The Ins and Outs of Hiring Local Senior Executives

As the war for talent intensifies, understanding China’s cultural nuances is key to hiring local senior managers.

By Alex Eymieu

Over the last decade, mainland Chinese companies have been competing more aggressively with multi-national corporations (MNCs) for senior business executives. For example, Chinese financial institutions such as Industrial and Commercial Bank of China Ltd., Bank of China Ltd., Ping An Life Insurance Co. of China, Ltd., and China Merchants Group Ltd. are expanding their operations and revising their business models to challenge their foreign rivals. These companies are competing for executive talent as well as customers. In addition, some new entrants into the China market have poached talent from local firms and MNCs as an expedient alternative to developing talent internally or transplanting talent from overseas.

This competitive talent market will put upward pressure on salaries. Global executive search firm CTPartners estimates that overall average wages for executives across all levels at MNCs operating in China have risen by more than 8-9 percent in 2010. In addition, executive candidates in general expect an additional 15-25 percent salary increase to move to a new company. Salary levels for senior executives, moreover, may not be based on standard industry benchmarks, but reflect whatever sum may be needed to convince them to leave their current posts. Despite the global economic downturn, CTPartners expects demand for highly skilled talent in China to be strong across all industries, particularly in the consumer, financial services, industrial, and life sciences sectors.

Companies cannot afford missteps in their senior talent acquisition and development plans. All countries and regions have local customs and cultural distinctions that must be considered when doing business in the region. Failing to weigh these local differences can have costly consequences. Companies that wish to succeed in the China market should carefully evaluate recruiting and hiring strategies or ally themselves with a knowledgeable and locally connected executive search partner.

The indirect path

To recruit senior business executives in China effectively, a company must acknowledge the dramatic changes in the country’s economy, history, and traditions over the last five decades. The West has embraced market-based economic systems for centuries, but China just began transitioning to a market economy in the last few decades. This means that a Chinese executive in his or her thirties will have very different values than someone aged 40-60, and will view new job opportunities very differently. So while Western-style talent mapping systems and recruitment methods may work for young Chinese professionals, they seldom will be effective when recruiting more senior Chinese executives. In China, a more indirect and subtle approach is the more accepted way to recruit senior executive candidates.

This indirect approach, which relies on networking and relationship building, is necessary for many reasons. China’s rapid economic growth and quickly shifting business landscape makes current, accurate, and public information about executive talent scarce. Moreover, announcements and postings of senior executive appointments are relatively uncommon in China. Thus the information gained from extensive networking can be critical. A search professional must turn to a network of local contacts for guidance when building an initial list of senior-level candidates for a position. Up to 50 percent of successful placements by CTPartners in China in 2009, for example, were identified through recommendations from trusted sources.

The networking approach also enables employers to be introduced to prospective executive candidates. When traditional Chinese business people receive inquiries from strangers without prior introductions, they often dismiss the inquiry or treat it with suspicion. Moreover, sometimes the person making the introduction is primarily self-serving. In one instance, CTPartners’ request for an introduction to an appropriate securities industry executive led them instead to a meeting with a government official, who had little interest in sharing information. Instead, he wanted to learn about the client’s business expansion plans and the candidate pool the client expected to interview. In such cases, it will be necessary to review information requests with courtesy but without compromising confidentiality.

Respectfully working within the local system of recommendations and introductions is the key to building influential networks and ensuring broad candidate access. Prospecting for candidates requires a significant investment of time. Sharing information and offering assistance to those willing to help with ideas and access will also go a long way toward identifying potential talent. It is not uncommon to conduct 20 or more networking interviews prior to building an initial candidate list.

What’s in a name?

Another mistake companies can make when doing business in China is to assume that an executive’s job title clearly reflects that person’s role and skills. Titles can be misleading, and the names of some of the company’s most influential leaders may not even appear on the company’s organizational chart. Titles in other countries typically are based on a well-defined organizational structure, and tend to reflect the true nature of the job. But an executive with the title of “director” in China may not actually be a director but a well-connected person who acts as a government liaison.

According to CTPartners’ experience, the country’s robust economic expansion leaves companies little time to develop management talent internally. With few executives rising through the ranks quickly enough to meet expanding management needs, senior management teams have resorted to placing government officials, company owners, investors, and board members at the top of the company.

