Boards warned over costly fallout from overlooked executives

Executive Recruit said fewer than one in ten boards at organisations with turnover of £50 million or more hold a structured conversation with an internal candidate who is passed over for a senior role. The finding is based on Partner Mark Geraghty's experience from two decades of board-level searches.

The search firm also estimated that replacing an executive paid £148,500 costs nearly £77,000 once lost output, search fees and interview time are included. The estimate draws on its own salary data and Oxford Economics research showing that new joiners at organisations with more than 250 employees take 28 weeks to reach optimum productivity.

Geraghty argued that many boards plan for the appointment itself but not for the effect on senior staff who expected to win the role. Unaddressed disappointment from an internal candidate can create a second retention problem just as a new executive arrives, he said.

"Everyone has watched someone get a job they wanted and told themselves they could have done it better," said Mark Geraghty, Partner, Executive Recruit.

"You might be wrong, but the feeling is real and it does not fade on its own," he said.

He said the issue is especially acute in larger businesses, where internal candidates often hold knowledge and relationships that are hard to replace. In his view, the risk is not limited to resignation, as an overlooked candidate may also resist decisions made by the incoming hire.

Cost of turnover

Executive Recruit said the average chief executive salary at UK organisations with turnover of £50 million to £100 million is £148,500. On that basis, it estimated that replacing a senior executive costs nearly £77,000 over the period it takes a new hire to reach full productivity.

The estimate includes direct recruitment costs and the time senior staff spend on interviews. Geraghty said the figure rises at companies with turnover above £100 million, where executive pay is typically higher.

He also criticised standard practice in the search sector, saying many firms treat an assignment as complete once a candidate accepts an offer. That leaves boards to manage the internal fallout from a contested appointment on their own, he said.

"A search is not finished when the offer is accepted," Geraghty said.

"Get that second conversation right, and you keep two people instead of one," he said.

Managing candidates

Geraghty said boards can reduce the risk by involving internal candidates earlier in the process and handling those discussions confidentially. This gives unsuccessful contenders a clearer view of the role's demands and a reason to remain with the business, he said.

He cited a recent chief information officer search for a financial services client, where a long-serving member of the IT team expected to secure the job. The business did not believe he was ready for the position but also wanted to avoid losing him.

According to Geraghty, the candidate went through the full process and spent three hours discussing what the role required. The exercise led him to reassess his readiness for the post, Geraghty said.

"He said to me, 'I'm probably not ready for this, am I?'" Geraghty said.

"I told him whoever comes in will be exceptional, so stick to them like glue and learn," he said.

Geraghty said the candidate stayed with the company and the incoming executive joined a more stable team. He added that preparation should also extend to the successful external hire, who may inherit tensions from the selection process.

In another recent appointment, he said he warned an incoming managing director that an operations lead who had wanted the role would probably resist early decisions. Rather than excluding that executive, the new leader gave him a visible role in the first project, and the resistance faded within the first quarter, according to Geraghty.

The firm works with boards, chief executives and senior leadership teams in the UK and the US across functions including finance, technology, operations, human resources, sales, marketing, communications and supply chain.