EXAMINING THE WAVE
OF LEADERSHIP CHANGES
By Robert Thorn
Part 1: The Need for Succession Planning at All Levels
Whether a change in leadership in a healthcare organization is planned or abrupt, it can have a huge ripple effect on other key leaders and staff.
Over the past few years, leaders and staff alike have been tasked to do their jobs in increasingly trying times, dealing with unprecedented events such as a pandemic and its consequential patient surges and reductions in force, depending on the community; and now, inflation, staffing challenges, and supply shortages are the leading stressors. Adding to that is a wave of leadership departures, becoming the latest proverbial straw that, if not managed correctly, will break the camel’s back, with organizational and even community-wide consequences, including hospital closures. 2022 has set a record pace for leadership changes, according to a report issued by Challenger, Gray & Christmas, Inc., a business coaching and outplacement firm.
Starting at the top of the organizational chart, 36 hospital CEOs left their posts in the first four months of the year, up from 20 chief executive departures over the first four months of last year. That represents an 80% increase. And it only continued to grow as the year advanced, with the rate nearly doubling to 62 transitions by the end of June. While leaders may decide to leave for a variety of reasons, the challenges experienced over the past two years have taken their toll, affecting both job satisfaction and job performance.
Even though two out of three leaders leave voluntarily, in reality, half of voluntary resignations are in lieu of terminations, according to a study of companies on the Russell 3000 Index. Healthcare organizations are no different, as boards and corporate leadership have grown impatient, while inflation, staffing shortages, and possible recession concerns are giving boards more cause to re-evaluate leadership. In their view, something has to change, and it is usually the leadership.
What can an organization do to ensure changes in leadership, both voluntary and involuntary, produce a positive outcome? Anticipating and planning for such change is one step that can be taken, even if change is not on the immediate horizon. Succession planning, starting with the executive suite and cascading through the organizational chart to all key personnel, helps organizations take leadership changes in stride, at least to keep momentum and strategic direction on pace.
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Unfortunately, according to the American Hospital Association, 49% of hospitals do not have a succession plan. For this, the reasons are many.
First, boards and executives often underestimate the intense emotional toll that leadership transition has on an organization and feel there is no need for a succession plan, especially during times such as the past two years when leaders have been exceptionally busy dealing with the pandemic.
Second, boards often wait too long to consider these issues and then find themselves in an emergency situation to which they must react. This results in urgency and often hasty and poor decision-making, such as hiring or promoting the wrong candidate in an effort to fill a position quickly.
Lastly, boards often inappropriately delegate succession planning to the current CEO. While the CEO can play a crucial role in assisting with a transition’s success, board members should never assume this responsibility belongs to anyone but the board.
Interim Leadership Services >Current leaders might also be at risk of bringing in personal biases and insecurities. Specifically, some leaders feel that by having a succession plan, they are making it easier for them to be replaced, when in fact, the opposite could be argued. Organizations performing in the top quartile have succession plans 79% of the time. Whereas those in the lowest-performing quartile force out CEOs twice as often as companies in higher quartiles.
A succession plan can also have a profound impact on an organization’s culture.
According to a survey conducted by Hireology.com:
- 62% of employees surveyed say they would be “significantly more engaged” at work if their organization had a succession plan.
- 94% of employers surveyed reported that having a succession plan positively impacts their employees’ engagement levels.
- 90% of younger workers (age 18 to 34) say that working in an organization with a clear succession plan would “improve” their level of engagement.
However, succession planning had been viewed as either absent or so inadequate that the U.S. Securities and Exchange Commission (SEC) found it necessary to include it in the Sarbanes-Oxley Act for publicly traded companies. Whether an organization is publicly traded, privately held, or in the trust of a community board, it is incumbent on boards to make sure there is a succession plan for leadership, starting on day one of a new leader’s tenure. Even when there is a succession plan, 77% of executives across all industries indicated there is not an internal successor prepared for their role.
Specifically in healthcare, when an internal resource is moved over into an interim or permanent position as a result of a vacancy, fewer than 17% of these internal successors have been ready for that role. Therefore, more important than naming an internal resource to assume a new role is preparing a successor for the new role. Research from the Corporate Executive Board estimates that 50% to 70% of executives fail within 18 months of taking on a new role, regardless of whether they were an external hire or promoted from within. Internal candidates that have been adequately prepared for the new role can drastically reduce this failure rate. Otherwise, an organization stands to potentially lose a valuable resource who was in a productive role prior to being moved over to succeed a recently departed leader.
