New CEO Bullish on Future at Korn/Ferry

Los Angeles-based Korn/Ferry International named Paul C. Reilly of KPMG International as chairman and chief executive Thursday, ending five months of speculation over who would lead the nation’s No. 1 executive search firm amid an industrywide slowdown.

Reilly, 47, CEO of international operations at KPMG, is set to start July 1. He will succeed Windle B. Priem, who will stay on as a director and recruiter. Founding partner and chairman Richard Ferry, 63, will take the title of founder chairman.

After setting records last year, the executive search industry has hit a slump, with businesses curtailing hiring and taking longer to commit to searches when vacancies arise, analysts said.

“The outlook for executive search is about as clouded as it’s been in close to a decade,� said Arnold Ursaner, managing director of CJS Securities. “Corporations are sitting on their hands.�

Reilly said he views the slowdown as cyclical and is bullish on the industry’s future. He also said he believes Korn/Ferry is well-poised to capitalize on the increased demand for executives that is expected in the next 10 years as baby boomers retire.

“The human capital area is going to explode in the next decade,� Reilly said. “There is going to be a shortage of senior executives. Any time you have those shortages, there’s a high demand and need for services.�

Korn/Ferry and its close competitor, Heidrick & Struggles International, benefited from unprecedented demand for executive searches last year, fueled in large part by the need for people to lead high-tech start-ups. Both firms saw revenues pass the $500 million mark for the first time. In the end, Korn/Ferry retook the No. 1 position, ending fiscal 2000 with revenue of $500.7 million, up from $356 million the year before.

“They fight each other tooth and nail,� Ursaner said of the rivalry between the top two firms.

Despite the slowdown in the job market this year, Korn/Ferry reported $504.4 million in revenue for the first nine months of fiscal 2001 and projects year-end revenue of $650 million. Net income for the nine months was $23 million, compared to $20.4 million in the first nine months of 2000.

Industry analysts credited Korn/Ferry’s acquisition of several boutique firms and the global expansion of its Internet-based recruiting arm, Futurestep, with helping it retake the industry lead.

With Futurestep, Korn/Ferry moved into the market for skilled, high-income middle managers and, with nearly 1 million registered candidates, is developing a pool of potential future executives.

But in February the online arm, unable to turn a profit, announced it was cutting 60 of its 500 jobs, part of a reorganization effort the company said was necessitated by the slowing job market.

Turning a profit with the online venture will be one of Reilly’s top challenges, Ursaner said.

“The economy affects them all. But [Korn/Ferry] has an important online business that they’ve been challenged in trying to grow and turn profitable,� he said.

Reilly said it was too soon for him to talk about plans for the firm and its online presence.

Ursaner said Reilly’s selection should “remove an overhang of uncertainty� about company leadership that’s existed for shareholders since Priem announced in January that he planned to step down.

The company’s stock closed up $1.15 to $23 on the New York Stock Exchange. The 52-week high was $40.44.

“Paul Reilly appears to be an excellent candidate with an excellent pedigree,� Ursaner said. “It’s what you’d expect from an executive search firm.�

Reilly moved through KPMG’s ranks to become CEO of its international operations in 1998 after joining as a partner in 1987 in its Tampa Bay consulting practice. He has a masters in business administration and bachelor of science, both from the University of Notre Dame.

Priem said the board was attracted to Reilly’s experience running a global professional services business. Korn/Ferry has 2,400 employees around the world.

“What we found appealing about Paul was the tremendous accomplishments he had relative to his age. Running a global company like ours with 90 offices in 45 countries is hard work,� Priem said. “You’ve got to get around the world. You’ve got to be physically fit. That is demanding. At 63, I well know that.