Paul Reilly attributes his ascent to the top of two large corporations to good timing and a bit of luck. In 1987, Reilly sold his real estate consulting firm to KPMG International and spent the next 14 years climbing the corporate ladder. He got credit for turning around KPMG’s ailing real estate practice, then headed the audit and tax service before becoming chief executive of the accounting and consulting firm, overseeing 100,000 employees and $12 billion in revenue. Reilly left in 2001 to take the reins of Los Angeles-based executive search firm Korn/Ferry International, where he ushered in several years of drastic cost-cutting. Korn/Ferry recaptured its No. 1 spot in the industry last year, eclipsing Heidrick & Struggles and Spencer Stuart in revenues. Reilly works from his home in St. Petersburg, Fla.
Question: Why do you think the economy is turning around?
Answer:
When I meet with CEOs, not only are they planning on hiring, they are actually smiling in the meetings. It’s been clear to us that people are hiring, and I don’t see that slowing down this year. I think people went through the downturn, they know the way out now is revenue growth.
Q: But the Labor Department released weak jobs figures for January, with 146,000 new jobs created.
A:
I still say the economy is picking up. I’m not disturbed by the numbers. Right now, what people want to see are these huge job numbers that would shoot up like in the late 1990s. We’re going to see a steady, growing economy. This December, people were worried about the numbers, but you have to remember that last December (2003) we had just 8,000 jobs added and that was a good number.
Q: What areas show the most improvement?
A:
You have some hot sectors financial service firms that did a lot of firing in the downturn are now hiring again. If you look at merger and acquisition activity, we’ve had a recovery. IPOs had the best year last year since 2000. The long-term steady player is going to be health care. Even in the so-called downturn of 2001-2002, our health care practice grew every quarter and it will continue to grow because of demographics and the aging population.
Q: What about China?
A:
Our numbers in Asia are running at the rate we saw in the dot-com years. We have seen every region of the world up about 40 percent in the last few quarters and it’s in every industry it’s a very broad-based recovery. What I keep reminding people is that, long-term, there will be a huge demographic shortage. There will be 20 million fewer people in the 40 to 50-year range to fill the core management pool. There’s going to be a huge shuffling and recruiting of talent going forward.
Q: When you joined Korn/Ferry in 2001, the economy was in a tailspin. What happened?
A:
When I showed up the first day in July 2001, the industry took a turn for the worse. Over the next year, the executive search industry lost 50 percent of its revenue.
Q: You used the economic downturn to your advantage. How?
A:
We took a gamble. We cut very deep and we fell to No. 2 or No. 3 in the industry and now we’ve come back. The company had wanted to make changes. So the first thing we did was clean things up. We had over-recruited (during the dot-com craze) and so we had to do rounds of layoffs. We closed one of our divisions, JobDirect, which was a dot-com business that served the college recruitment market. We sublet over 400,000 square-feet of office space and we cut overhead by $250 million. Now, the last two quarters our earnings are up 40 percent. What I told our people was, going through a recession is terrible, but the real tragedy is if we come out of the recession the same firm as when we went in.
Q: Did your competitors make similar changes?
A:
Some of our competitors just wanted to stick to their knitting and do executive search work. Their view, which is an honest view, is the best way they can add value is to do great search. I grew up in the consulting and accounting industry, and as they’ve all consolidated, I think companies would prefer to buy many of these services from one provider, not multiple providers.
Q: You also made a lot of top management changes.
A:
We did hire from outside, though the majority came from inside. Many service firms have good people who are great at delivering to clients, but not necessarily the best at managing people. So the best manager may not be the best search person. Many CEOs come in and say they’re going to make some big changes to the team. I’m much more measured and methodical. I had a policy that we were starting over, and I watched how people did their jobs and then, position by position, started making changes where needed.
Q: How did you convince employees to support your new strategy?
A:
You have to spiritually get people’s hearts and minds motivated and you have to lay out a plan that is very clear. Strategy is 10 percent strategic thinking and 90 percent execution. We laid out a plan, told them the steps it would take to implement, told them how to measure our success or failure, and reported on how we were doing. I tried to sell the new services, not force it on our people.
Q: It sounds like your new strategy is selling more types of products to your existing clients?
A:
Service businesses have a lot of things in common. And no, the strategy isn’t just about making money. I firmly believe these are added services that our customers need and want. Just like investment banks 20 years ago were all independent, today they’re all parts of bigger financial services organizations, or if you look at consulting and accounting firms, they went from being single product to multi-product companies. So is executive search as it matures. We have middle management searches, assessment, executive development tools for companies that need a range of services.
Q: You came to both KPMG and Korn/Ferry as an outsider. How has that affected your approach?
A:
A lot of people have this view that careers are mapped out. Sometimes they are really a series of accidents or just luck. I had been a real estate developer and KPMG was having problems with their real estate practice. There was controversy inside the company and so they hired from outside and we turned the practice around. Then they asked me to take over the audit and tax service. Then, after the Ernst & Young merger fell through, they wanted to add a CEO of their international division and they chose me. So, in a way, any one of those decisions could have turned out differently. They were probably looking for more of a change agent. Part of the reason I left was that after we did an IPO of the consulting business, I thought I wasn’t the right guy to stay and run an accounting firm.
Q: Why do you live in St. Petersburg, Florida when Korn/Ferry is based in Los Angeles?
A:
That’s a good question. The answer is I have four brothers, three sisters, and 17 nieces and nephews all within a half-hour of each other. I travel so much on the job, visiting our 80 different offices in nearly 40 different countries that, in a way, L.A. needs me a lot less than other people do. When I first started, I was in Los Angeles every day for more than six months. Now, there’s no set schedule, but I get there several times a month. We have three of our five board meetings in Los Angeles.
Q: You earned a salary of $650,000 last year, a bonus of $1 million, plus $600,000 in restricted stock grants. How does that compare to your pay at KPMG? And how do you justify such a high compensation, especially during years when there were major layoffs?
A:
I made more money at my old job at KPMG (laughs). The only difference now is my pay gets put on the Internet. When I graduated from MBA school, I took the lowest starting salary of anyone in my class. It paid $12,000 a year and I always worried about being able to pay my mortgage every month. I have four brothers and three sisters and they all remind me of where I came from and so that keeps me humble. To me, the money makes no difference. I feel grateful and I try to share it with other people. I know a lot of people question CEO pay levels in this country, which is really a good social question.
