Preparing for CEO turnover

Executive turnover is a fact in any business. According to a report by the American College of Healthcare Executives, health system CEO turnover was 18 percent in 2016.[1]

"The ongoing consolidation of healthcare organizations, continuing movement toward new models of care and retiring leaders from the baby boomer era may all be influencing these turnover rates. This rate of change in health system senior leadership teams underscores the importance of those organizations having succession plans to successfully manage C-suite changes," explains Deborah J. Bowen, FACHE, CAE, ACHE's president and CEO.

Whatever the reason, a key responsibility of the company or its board is to have a leadership turnover plan ready to go at all times. Health systems need to be prepared with immediate successors if an unexpected event arises, and need to develop a pool of future leaders.

Today’s healthcare environment is challenging. From health reform changes to regulatory realities to emerging changes in the payment environment to projected physician shortages of between 14,900 and 35,600 primary care physicians by 2025[2]—health system CEOs face unprecedented challenges.

Given today’s demanding healthcare environment and the difficulty of navigating industry challenges, about 70 percent of health system CEOs are choosing to leave[3] and that number is expected to increase in the coming years.

Even during uncertain times, health system boards want to see operational and financial stability in an organization’s performance regardless of executive turnover. Leadership turnover plans provide critical assurances so that when and if a change occurs, the void can be quickly filled.

Communicating Turnover

An effective communications plan considering all health system stakeholders as well as local media ensures news of the CEO transition is positioned appropriately. Depending on the circumstances, physicians, employees, volunteers, donors, strategic partners, payors and even some vendors should be aware of changes in leadership before learning about the change from a news report.

Health system performance can falter following a CEO turnover, as issues rarely stay within the walls of the executive suite. If performance issues are recurring, matters can be made worse with a negative outlook from rating agencies or debt holders who require stable ratios and financial performance. The attention associated with turnover make it essential to have a communication and transition plan in place.

Board members and health system executives should also be prepared for the inevitable questions that arise about a leadership change. For example, a spokesperson, such as the board chair or communications officer, should be the sole voice on matters regarding the transition. Not only will physicians and employees have questions, but community members may seek out board members at social outings or events — and the trustees need to have consistent responses to questions so confidence in the health system is maintained.

Navigating the Recruitment Process

Defining the desirable and appropriate qualities of a new CEO depends on what is needed for a health system at that point in time. No two CEOs are alike; however, there are some traits that every health system leader should have. First, a CEO should be someone who can be described as a ‘servant leader;’ the community’s needs and health system’s mission should come before the CEO’s own desires and goals. In addition to putting the health system first, the CEO should also be well-liked and respected. If the CEO attracts people, the leader will likely attract a dedicated team of employees and physicians that can help grow the health system. Finally, every health system CEO should possess a healthy balance of being both a thoughtful planner and a focused operator. A health system’s success is dependent upon the CEO’s ability to make decisions based on verified data and analysis without losing sight of the organization’s vision.

Chief executive candidates that embody one of the following leadership styles are often well suited for health system leadership:

  • The visionary is a growth-oriented leader and innovative thinker who can champion an aggressive strategic plan for a health system. This CEO is a pioneer who is focused on delivering innovative care, and is often described as resourceful, assertive and inspired. The visionary leader is persuasive and will likely be a champion for the community’s needs. A visionary CEO is can help health systems that need to grow market share, address unmet needs in the area, and connect further with its community. A visionary leader may also be the perfect fit for a health system that is performing well and the board wants to take the health system to the next level.
  • The reviver has a proven track record of directing major change and focuses on operations and data to determine a health system’s direction. The reviver is a cultural leader, daring and can transform many aspects of a health system—including the overall mission. Revivers are not afraid of change and are willing to overhaul health system departments in problem areas. For example, health systems struggling with physician alignment issues may need a CEO who can “change” the way the health system operates.
  • The transformer’s role is to do whatever it takes to save a health system in crisis. To do this, the CEO looks at areas that led the health system to become unstable, and is able to educate and engage the board to make quick and difficult decisions to save the health system. This CEO is strategic, decisive and resolution-oriented.
  • The stabilizer grows the health system through methodical and collaborative decisions. Not one to implement sudden change, the stabilizing leader is thoughtful, traditional and typically cautious in decision-making. A stabilizing CEO may be the best option to follow a “transforming” CEO, to settle the organization after a period of severe challenges.

Transition Planning

Whether conducting a national search for a CEO or promoting from within, the board should seek strong talent already employed by the health system that could emerge as leaders. Investing resources into developing a rising star may pay dividends when turnover occurs. Benefits of promoting a CEO from within include lower costs, positive company morale and a faster transition from a leader familiar with the organization. In contrast, hiring from within can be a gamble for some health systems. For instance, if the health system needs new or innovative ideas and a visionary leader — hiring from within may not be the best option. Also, unless the health system has been grooming a COO for years to step into the CEO role, hiring from within may result in a steep learning curve.

Health system’s needing outside help in finding and recruiting a new leader have options. A retained recruitment firm requires a one-time, upfront fee that is paid before the search begins. A contingency recruitment firm typically receives a percentage of the CEO’s annual salary. Recruitment firms provide boards with access to a broad pool of candidates, including actively working executives, many of which would be hard for a health system to identify on their own. The disadvantage of a recruitment firm is that it can be difficult for to identify the perfect candidate for the health system’s culture and strategic vision. It’s important for the board to have a guaranteed placement clause in the search firm’s contract requiring the firm to find a replacement at no additional cost, in the event the CEO leaves or is dismissed within a certain period.

Another option is QHR’s 360° recruitment. In this process, a team of healthcare professionals from varied disciplines (operations, human resources, finance, etc.) are involved in the selection process for both an interim and permanent executive. They work collaboratively to understand the operations of the health system and the type of leader who will be successful. With their experience working with a variety of community health systems across the nation, they can ask the right questions and identify the best talent for a specific need and market.

The 360° approach also guides the board through the recruitment process. Not only are the candidates pre-screened for ability and fit, board members are coached on interview strategies and provided guidance on compensation and benefits structure to help create a strong offer to the right candidate. This approach helps ensure that once the permanent executive is selected, there is a seamless transition from the interim and mentoring to ensure the new executive is successful.

Managed ineffectively, the loss of a CEO can result in numerous negative impacts including operations disruptions, staff turnover, decreased morale, medical staff dissatisfaction, community relations issues and even a loss of confidence in the board of trustees. If the health system has no turnover plan, those impacts are made worse – and more expensive – as a lengthy recruitment effort drags on. With a leadership turnover plan in place, the board is well positioned to manage the message with stakeholders and move quickly and efficiently through a successful recruitment process.

With over 20 years of industry experience, Mark has served in roles of chief executive officer, chief operating officer, chief financial officer and chief restructuring officer for a variety of healthcare provider organizations. In these roles, he managed and led the day-to-day operational, financial and outcomes performance of acute and ambulatory hospital services, large physician practices, skilled nursing and long-term acute care programs, durable medical equipment and other services. Mark has advised many clients in the areas of rapid performance improvement, turnaround and restructuring, M&A advisory and population health. He has advised clients in rural, middle and urban markets and has acquired extensive operational and consultative experience with accountable care organizations (ACOs) and university health systems.

[1] American College of Healthcare Executives “Health system CEO Turnover Rate Remains Steady,” 2017

[2] Association of American Medical Colleges: The Complexities of Physician Supply and Demand, 2016

[3] American College of Healthcare Executives “Improving Leadership Stability in Healthcare Organization 2011”

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