5 actions boards should consider to lessen the disruptiveness of CEO turnover

Hospital CEO turnover rates continue to disrupt organizational stability. Boards should consider five actions for leadership continuity. 

"Elevated turnover among hospital CEOs seems to be a feature of the current healthcare environment," says Deborah J. Bowen, president and CEO of the American College of Healthcare Executives. 

Hospital CEO turnover in 2014 decreased to 18 percent, and remains among one of the highest rates reported in the last 15 years, according to a recent report by ACHE. The turnover rate in 2012 was 17 percent, and in 2011 and 2010 it was 16 percent. The annual rate has fluctuated between 14 and 18 percent in the decade prior to 2013.

Excellent management continuity is essential for organizational success, yet too many boards and C-Suite leaders fail to follow a disciplined roadmap to plan, prepare and promulgate an organized process to replace a CEO or other senior C-suite executives.

A strategic thinking board benefits from a focused, forward-looking plan to help assure a good outcome for the organization, whether the new leader comes from the current management team or is recruited from outside.

Here are five actions for boards and leaders to discuss in the boardroom:

Action 1: Study factors that contribute to turnover

Action 2: Document the risks of unplanned executive departures

Action 3: Map departure scenarios for C-suite

Action 4: Build simulation of leadership transition plan

Action 5: Adopt an emergency continuity policy

Action 1: Study factors that contribute to turnover
According to ACHE, it has become clear that key factors driving the turnover rates are:

  • The continuing trend of consolidation among organizations,
  • The increasing demands on chief executives to lead in a complex and rapidly changing environment, and
  • Retirement of leaders from the baby boomer era.

Their findings serve as a reminder for healthcare organizations to ensure they have appropriate strategies in place — including robust succession planning —to successfully manage senior leadership changes.

Action 2: Document the risks of unplanned executive departures
The lack of a pre-planned leadership continuity strategy exposes the organization to some significant and disruptive risks:

  • Confusion among community leaders about the strategic path for the organization
  • Uncertainty and eroding morale among middle managers
  • De-celebration among physicians to push for clinical integration initiatives
  • Weakened negotiation influence with payers
  • Unfocused compliance with billing and physician contracting oversight
  • Loss of other senior executives in C-Suite
  • Loss of momentum to earn market position against active competitors

Action 3: Map departure scenarios for C-suite
Having a leadership transition process in place helps relieve potential anxieties on the part of the board, departing CEO and other senior executives, as well as physician leaders, staff and the community at large. Invest a few hours with an experienced adviser to identify likely departure scenarios, and then map positive and negative implications of each. Common scenarios could be:

  • The CEO retires
  • The CEO becomes incapacitated by health or scandal issues
  • The CEO is recruited to another organization
  • Multiple senior executives in the C-suite announce planned moves to other systems

Seek input on the implications for such scenarios from such diverse stakeholders as board members, physicians, middle managers, payers, strategic alliance partners and others.

Action 4: Build a simulation of a leadership transition plan
Boards can review the implications from alternative departure scenarios and develop a simulated process of how they would/should respond, before, during and after each of the potential departure scenarios. This simulation work, in advance of its need, helps minimize the risks and maximize the benefits of leadership team changes.

The obligation to have on your shelf or in your files a well-articulated continuity plan is clear:

  • You can know how your leadership team will assure a continuing sequence of qualified people to move up and take over when the current generation of managers and key people retire or move on.
  • Your governance leaders will more likely be able to continue to exercise good stewardship and to know that management excellence is not dependent on the good health or good behavior of any given individual.
  • You will be more likely to define how the organization can properly develop and nurture its human capital for organizational success

An effective Leadership Continuity Planning process should have these 10 steps:

1.     Initial fact-finding about the age, career plans and timing of possible change for each C-suite member.

2.     Design board involvement in all scenarios and contingency situations

3.     Map the ideal competencies needed not just within the CEO position, but in all senior executive and physician leadership posts

4.     Interview and assess team members about needed personal and professional development requirements for the next 3-5 years

5.     Develop leadership team profiles and position descriptions that anticipate the needs of your strategic plan, competitor threats and strategic alliance opportunities

6.     Update your annual leadership performance assessment and management processes

7.     Discuss alternate implications of changes in senior management on middle management, medical staff continuity, and the performance of the physician enterprises

8.     Model alternative executive compensation models

9.     Explore ways to strengthen your executive and board member onboarding processes

10.  Develop clear communication plans for each unique internal and external stakeholder that can be update easily when needed for various continuity situations and strategies

Action 5: Adopt an emergency continuity policy
While designing a long-range continuity process within certain scenarios is a healthy discipline for boards, it is also imperative to update your Emergency Continuity Policies and Process.

According to The Governance Institute, just 24 percent of hospitals and health systems keep their succession plans current —and some consultants say that's a rosy figure. More than half of healthcare organizations admit they have no succession plan — 20 percent higher than other industries — even though two out of five new corporate CEOs fail in the first 18 months. And just 15 percent of freestanding hospitals know who their next CEO will be, compared with 60 percent of businesses. 

A plan for the unplanned departure of a CEO covers, at a minimum, four actions:

1. Who will step in to run the place right now? The board has three choices: an executive already on staff; an outsider who can serve as an interim CEO until the board can find a permanent leader, a search that usually lasts at least four months; or a management firm that can keep the hospital running.

2. How much authority will the interim CEO have? A plan for an unexpected CEO vacancy should outline performance expectations for the interim CEO and any limitations on the stand-in's authority.

3. How will we choose the permanent CEO? Once the hospital or health system is in the capable hands of a trusted interim administrator, the board must quickly turn its attention to the months-long job of finding a new CEO. A good emergency plan outlines such first steps as: It identifies the executive search firm chosen by the board to handle the task, and it might name internal candidates whom the board can consider as possible candidates for the vacated position.

4. How will stakeholders be informed to minimize distractions and disruptions? Board leaders should have a crisis communication plan on the shelf that can be refined based on the current situation and context

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