US Grant and Failures in Internally Hiring

Thomas Fox
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Compliance Evangelist

On this date in 1885, former President US Grant died, just after completing his memoirs. While Grant was the Union’s great general during the Civil War; his talent as political leader paled woefully in comparison to his military prowess. He was unable to stem the rampant corruption that plagued his administration and failed to combat a severe economic depression in 1873. Grant did have legislative successes with the passage of the Enforcement Act in 1870 and the 1875 Civil Rights Act, which laid some of the legal basis some 80 years later for the Civil Rights movement. Grant also helped to improve US and British diplomatic relations, which had been damaged during the Civil War. Significantly, he also managed to stay sober during his two terms in office. Unfortunately, upon leaving office, Grant’s fortunes again declined. He went bankrupt due to an ill-advised unwise investment in a scandal-prone banking firm. Grant spent the last few years of life writing a detailed account of the Civil War and died shortly after completion from throat cancer. His memoirs were such a best seller that his wife, Julia, lived off the royalties.

One of the issues in compliance is where are you going to go to improve your position? Can you move up internally? Do you have to leapfrog to another organization to move up the compliance department ladder? Matt Kelly, in a recent Radical Compliance podcast and blog post, looked at the hiring market for compliance professionals, which is robust at this time for a variety of factors. However, what happens when your organization does have an opening in compliance but goes outside for that hire? What if you want to move up into the Chief Compliance Officer (CCO) chair but your organization goes outside to bring in a ‘fresh set of eyes’ on your company’s compliance program?

I thought about some of those questions and perhaps others when I read a recent Harvard Business Review (HBR) article, entitled “Research: Why Rejected Internal Candidates End Up Quitting”, by JR Keller and Kathryn Dlugos. The authors posit, “In most cases, internal job applicants who are rejected end up quitting: research indicates they are nearly two times as likely to leave their organizations compared to those who were either hired for an internal job or had not applied for a new job at all. The lost productivity and talent, combined with the costs of finding replacements for these employees, is often substantial.” Yet there are strategies a company can employ to help staunch this talent drain.

There are some obvious benefits to hiring internally. The authors point out “You can fill the job immediately and, because current employees know the organization and its quirks, they require less handholding in order to get up to speed quickly. You also rarely have to pay the premium typically required to lure in external candidates. As an added bonus, hiring an internal candidate signals to other employees that they too have a future in the organization, making it more likely that they will look internally when contemplating their next career move.”

This means, “Creating more open internal talent markets certainly increases the odds that a hiring manager will find that perfect internal candidate, but it also means that hiring managers more often find themselves in the unenviable position of having to tell other employees that they did not get the job.” Unfortunately, it also means that a hiring manager will have to say no if there is more than one good internal candidate or applicant. It is at this point, the authors found that many organizations really are poor at communicating with the non-selected candidates and this leads to a low retention rate.

The authors stated, “After all, no one wants to be turned down for a job, and the sting is often greater when you are told “no” by your current employer. Studies have shown that internal rejection leads to reduced job satisfaction and reduced commitment to the organization. Rejection can also engender feelings of envy toward the workers who “beat them out” for the job or lead employees to engage in counterproductive work behaviors, such as stealing from their companies.” Moreover, “research indicates that rejected internal candidates are nearly two times as likely to leave their organizations compared to those who were either hired for an internal job or had not applied for a new job at all. The lost productivity, combined with the costs of finding replacements for these employees, is often substantial.”

The authors found two key elements in retaining the non-selected internal applicant. This first is “did they interview with the hiring manager?” The authors found “internal candidates who were rejected after interviewing with the hiring manager were half as likely to exit as those rejected earlier in the process.” There were two reasons for this. First, “getting an interview signals to the candidate that they already possess many of the characteristics needed to move into the job. Second, an interview provides a forum for hiring managers to give feedback to candidates about any knowledge and skills they may currently lack, as well as how to acquire them if they wish to be hired for a similar job in the future.” The authors cautioned this does not mean an interview with a HR representative but with the person in charge of hiring.

Second, and perhaps counter-intuitively, if a non-selected candidate loses out to another internal candidate, there is a greater likelihood that person will remain. Hiring an external candidate signals that will be the company’s hiring strategy going forward. The converse signal is given when an internal candidate is hired. Also, “seeing a colleague get hired initiates a positive, upward social comparison process, wherein rejected employees feel as though they can emulate those employees’ successful mobility attempts in the future.”

The authors noted that while they were not advocating that companies should only hire internal candidates, they believe that businesses should “ensure that their applicant tracking systems have a capability to flag applicants whom the organization wants to retain and require that they be interviewed.” The authors conclude, “external hires can bring valuable knowledge and new perspectives into the organization, but doing so also increases the odds that current employees will take their own knowledge elsewhere.” Both hiring managers and CCOs need to be cognizant of these factors when hiring.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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