Ted Chien, President and CEO, SullivanCotter, Inc.
The health care industry is experiencing a critical gap in expertise as operations grow more complex and executives retire or step away. As a result, succession planning is a pressing challenge that many leading health systems in the U.S. are struggling to address. Whether a change among top leadership roles is planned or unexpected, its impact on the rest of the organization—and how the strategy for the next generation of leadership plays out—can have far-reaching effects on a system’s financial performance, employee retention and care delivery.
Exits Are Trending Up
According to Challenger, Gray & Christmas, there were 146 CEO changes among hospital and health systems in 2023–an increase of 42% from 2022. This year has progressed similarly as exits remain high and instability increases across the industry. This level of disruption is especially troublesome when many organizations are still struggling financially in a post-COVID environment and labor shortages continue to impact patient access to services and quality of care.
On top of this, high rates of inflation and the growing cost of labor are chipping away at margins. Health systems, especially those in rural or smaller communities, are closing at a rapid pace. According to recent data from the Center for Healthcare Quality and Payment Reform, nearly 30% (more than 600) of all rural hospitals in the country are struggling financially and are considered “at-risk.”
Even a high-performing CEO, board and leadership team may be unable to stop an impending closure. However, making hasty executive leadership changes or reactive hiring decisions can exacerbate financial and operational challenges.
While there is no standard approach to succession planning, there are three important considerations that organizations should take into account as they look to minimize disruption before, during and after key leadership transitions.
Start early to avoid disruption.
Beginning three to five years prior to an anticipated CEO transition is not uncommon. Choosing the right individuals requires assessing current and future business needs and evaluating the skill sets to determine the true requirements for the job.
Starting early allows boards and leadership teams to identify strong internal and external candidates who possess the right skills, align with the organization’s culture, and can meet future business needs. This requires some level of forecasting. After all, an individual in a current CEO position today may no longer be available in three to five years. However, an up-and-coming leader at a similar organization might be a good target for a future CEO.
When an unexpected change happens, early planning offers some security as well. Even if the right candidate isn’t quite ready to ascend, organizations can put interim leaders in place while they continue to recruit or prepare the next CEO. This gives the entire team more time to revisit the succession plan and make strategic decisions.
Hire your future now.
As part of planning, organizations should recruit those up-and-coming leaders years before any decisions are made about an individual’s true potential as a future CEO. Health care is evolving to require a broader set of skills from its leaders—skills to manage things like population health and value-based care, informatics, digital health services, and other non-traditional hospital functions. When evaluating candidates, it’s important to define the type of expertise that will likely be needed down the road so organizations can help to nurture and develop these skills in potential CEO candidates once they’ve been onboarded.
Weigh the merits of internal vs. external hires.
Recruit from within or hire from the outside? It’s a critical decision. Boards must consider whether an internal or external hire offers a better chance for success based on future business needs and existing market, as well as social and political dynamics.
Internal candidates offer institutional knowledge, continuity and an easier transition into the role. External candidates bring fresh perspectives and tend to be unencumbered by historical actions or expectations. With proper foresight and recruitment, external prospects can soon become internal candidates who ascend through the ranks as key successors. Organizations that plan far enough ahead can successfully build both options into the mix to create a stable leadership team that can maintain forward progress, drive transformation and find the next growth curve.
Forbes Business Council is the foremost growth and networking organization for business owners and leaders. Do I qualify?
Read the full article here
