One of the toughest decisions a long serving CEO has to make is when to leave the organization – to retire or take on another career challenge.
“Go out on top” is the ideal goal but more than a few executives, for a variety of reasons – financial concerns, unfulfilled business plans, no apparent successor, family preference, or unchecked ego – stay too long and, in the end, damage their reputation, their legacy and sometimes the very fabric of the organization they have worked hard to serve. Or more ominously, a sudden death or catastrophic illness or injury to the CEO can result in devastating consequences for the organization as the result of a vacuum in leadership.
This is particularly a challenging time for hospital CEO transitions, given the enormous pressures of ongoing reductions in reimbursement and the unpredictable consequences of the Affordable Care Act. Executive turnover is on the rise as CEOs struggle and sometimes fail to adapt to the realities of a new operating environment and as more and more Baby Boomers retire. Both the leadership dismissals and the retirements are fueling the escalating turnover which could peak at 20 to 24 percent nationally within seven years.
Over the last five years, I have watched this scenario play out several times. As each case unfolded, I had to question how the “what’s best for the organization” consideration factored in to all of the drama. In three of the cases, the publicity that was generated, in effect, put the hospital into play. One board found themselves fielding offers from several investor-owned corporations and two regional not-for-profit health systems, creating an enormous distraction throughout the organization at a time when the senior team should have been focusing on reducing costs and shoring up market share.
These messy transitions occur in all industries but healthcare seems more prone than most These transition train wrecks can negatively impact the operations of the hospital and the reputation of the CEO, marginalizing his or her positive accomplishments.
Why is healthcare more susceptible to these types of untidy leadership transitions?
Because healthcare executives have an aversion – a deep resistance – to even discuss succession planning. In some cases, CEOs like to cite a litany of the bad things that can happen when you start planning for a successor. Chief among those, although rarely mentioned, is that CEOs do not want to develop a plan that might make it easier for governing boards to get rid of them when they disagree, which happens now and again. Non-confrontational boards, of which there is an abundance in the not-for-profit healthcare segment, are reluctant to force the issue and the subject falls off the table.
I personally experienced the wrath of a successful, but tough CEO in East Texas. I mentioned succession planning. Before I could explain that I was actually referring to the importance of planning for mid-management turnover, a particular vulnerability for many hospitals, he erupted as he was so famous for doing. The ferocity and suddenness of his explosion startled me. It turns out that he thought I wanted him to engage in planning for his own departure and he was having none of that. As his rant gained steam and volume, I thought of two things: how will this affect the searches I was currently conducting for his organization and, if he threw me out of the window as he threatened to do, would my injuries be covered under my high deductible health plan or would it be considered a worker’s compensation event.
Stand-alone hospitals and small health systems are particularly vulnerable to messy transitions. That hospital boards would let something as critical as succession planning fall through the cracks is ironic given how much narrative is devoted in their annual reports and regular press releases to its critical role in a community’s economic well being.
In this new environment, hospitals and their boards can ill afford to put off, or ignore, this essential governance responsibility.