Heidrick & Struggles: Stockholders Battered as CEO Gets Rich

Heidrick & Struggles International Inc. (NASDAQ: HSII) CEO L. Kevin Kelly has gotten rich over the past three years, while his shareholders have become poorer. It would make sense that a public corporation that gives advice on management hiring and board of directors activity would align CEO pay better with performance, but Heidrick & Struggles has not.

Kelly made $6.9 million between 2009 and 2011, according to the Heidrick & Struggles proxy. Morningstar reports that the firm lost an aggregate $48 million over that period.

A look back at Kelley’s entire tenure, which began in 2006, shows the results are even worse. Heidrick & Struggles revenue in 2007 was $648 million. That number dropped to $554 million last year. Net income in 2007 was $56 million. The search firm had a net loss of $34 million in 2011. The figures deteriorated rapidly in the second quarter. Revenue fell 18.7% for the June period to $116.1 million. Heidrick & Struggles had net income of $1.9 million, compared to $7.4 million in the same period a year ago. The company cut its forecasts for the balance of the year.

Heidrick & Struggles stock reflects Kelley’s poor performance. Shares are down more than 40% so far this year, and more than 70% during the past five years.

What has the Heidrick & Struggles board of directors been up to recently? Not much. And there may be a reason for their inaction. All of the board members who served a full term made more than $150,000 last year, and none of them own many Heidrick & Struggles shares. The average number held by directors is below 20,000. Director Jane D. Hartley held only 10,590 shares as of the last proxy. Director Stephen W. Beard held only held 8,930 shares. The board does not have much financial incentive to act on Kelley’s status.

Douglas A. McIntyre