The real cost of failure in leadership recruitment is too high.

How much exactly does it cost when the coin flip goes wrong?

Today, we have a better understanding of the impact of poor leadership recruitment than ever before. In the past, we might have suspected that filling an organisation’s leadership with the wrong people would cause long-term damage to an organisation. Now, we have the data to back it up; the intangible has become tangible. The combination of hiring costs, compensation while on the job, investment in the executive, severance and a new search can easily take you up to three times the individual’s salary. And this is only the beginning… Another, often more hidden cost of a poor leadership hire is the breakdown of trust it can cause among board members, employees, partners and clients – particularly if they choose to make their mark through a series of controversial decisions. Add other directly related costs such as departures from disgruntled staff, lost sales, damaged customer relationships and so on into the mix and a failed hire can easily cost three times salary or more: “The Conference Board, a think-tank, finds that the costs of changing bosses (severance, search, lost productivity during the transition, and so on) are generally equivalent to 5% of annual profit.” While the direct financial impact is readily quantifiable, Chief Financial Officers actually rank a bad hire's morale and productivity impact ahead of simple monetary losses – because the two are intrinsically linked: “What the CEO controls—the company’s biggest moves—accounts for 45 percent of a company’s performance.” And it doesn’t just apply to CEOs. Include the full, broad-based negative impacts of failed executive recruitment and the cost of failure grows exponentially. In fact, experts like Bradford Smart estimate the cost of a ‘mis-hire’ at leadership level to be 28 times annual salary for vice presidents and executives. If, for example, we are talking about a salary of $500k, that amounts to around $15m4,.It wouldn’t be a surprise if, for many companies, this amounts to more than half of operating profits . Of course, it’s worth pointing out that the reverse is also true; when the selection is right, “high-performing executives can add millions of dollars to their firms’ bottom lines” . Because a new CEO will be tasked with vision and strategy – in many cases redefining the identity of a company – it is natural that there will be some people who feel shaken or even threatened by their presence. This isn’t the same thing as failure. A new CEO may bring a new era of success, or their decisions might bring about collapse. It could be far more mundane than that, in that they just decide the role isn’t what they thought it would be, and leave. Both disaster and failure are bad for optics; no company want to be seen as a failure, even inadvertently. In figures we can all understand, research tells us that hiring the wrong senior leader costs no less than $1.5m – and is more likely to cost something between $3-15m. In larger leadership roles, and in certain industries such as life sciences and professional services, it could be even more than that. So, how can we help mitigate risk?