Rent vs. Buy...An Executive

It may come as no surprise that renting or leasing is a huge business. When most people think of renting, it is usually in conjunction with primary housing, cars, vacation homes, or tools for those weekend projects. But renting, or leasing, is a very large business worldwide, especially in the commercial and industrial sectors.

An example of equipment leasing might be seen on a commercial building project. A large steel span needs to be erected as part of the building, but the contractor does not have the crane capacity to complete the job. Cherry pickers aren't large enough to do it, so the contractor leases a crane and operator for the day to complete the task. While the lease amount is significant, it pales in comparison to the cost, maintenance, and liability of ownership of the crane and the trained operators.

Another example of leasing is in the commercial real estate market. You may have noticed the number of 'big box' retailers popping up in communities across the land over the past twenty years or so. And you might have imagined the tremendous costs of acquiring the land, performing site studies and environmental assessments, permitting, grading, and finally building the structure itself. How, one might wonder, does the retailer keep prices so low when the costs of the building must run into the millions of dollars/euros? In most instances, the owner sells the building to another entity and leases it back from them, thereby conserving their own capital while being true to their core competencies...in this case, retailing...not real estate.

Executive 'ownership' is being viewed differently these days, also. In the not too distant past, a company might hire an executive with the intent of it being a career-hire. A great deal of training, time, and expense was exhausted by the company, only to see the executive become a 'free agent' after a few years, and exit the company for greener pastures. But in recent years, the landscape has changed, and companies have found that hiring a top-level Interim Executive to prepare the company for a public offering, a merger, to perform a turnaround, or to invigorate the sales team has its benefits.

The definitions have changed, also. Many executives have become 'interim executives' anyway, whether they are employees or not. Consider the average tenure of a top-level executive in a public company today, and you may find that many are in place for three years or less. Add together the retained recruiting expenses, relocation costs, hiring bonuses, deferred compensation and stock options, insurance policies, health benefits, expense accounts, salary and bonuses...whew!...it might have been less expensive to hire an IE. No lawsuits for early termination or failure to exercise options with the IE, and no bruised egos. When the contract is up, the IE moves to the next engagement.

If you utilize a firm specializing in IEs, you hire the firm, not the individual executive, and gain the benefit of the sum of experience in that firm.

LP
CEO 24/7