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August 12, 2022

Are you ready for your CEO to leave?

Daily Briefing

    The hospital sector is experiencing a surge in CEO departures—and research suggests that less than half of health systems are prepared for the financial and organizational impact that follows, Alex Kacik writes for Modern Healthcare.

    Ensure seamless leadership transitions

    CEO departures can have costly consequences

    According to a CEO Turnover Report from executive outplacement firm Challenger, Gray & Christmas, 62 hospital CEOs left their roles in the first half of 2022, marking a 48% increase from the same period in 2021—and industry experts anticipate more departures through next year.

    When CEOs leave, there are financial and organizational ramifications that can seriously impact hospitals.

    A 2018 report from executive search firm Acadia Associates found that onboarding the wrong executive can cost an organization between five and 15-times their base pay, noted Bill Dixon, a managing partner at executive search firm Pearl Meyer.

    In addition, staff may disconnect from an organization if there is poor communication amid a leadership change, Dixon added. Without ongoing dialogue, employees are more likely to leave an organization as they wonder about the future of their work, said Christine Mackey-Ross, president of AMN executive and physician leadership search.

    "A poor hire leads to additional financial and cultural consequences beyond the transition," Dixon said. "A systemic approach to leadership planning has paid off for the rare few (health systems) that have a depth chart for each position and view succession planning as a core part of their strategy."

    How hospitals and health systems can prepare

    According to the 2021 Governance Institute biennial report, just 44% of 260 surveyed hospitals had a formal, updated succession plan for CEO and senior executive departures. In addition, the most recent American Hospital Association governance report found that less than a third of hospital executives surveyed in 2018 reported updating their CEO succession plan within the past two years, and less than half of hospitals and health systems had a formal CEO succession plan.

    However, some hospital and health system leaders have considered how to ready themselves and their organizations for when a CEO chooses to leave.

    John Muir Health

    John Muir Health CEO Cal Knight, who initially planned to retire in 2021, delayed his departure because of the Covid-19 pandemic. The delay allowed John Muir Health additional time to craft a succession plan and prepare for the organizational consequences of such a high-level departure.

    The health system's board had an extra year to conduct interviews with internal and external candidates. In total, the health system considered more than 60 candidates using what the board determined to be the key attributes needed for position, which included the ability to navigate clinical and management affiliations, foster relationships with physicians, identify the needs of underserved communities, and demonstrate strong business and financial insights, according to Kathleen Odne, chair of John Muir's board.

    Scripps Health

    Scripps Health has developed emergency and long-term succession protocols. Chris Van Gorder, who has been president and CEO of Scripps for more than 20 years, makes routine updates to a letter detailing potential CEO candidates in case of an emergency.

    In each proposal, Van Gorder outlines a candidate's training and whether he thinks they would be able to successfully step into the role. In addition, the communications team routinely updates a draft of an internal memo announcing an unanticipated leadership change.

    Prior to his departure, Van Gorder has promised to give the board a one-year notice and help train his successor.

    "I meet with all my executives one day a week and interact with them every day. It's always on my mind—what are they doing now, how well are they doing it and what experience do they need," Van Gorder said. "Our job is to give them the experiences they need to broaden their horizons and prepare them for the next role."

    Sharp HealthCare

    Similarly, system leaders at Sharp HealthCare regularly update a list of leaders approaching retirement and name potential successors, according to Sharp CEO Chris Howard.

    "We ask our key leaders to provide us names of prospects to keep in mind should the day come that they retire or leave," Howard said. "It's a work in progress, and you have to adapt it from time to time." (Kacik, Modern Healthcare, 8/9)

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