Time for Heidrick's Chairman Beattie to Take a Stand

Executive search firm Heidrick & Struggles International Inc. (NASDAQ: HSII) has been falling apart for some time now. Most shareholders and analysts believe that the blame for this belongs to CEO L. Kevin Kelly, who assumed his position in September 2006. In fact, part of the responsibility rests with Nonexecutive Chairman Richard Beattie, who took that job at the same time Kelly was promoted. As the lead independent director, Beattie some time ago should have pressed for the resignation of current management, and the board should have retained a firm to search for a new CEO.

Beattie can claim he has plenty to do without his role at Heidrick & Struggles. He is the chairman of law firm Simpson Thacher & Bartlett. But Beattie has been paid relatively well for his part-time role with the search firm. According to the Heidrick & Struggles proxy, Beattie made $222,005 in 2011.

Heidrick’s stock performance has been abysmal over the past five years. Shares are off well over 60%, while the Nasdaq Composite is 20% higher during the period. Heidrick is listed on Nasdaq.

The company’s financial performance has been particularly poor. In the most recent quarter, Heidrick’s net revenue fell 18.7% year-over-year to $116.1 million. Net income was $1.9 million and diluted earnings per share were $0.10 for the June 30 period. In the same period last year, net income was $7.4 million and diluted earnings per share were $0.41. The net income performance was consistent with Heidrick’s terrible showing on the bottom line, which goes back to 2009.

Beattie’s role as nonexecutive chairman has put him in a special position, which is to press the company’s other independent directors along the best path to help Heidrick’s prospects and those of its shareholders. So far, that has not happened.

Beattie may want to read the Heidrick & Struggles’s description of its own “CEO and Board of Directors” search division:

We pride ourselves on being our clients’ most trusted advisor, and offer an integrated suite of leadership advisory services to help manage their leadership assets from the acquisition of talent through executive search to providing counsel in areas that include succession planning, executive compensation, and board assessment, policy and practice design.

Ouch.

Douglas A. McIntyre