Because business success in China requires that a company operate with the approval of the PRC government, business leaders at state-owned and private companies often are selected because of their influential relationships and government loyalty. A rapidly expanding company’s first-generation leaders often will come from trusted officials at state-owned enterprises or government agencies. In some cases, industry and functional management experience are not the highest priorities when considering an executive hire. For example, it is common for a foreign joint venture to place a business person with good government connections in a “figurehead” or special projects role to ensure that the company has a clear understanding of potential changes in government policy. A chief executive officer (CEO) or chairman might at times have the veto power and a powerful network to support the business, but these leaders may not necessarily have the management skills to lead the design or execution of the corporate strategy. Deputy CEOs, deputy chief operating officers, and other senior advisors often are retained to bring needed industry, functional, and operational expertise to the company, but their names may not appear on the company’s management list.

The absence of transparent organizational charts coupled with unclear application of executive titles muddies the waters for companies seeking talent with specific technical, industry, or managerial skills to support a business expansion. The person listed as the company’s chief financial officer might not have the expected level of financial expertise, but that executive’s circle of influence could be an extremely valuable asset when approaching local investment funds or seeking to be registered for capital markets. Only through networking can recruiters learn the specific role of any given executive. Finding an executive with the desired skill set requires persistence as well as access to an influential network. In some cases, a company may find it needs to hire multiple executives to obtain the desired mix of competencies.

Appearances can be deceiving

The more subtle challenges of recruiting leaders in China arise from local cultural and historical differences. The globalization of travel, goods, and services has made China’s economy and enterprises similar to those of other countries. Though external indicators—in processes, systems, textbook theories, and performance benchmarks—may look familiar, CTPartners’ experience shows that many Chinese executives will embrace the theories and systems they grew up with, such as filial piety, or loyalty to one’s superiors over and above self. For example, an older candidate may be open to moving to a non-competing company as long as the former employer does not “lose face.”

Gap analysis
To give proper attention to cultural differences in terms of value references and decisionmaking styles, companies and executive search firms evaluate leadership candidates in China on two scales: one that leans toward Chinese business and cultural standards, including Chinese organizational nuances; and one that is more Western-leaning with performance targets that are more open, numeric, and systematic. When helping companies find local executives, search professionals should understand the client company’s culture, the extent to which the company is using international best practices, and where the company has modified best practices to meet local requirements. Such knowledge is critical to the process of effectively establishing and using competency weightings and assessments. For example, in a Western context, data that are collected to support business decisions are typically collated by analysts or sales teams from the bottom up. Conversely, in China, those who are in charge of government relations can heavily influence business decisions from the top down. Success in China is more often tied to government policy than market fundamentals.

The search consultant must also have a deep knowledge of both Western and Chinese cultural elements to articulate and quantify variations from what may be viewed as acceptable behavior for different roles at multinational corporations. Reflecting the country’s large population, diverse ethnic groups, and fast-paced changes in China’s recent history, Chinese citizens across different age groups encompass a broad spectrum of values and behaviors. It is important to create and use an assessment tool that investigates the candidate’s value system. For example, a 40-year-old candidate may accept an invitation to find out more about a potential new role and move quickly, with the intent of job-hopping to the next-higher paying offer. An influential 55-year-old senior executive, on the other hand, may rebuff any invitation until persuaded by a trusted business associate. Such executives may value continued good relations with key party officials over their pay package.

Scoring a candidate according to Western and Chinese standards and identifying gaps in the requirements of the new role can help a company evaluate and compare candidates for any given corporate environment and business position.

Evaluating skills

After successfully navigating the networking process, identifying potential candidates, and understanding a candidate’s reference system and decisionmaking skills, companies should reevaluate and apply competency assessments and weightings. As outlined earlier, the prioritization of leadership considerations, skills, and experiences will be different in China than in other markets. It is important to weigh leadership competencies and execution capabilities appropriately. In China, local connections to specific provinces, wide industry networks, and relations with key government bodies may at times be valued more highly than professional background. Rankings also will vary with each position, but in one case, CTPartners ranked the desired leadership competencies for a China-based senior executive for a specific role as follows:

1. Government credibility
2. Local network
3. Decisionmaking ability and values
4. International exposure
5. Industry expertise
6. Functional expertise
7. People-management skills

Though CTPartners would rarely prioritize along these same lines when seeking a senior executive for a Western corporation, such attribute rankings would be considered common and appropriate in China. In the United States, these weightings typically would be in reverse, with decisionmaking ability and industry expertise trumping government credibility.

Balancing priorities

Recruiting executive talent in China requires careful consideration of cultural requirements as well as ready access to a broad range of executives and influential leaders in the region. For new market entrants or companies balancing multiple regional and global priorities, the challenges can be daunting. But companies and executive search firms that network and build relationships, consider the political realities of doing business in China, and adjust how they evaluate skills are well positioned to find the right candidate for an executive role.

Alex Eymieu ([email protected]) is a partner with CTPartners’ financial services practice. He has worked in China for 20 years and lives in Shanghai.