Placing and Trading Staff: Go Long, or Short?

“I made my money by selling too soon.”—Bernard Baruch, financier and presidential advisor

SHORT AND SWEET!/Image: Michael Moffa

Reflecting on a recent conversation with an old friend and financial whiz about “short-selling” stock—something I’ve never tried, I realized that the Wall Street stock market concepts of “going long”, “going short” and “shorting a stock” have interesting implications for recruiting. The two of immediate interest are

1.   Holding a stock for the long term vs. holding a stock for the short term

2.   “Shorting” the stock

Each of these concepts and strategies suggests some kind of parallel in recruitment.

Going Short with Stocks and Candidates

The obvious analogous interpretation of “going short” in recruiting is temp service—too obvious to merit discussion in any detail. However, a more subtle interpretation is this: Deciding to limit involvement with a client and/or candidate after placement.

Consider the concept of holding a stock for the short term—in the extreme, only for a day, much as a day trader would. Underlying that decision is a pessimism or cautiousness regarding staying involved too long.  A candidate’s star and stock will, of course, always rise as the placement is confirmed—otherwise (s)he is unlikely to have been hired. To immediately disengage from that client after the completion of the placement is no different from selling a stock at a certain point in its bull-run upward spike. Like the stock, the candidate’s performance cannot be guaranteed—he or she may not live up to expectations. Hence, some recruiters may mirror the day-trader strategy and bearishly dump near the peak, i.e., move on to the next client and candidate, without looking back.

This may not be a wise strategy. Like the premature stock sale, it can entail lost prospective gains, as the star not only continues to shine, but shines more brightly—brilliance in which you, the recruiter, may bask to your credit and advantage. To maintain the client-recruiter relationship is, or course, just common sense; maintaining the candidate-recruiter relationship is trickier and can backfire ethically or psychologically. Nonetheless, any misconceived misgivings about a candidate may tempt a recruiter to back-burner the relationship with the client and pretty much sever links with the candidate—even if not consciously.

If you are absolutely certain that the placement was a very good match, consider whatever follow-up with both client and placed candidate that the situation—including professional ethics and perceptions—allows. If you have reservations about the candidate—perhaps doubts that emerge after the placement, consider damage control and modest investments in the client. Instead of cutting your losses by dumping the “stock”, consider “cost averaging” through some continuing time and energy investment in the client.

Short-Selling Stocks, Clients and Candidates

“Shorting” a stock, a strategy different from short-term holding of a stock, also has its analogue in recruiting. To short a stock means to borrow a stock from a brokerage to sell when the price is higher than you expect it to be later. When “later” comes, and, if you guessed correctly, the price of the stock drops as you predicted, you buy back the same number of shares that you borrowed, return them to the brokerage and pocket the difference between the higher price you sold at and the lower price you bought at,

In recruitment terms, what can it mean to “short a candidate”?

The process of “seconding” staff provides one model: An employee is “borrowed” from one department or branch to fill in at another, much as shares are borrowed from a brokerage. You facilitate that reassignment at a time when that employee’s expertise is sorely needed in the target department or branch.

At that point, that employee’s value to the recipient department or branch is at its peak. When the assignment is completed, you facilitate the return of that employee to his or her original post. At that juncture, the task completed, the value of the employee to the recipient branch is much lower than during the critical seconding period.

So, you, as the HR manager, get the credit for a smart move and “pocket” the difference between the value of the employee to the receiving office when borrowed and when returned as your profit, in the form of “social capital”.

You successfully “shorted” the employee.

Pursuing the analogy with short-selling of stock, and in particular with unsuccessful shorting, what could go wrong in the seconding scenario? For the analogy to be accurate, the employee’s stock would have to continue rising in the recipient office—increasing to the point where there is resistance to returning the employee, which puts you, the recruiter in a very awkward, high-pressure and potentially costly situation.

Given that resistance, the “price” you are going to have to pay to return that employee (“stock”) will be much higher than you anticipated, said costs being measured in terms of friction between departments, costs of negotiating the return or of finding a replacement and losses in overall social and professional capital.

So the analogy between shorting a stock and “shorting an employee” is exact, even in the details of advice: In both cases, short with extreme caution if there is any chance that the “stock” will rise after borrowing. If you are confident there is virtually no chance of that happening, go ahead, offer to find someone to second and jump into the process of arranging it.

There is one crucial disanalogy between shorting a stock and shorting an employee: In the case of the stock market, if you, the short-seller, win, the stock and the company issuing it lose, since the share price must fall relative to your sale price for the borrowed shares. In the case of the borrowed employee, this zero-sum logic seems not to apply: You win, the employee wins, the company wins.

Everybody is happy. Now why is that?

Win-Win Short-Selling

Why is the game-theoretic logic of successful stock short-selling, unlike successful employee short selling, zero sum?  You, the trader wins, the company loses—and vice versa.

The reason that the employee short selling is win-win is that there is a counter-balancing offset to the diminished value of that employee in the recipient office: First, his or her value to the home office is presumably undiminished and may have increased during the seconding period, e.g., if the office found itself shorthanded.

Second, although the employee stock valued diminished in the seconding office, that loss was offset by “earnings” increases, e.g., in the form of productivity or sales, for that department or branch, and therefore for the company as a whole—again, on the presumption that the reassignment imposed negligible or relatively low costs on the home office. Derivatively, as a member of the company, you, the recruiter, share in those gains. If this analogy held, it would mean that your successfully short-selling a company’s stock somehow improved it’s price-to-earnings ratio by magically increasing its earnings (more than proportionately)!

With stock market short selling, there are no such in-house offsets benefiting everyone in the company, not the least of reasons being that you, the stock trader are unlikely to be an inside trader, i.e., a member of the company.. Moreover, if you were an inside trader, you would have a vested interest in the success of the company, unlike an unaffiliated trader. Therefore, if you were to short your own company’s stock and “win”, your company would lose, in terms of market capitalization. Hence, in some sense, if you win, you lose. Zero-sum for you, personally.

Summing Up and Taking Stock

The main moral of these analytical fables is this: If you must treat candidates and clients like resources, specifically like stock and stocks, try not to sell them short…

….unless you are certain everybody will win.