree consultants is potentially the most important transformation the industry will face, according to an advisor.

The 360 model is broken, and has been for some time, says Navigator Consulting MD Tony Hall. “It’s really time to start looking at different options.”

Good 360 recruiters are as rare as hen’s teeth, he says, and he suggests the pressure on recruiters to fit the model is one of the biggest contributors to high staff turnover. “It’s so rare for someone to have all the different skills required to be a high-performing 360 recruitment consultant.”

Agencies are increasingly deconstructing the 360 model, breaking the process into admin, resourcing, recruitment and sales roles, though with varying degrees of success to date, he notes.

Many labour hire companies have been operating in this way for years – “they have business development managers that understand the industry really well… and they might even be from the industry they are selling into, so they’ve got a lot of credibility” – while larger agencies are more likely to succeed with dedicated business development managers, following the US blueprint.

For smaller firms, Hall recommends the most senior people spend their time out in front of clients, and avoid putting junior consultants into “difficult sales situations that are way over their head”.

Small companies should be hiring people into resourcing or account management roles, to start, while senior leaders outsource their resourcing so they are freed up to do the sales part of the 360 process.

(Hall is a big advocate of offshoring, particularly for “very administrative and repetitive tasks”, such as market mapping, database building, database maintenance, and even sourcing. “I think offshoring is one of the success secrets of reducing staff turnover in the recruitment industry,” he says.)

Building the right commission structure

“If there’s no sales responsibility for a recruitment consultant, then their commission structure should be at a lower level than a recruitment consultant that’s required to bring in the business and fill the role as well,” Hall says.

He suggests recruiters on “relatively high wages” are already incentivised to fill jobs. “So you might have more of a bonus structure than a commission structure for people that are not actually selling.”

That said, Hall agrees the 50/50 commission structure adopted by some agencies including Aquent will promote team work – provided leaders monitor placement ratios. “Managing efficiency is really important, because a great salesperson might bring in multiple roles, but if they’re not filled by the recruiter, then the company is paying wages for both… and not getting any return on investment.”

Hall also advises hiring biller leaders with a track record of success (a minimum six years’ experience), rather than looking for potential high performers to train up into sales-focused roles. “Young stars are hard to find,” he says. “[Graduate programs] are so hit and miss.”

It’s certainly unlikely the one graduate will have the 20 or so attributes required of a 360 recruiter, Hall says. “It’s relatively easy to find people that start off their career resourcing, and the good ones can be promoted into… senior recruitment or senior sales streams, or leadership, depending on their attributes.”

Breaking out the recruitment process also provides career progression, which Hall says is sadly lacking in the industry. Then focusing on supporting high performers, rather than underachievers, will keep them performing and encourage them to stay.

Part of this includes regular training, both formal and informal. “Short and regular training can make a massive difference, in terms of business profitability and reduced staff turnover.”

He suggests regular weekly sessions, even for 30 minutes, will bring the team together, foster communication, and upskill even the most seasoned recruiter. “It’s an absolute critical success factor.”

Hall is facilitating discussions on the “obsolete” 360 model, and its alternatives, at upcoming Captain’s Table events in Melbourne (30 October) and Sydney (31 October) for agency owners and leaders.

From Shortlist 30 August 2018

Recruitment agency leaders are meticulous around developing budgets and financial plans, as well as measuring consultant activity, but more work is needed to improve performance across all areas of the business, new research shows.

The Recruitment Industry Business Confidence Index survey (RIBCIX), run by Navigator Consulting MD Tony Hall, reveals many leaders are falling short in implementing marketing, quality assurance, exit strategy and operations plans.

Source: Navigator Consulting

The RIBCIX survey is still collecting data for the current half-year, and recruitment companies are invited to participate here to receive the full report.

From Shortlist Wednesday 25 July 2018

The biggest threat to the recruitment industry is the increasing number of employers bringing recruitment in-house, and emerging technology is the additional impetus for making agencies the second option, an industry advisor says.

At a recent Captain’s Table event, chaired by Navigator Consulting CEO Tony Hall, agency leaders gathered to discuss the biggest threats to the industry, and what to do about them.

Several key themes emerged as attendees discussed what the industry should be doing to counteract the growing number of clients that are bringing recruitment functions in-house.

The first step is to build stronger relationships with clients, Hall says, “so we as recruitment agencies are the first port of call, as opposed to the last port of call, when it gets too hard for them”.

Agencies should also be working better together to solve client and candidate requirements, to ensure the industry thrives, he adds. “If we’re not filling roles that we say we can fill, then we’re providing even more ammunition for companies to say ‘we might as well do this ourselves than pay recruitment fees to companies that aren’t delivering’.”

Filling more jobs is absolutely critical in encouraging companies to use agencies more, the leaders agree.

Leveraging technology well enables better recruitment service delivery, Hall says, and points the way to adding more value for clients, “so we can justify the high margins that we would all like to have”.

Transparency builds stronger relationships
Painting a fuller picture of exactly what it is that agencies do and the effort required to fill a role is also vital, as is communicating that effectively to clients, says Hall.

“Are we articulating how much work goes into a recruitment assignment?” he asks.

This should start in client proposal documents that outline all client services at beginning of an assignment, and be reiterated through detailed invoices that provide a list of services involved, line by line. “That’s just absolute gold,” Hall says.

Hall urged recruiters not to send invoices that simply say, “recruitment fee, $35,000”.

Getting out and meeting clients face-to-face to build relationships is the optimal way to get their buy-in.

“I wonder how much consulting we actually do these days, as recruiters,” says JobAdder CEO Brett Iredale. “All day every day we’re walking around recruitment floors, the pods are all full, and everyone is there tapping away and not out talking to people.”

“Recruitment consultants now are relying on email, phone, LinkedIn, whatever, way too much, at the detriment of relationships, perhaps,” Hall adds.

Collaboration is better than competition
A more organised approach to industry collaboration – rather than purely focusing on competition – is more beneficial to recruiters, says Elias Recruitment CEO Jason Elias.

Efforts to win work on an exclusive basis are a better driver of competition than fighting over the same vacancies simultaneously. “It’s great for job boards [but] candidates get confused when we all fight over the same people,” he says.

“As an industry, we shouldn’t be like seagulls going for little chips,” says Elias.