Call to Action: Why CEO Recruitment Must Change

There needs to be a fundamental shift in the way CEO/executive recruitment is done throughout the healthcare industry — specifically the "position description."

This is a call to action for all healthcare board members, system leaders and recruitment industry leaders. There needs to be a fundamental shift in the way CEO/executive recruitment is done throughout the healthcare industry — specifically the "position description." Before the position description is developed, there needs to be an honest conversation regarding what challenges and opportunities are facing the organization, and then identifying what business and leadership skills are needed to address those challenges. The identified challenges/opportunities and requisite skills must then become part of the position description and be utilized throughout the entire recruitment process. I believe this change will greatly enhance the entire recruitment effort.  

As for my background with executive recruitment, I have been involved with the healthcare industry for the past 32 years. Over the years, I have reviewed many a position description for CEO and other executive positions from many different recruiting firms. The sad reality is that most recruiting firms use the same position description outline format, which includes: an overview of the organization, a description of the position responsibilities and an overview of the candidate’s qualifications/expectations. The problem with this approach is that it removes an honest assessment of the challenges/opportunities facing the organization, and the business and leadership skills needed to address those challenges/opportunities. Without this honest assessment, the chances of finding a successful candidate are diminished. For example, there is one hospital in the Northeast region that is on their ninth CEO since 1995; it is no wonder the organization is struggling. 

Allow me to share with you a recent example of how a position description for a hospital president role did not reflect the reality of a situation. Someone interested in the position sent me the position description, and I noticed it failed to mention that the organization had significant operating losses over the past year, and big layoffs had just occurred. This was a turnaround situation, with a need to strategically reposition the organization. The business and leadership skill sets needed for this position were far different than what was highlighted in the position description. Having done several organization turnarounds in my career, I know how hard the situation can be, even for an experienced leader. If done right, there is great opportunity for success, for both the organization and the CEO. If done poorly, it could result in the eventual closure of the organization.

Related to costs, industry experts estimate the cost associated with replacing a CEO can be anywhere between four and eight times the amount of the CEO salary. Let's assume four times the salary, at $300,000/year, would add up to a total cost of approximately $1.2 million. Then a "hidden cost" has to be factored in, since within 18 months of the new CEO starting, half of the existing executive team will turn over. Assume there are eight members of an executive team, and four leave: that is an estimated cost of $3.2 million (4 positions x $200,000/yr. x 4 times salary = $3.2 million). The total cost for that search would thus be $4.4 million (CEO/$1.2 million + cost of executive team/$3.2 million = $4.4 million).  This is the estimated overall financial loss to an organization when a CEO departs.

For struggling hospitals, the "hidden cost" for replacing a CEO is occurring at the same time as the organization is reducing staff and operating costs to adjust to the changes occurring in the organization. For example, assume the average cost of a healthcare position (salary plus benefits) is $60,000. If the cost of a failed CEO search were prevented, that could potentially save, on average, 73 employees from losing their jobs ($4,400,000/$60,000 = 73 positions). This is an example of the “hidden cost” that no one realizes when going through a CEO search.

I understand how and why the current process has worked to date, but now I believe it needs to change. The need for this change is further supported by the recent news that the healthcare CEO turnover rate hit 20 percent in 2013, an all-time high. In addition, healthcare leads all industries in CEO turnover in 2013, as reported by Challenger, Gray & Christmas, a global outplacement consultancy firm. The need for change is now. Healthcare reform is one of the major reasons for all of the turnover in the executive suite, and this is will continue to be a challenge for years to come.

Now that I have identified the problem and quantified the impact of the problem, allow me to provide some suggestions on how to address this problem.

Recommendations for board/health system leadership:

  • Before this problem "hits the fan" in your organization, proactively develop an effective CEO/executive succession plan. Developing internal talent can dramatically reduce the risk and cost associated with going outside for a new leader. The board and health system leaders need to seize this opportunity, because most CEOs will not do this on their own, either because they are dealing with more immediate problems or they do not like thinking about their career "mortality."

  • Have the brutally honest conversation related to the challenges/opportunities facing the organization. Next, have a similar conversation about the business and leadership skills needed to address those challenges and opportunities.

  • Select a recruiting firm that will agree to and assist with your need to identify, publicize and recruit for the business and leadership skills needed to address the identified challenges/opportunities.

Recommendations for the recruitment industry:

  • Build upon your industry's strong tradition of resourcing and finding qualified candidates by insisting all future engagements include a section in position descriptions addressing the organization's identified challenges/opportunities, and  the business and leadership skills needed by the new CEO.

  • Enhance the prescreening efforts, to eliminate candidates that do not meet the new profile.

  • Advocate for enhanced succession planning efforts by all healthcare organizations.

Recommendations for potential candidates:

  • Use a tactic from the world of sales called pre-sales call research. Thoroughly investigate the organization, the board, reasons why the previous CEO departed, the competitive market of the organization, press coverage from the past three years, the medical staff, bond ratings, etc., in order to have an accurate picture of the organization.

  • Develop a list of 15 to 20 questions to be asked throughout the interview process to learn more about the "real" picture of the organization. During the interviews, ask different audiences the same questions and then compare the answers. For example, you may get one answer from the board and a totally different answer from the medical staff leadership. Note: You will be remembered more for the questions you ask than the answers you give!

  • Do an honest self-assessment of your abilities, business and leadership skills and determine if you have the right skills to address the challenges/opportunities of the organization. If you do feel you have the skills, experiences and organizational support to compete for the job, then proceed to the next step in the process. If you do not have the skills or “intestinal fortitude” for the job, then remove yourself from the process. There is nothing worse than to be in a new position and after the “honeymoon” feeling wears off, you realize you can’t fulfill the position for one reason or another.

The healthcare industry is going through tremendous change which will continue on for years to come. The ability to attract and retain key leadership talent will be important to every organization's success. Changing the CEO recruitment process by completing an honest assessment of the challenges and opportunities, identifying the business and leadership skills and including these results in the position description and throughout the interview process, will greatly enhance the chances of a successful search and for long-term success of the organization.

Daniel J. Sinnott brings 30 years of diverse leadership experience to his role as CEO of Sinnott Executive Consulting. With a values-based leadership style, he has successfully led organizations through significant cultural change, resulting in substantial gains in quality, financial and satisfaction results. Prior to starting his own firm, Mr. Sinnott served as executive director/CEO of Temple University Hospital in  Philadelphia. Before joining Temple, he spent 15 years with Denver-based Catholic Health Initiatives, most recently as regional senior vice president of operations. He holds an MBA in healthcare administration from Temple University and completed his undergraduate studies at Mount St. Mary’s University in Emmitsburg, Md.

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