The Cost of a Hiring Mistake

Welcome to Headhunter Secrets, where I’ll share perspectives about the search business. We hope you’ll use our services to execute searches. Nonetheless, I wanted to give you some insights I’ve gained from doing search work since I was 23 years old.

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The Cost of a Hiring Mistake
Bad hires can destroy a company

It is impossible to compute the cost of a hiring mistake, but the costs are rarely confined to payroll or severance. The more significant costs compound quietly through poor leadership, management, and decision making.

The costs of a hiring mistake hit beyond the hire no matter where the hire sits in the company. However, these costs are most pronounced when made in the executive and middle-management levels, where costs ripple upward, downward, and outward.

Executives determine strategy and culture, set priorities, allocate capital, and signal to the team what matters. When the wrong person occupies the top of the chart, the organization may look busy, but it can quickly lose effectiveness. Strategy becomes reactive or incoherent. Resources are poured into fashionable initiatives rather than durable advantages. Culture trends towards pleasing the boss over being productive.

Executive-level hiring mistakes can also impose reputational costs to a company that can linger long after the individual departs. Investors, partners, employees, supplies, and customers draw conclusions about judgment at the top. If leadership selection appears careless or politicized, confidence can erode. In markets and institutions alike, trust is slow to build and fast to dissipate. A single high-profile failure can raise the cost of capital, reduce company productivity, complicate recruiting, and narrow strategic options for years.

Middle management hiring mistakes are less visible but no less capable of destruction. If executives determine direction, middle managers determine boots-on-the-ground reality. They translate strategy into action, culture into daily behavior, and values into incentives. A poor hire here poisons the ground where actual work is done.

While the cost of a leadership hiring mistake reduces strategic and operational focus, the cost of a middle-manager hiring mistake can be cancerous. Poor middle managers build dysfunctional teams and/or drive out productive workers. While the organizational chart remains, with likely a growing number of holes to fill, organizational productivity can collapse.

Poor middle managers tend to make poor hires, deliver poor results, and can set a standard for failure to meet expectation excuses. There is no well-oiled machine when poor middle managers are leading execution.

Successful business enterprise is achieved by the productive management of three inputs: capital, fixed assets, and people. Capital and fixed assets have very tangible value, but people run the gamut of capabilities and potential. People are the most strategic asset or liability. End of the day, the cost of a hiring mistake at the executive or middle management level can determine if a company prospers or collapses. This is especially true during a down economic or industry cycle.

Most every company that ends up in bankruptcy did not get there because it was in the wrong place at the wrong time. It gets there because the captain at the helm and their direct reports were not capable of understanding risk and/or productively managing people.

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Hope these insights are helpful. 

We at Leyendecker have been doing search work for 40 years. We’ve completed over 100 C-level searches, most for CFOs. Most have been PE portfolio companies, but we’ve also helped owner/managed and publicly-held companies. Our placements have helped their employers go through almost 50 successful liquidity events.  

Keep us in mind when you seek talent that will get you over the goal line! Wishing you all the best in the New Year.

Doug