Hanging up the Hat: 6 Best Practices for Hospitals to Prepare for Retiring CEOs

A CEO's decision to retire doesn't come easily, but it can be especially difficult for those in an industry as riddled with change and uncertainty as healthcare. Politics aside, healthcare reform has rejuvenated the fervor among many healthcare leaders and left them postponing plans to retire. In a recent survey from executive search firm Witt/Kieffer, 83 percent of healthcare CEOs said a need to help solve the challenges in healthcare makes them reluctant to hang up their hats.

"I think a lot of folks are delaying retirement because they're so excited about this," says Elaina Genser, senior vice president at Witt/Kieffer's branch in Emeryville, Calif. "This is like the next Medicare. How can you not be part of that?"

The survey also identified two other reasons CEOs are reluctant to retire — both of which seem less sound than the aforementioned. Seventy-three percent of healthcare CEOs said their board doesn't want them to retire, and 52 percent said there is no one at their organization ready to step into the CEO role.  

"I think that boards and CEOs have a responsibility to the organization to be sure its leadership succession is clear; especially if it's an unexpected CEO change," says Ms. Genser. "Therefore, the CEO is obligated to be mentoring or developing at least one successor even if [he or she has] no immediate plans to retire or leave the organization."

Although hospital CEOs aren't retiring as quickly as expected right now, hospital boards should ensure their CEOs stick around for the right reasons and develop a succession plan. Here, Ms. Genser explains how hospitals can strengthen their succession plan and shares some best practices for hospitals transitioning from departing to incoming CEOs.

1. Something usually triggers the CEO's decision to leave.
Sometimes it's the completion of a major transaction, capital investment or long-term construction project. Other times, the CEO's decision is completely internal. "At some point, [they] have to look for a new place because it's time for a change. Or they decide they're old enough, or well off enough, to retire," says Ms. Genser. "It's the contemplation of, 'What am I going to do with myself?' As people get older, that's difficult."

2. Who is the first person to know the CEO is retiring?
Usually, the hospital's board chair is the first to know about the CEO's decision. "Most CEOs have very strong relationships with their board chairs," says Ms. Genser. The conversation then turns to strategy, and the CEO and board chair often determine how to announce it to the other board members and then the organization.

Ideally, the CEO's decision will not come as a shock to the board. "When CEOs start to hit 60, boards usually have a conversation with them about their plans. Usually, they'll want them engaged and to commit to longer. Other times, they'll just want to get a feel for the CEO's thinking."

3. The three to five year rule. If a CEO says he/she plans to retire in three to five years, hospital boards should kick their succession planning into high gear and ask some crucial questions: Is anyone inside the organization a potential CEO candidate? Who, if anyone, does the CEO think should replace him or her? Should the hospital hire new executives and condition them to become leaders? Does the hospital need to conduct an executive search?

Anything less than three years is not enough time for a thorough succession plan, according to Ms. Genser. "You can't help if someone has a health issue. But usually, when someone is announcing [plans to retire in] a year, there has probably been preplanning around succession planning. If not, there's enough time to conduct a search," she says.

4. Boards should give themselves the benefit of a choice. Boards will ideally identify and develop more than one CEO candidate for a number of reasons. First, if a candidate doesn't want to wait five years and leaves before the outgoing CEO retires, the hospital could lose their successor late in the game. It also comes down to boards having a choice between different skill sets. Ms. Genser says boards need to identify candidates' strengths and gaps, then develop a personal plan specifically designed to improve the individual's shortcomings.

"Gaps may be along the lines of never having asked for money from the community, or never having done physician recruitment. They can be very discrete or much more difficult, like never going to the capital to do advocacy work for the organization with legislators," she says.

Shortcomings are to be expected in most cases, given the external nature of the CEO role. To stakeholders, the CEO is the most visible face of the organization whereas other jobs — even senior level management positions — tend to operate more internally. Some people realize they do not like the CEO position, which is why conditioning and professional development during the succession plan is important.

The three to five year succession period is also the time for boards to become acquainted with the candidates through regular interaction. External searches can also act as an affirmation that the internal candidates are the best fit for the organization. An external search can prevent second guessing, or disgruntled stakeholders accusing the hospital of not looking elsewhere for a leader.

5. A CEO's last year at the helm is about preservation. A hospital CEO who has announced his/her resignation can't afford to be a lame duck. Most will be busy positioning the hospital for success under the new leader. This may involve introducing the incoming CEO to major stakeholders at various social events.

Other times, the outgoing CEO may involve the incoming CEO in major, key initiatives to ensure a smooth transition. If the executive search has moved outside the organization, the CEO is then talking with community members, donors and other stakeholders about the hospital's strength and its ability to survive a change in leadership, according to Ms. Genser.

6. The transition period should be short to avoid conflicts. It's crucial that any overlap between the outgoing and incoming CEO be short, ideally no longer than two weeks, says Ms. Genser. The retiring CEO should make some of his/her last key introductions and leave. The outgoing CEO should not come into the office every day. This can make for an uncomfortable situation with the successor, who will want to be appropriately respectful but also needs to establish their authority.

"Even if it's before the time outlined [in an agreement], the outgoing CEO can be available to the incoming CEO as a consultant," says Ms. Genser. If the outgoing CEO does act as a consultant, it is key that he/she contribute guidance at the request of the hospital CEO's successor — not the board.

"The board has to start looking to the CEO as the new leader," says Ms. Genser. It is also easy for hospital boards to ask the former CEO his/her opinion of their successor. "It's natural for people on a board to say, 'How do you think he's doing?'" says Ms. Genser, but this type of interaction may be best avoided.

More Articles on Hospital Leadership:

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125 Hospital CEO Profiles
The Dying Rivalry: How For-Profit and Non-Profit CEOs Are Becoming More Compatible


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