In any organization, but particularly hospitals, there is an identified trend of ripple effects when a leader leaves.
According to the American College of Healthcare Executives, within one year of the CEO’s departure, the Chief Medical Officer leaves 77% of the time; Chief Operating Officer, 52%; Chief Financial Officer, 42%; and Chief HR Officer, 37%. And the “ripple effect” of leadership change goes well beyond a hospital’s C-Suite, a well-known fact for quite some time. Of more than 800 hospital executives surveyed by the American College of Healthcare Executives in 2005, nearly three-fourths of hospital CEOs believed that their terminations – some involuntary – caused employee morale to drop. Subsequent research has shown leadership turnover can be a catalyst for disengagement, as there is a direct relationship between leadership and retention in nursing, among other areas, whether that leader is a supervisor, manager, director, or executive.
This is not only potentially catastrophic to the organization in terms of operating effectively but also costly. While poor leadership is a root cause of high employee turnover and loss of productivity, absent leadership is even worse, both in terms of actual dollars and strategic direction. Specifically, strategic planning is halted or postponed in more than 30% of organizations when a CEO leaves; a quarter develops no new services. There is essentially no one to “own” the future direction of the organization.
Part 2: Strategies to Ensure Deliberate, Positive, and Successful Leadership Transitions
This three-part series examines the ripple effects caused when key staff and leaders leave organizations and how these organizations can mitigate adverse impacts caused during such transitions or avoid them altogether. As Jim Collins stated in his best-selling book, Good To Great, “People are not your most important asset. The right people are.”
Part 2 of this series looks at the effective use of and rationale for interim leadership.
As healthcare organizations have weathered the greatest pandemic facing the world in more than 100 years, they are faced with more new and unprecedented challenges. Workforce shortages, supply limitations, and inflation top the list, while maintaining staff engagement, high-quality outcomes, and financial sustainability are the long-term constants. To make matters worse, key staff and leaders are leaving organizations at a record pace. The question now is, what can one of the 49% of hospitals that has no succession plan and loses a leader or key staff? The best thing to do is not be hasty, desperate, or emotional. As the statistics show, change happens. It happens quite often. And it is happening with greater frequency. To keep leadership turnover from becoming an increasingly recurring theme, securing an independent (external), experienced interim leader may be warranted.
While sliding over an internal person to serve as an interim leader seems logical, especially in a department or division leadership role, as they already know the organization and can start immediately, doing so can create a vacuum of responsibilities.
By shuffling resources around to fill a void, new voids are created. An organization becomes, in essence, a “sliding tile puzzle,” where internal resources are constantly moved around to cover open positions. No matter how hard one tries, there is always an open spot in the puzzle. In other cases, where one resource assumes two roles (their current role and the open position), even if for a short term, a dilution of responsibilities occurs, as well as the current state of the nursing workforce, demonstrates the current strategy is detrimental to our goals of healthcare transformation.
As a result, performances may suffer. This is especially true for people who assume new responsibilities for which they were not prepared. While an organization may no longer have a void, they now have one person performing jobs previously justified as needing two persons. Either an organization was overstaffed prior to a leader’s departure or is understaffed after a leader’s departure. Furthermore, as 25% of hospital CEO searches can take more than six months, and director and divisional roles seeking a person with five-years’ experience can take at least that long or even longer, having internal people in dual roles, especially roles for which they may be unprepared, can stress even the best of leaders and organizations.
Although an organization may believe it is saving money by utilizing internal resources in interim roles, the Society of Human Resources Management estimates a change in CEO costs an organization six to nine months’ salary, primarily from loss of productivity of staff. Other studies show the cost to be considerably more, and not just for executives. Recruiting and training new employees, including managers and directors, are expensive organizational processes, as employee recruitment and training costs can be 200% of an employee’s salary, thereby impacting the profitability of hospitals and increasing patients’ health care costs. Factors affecting this turnover and related costs include work environments, such as leadership and management.
For example, in the case of nurses, research has revealed that management issues, low morale, the amount of time spent on non-nursing tasks, and workload all play a role in turnover, which may explain why turnover rates are even greater for Assistant Nurse Managers and Nurse Managers than they are for Directors of Nursing and Chief Nursing Officers. It can be argued that leadership sets this culture and environment. Changes in leadership do not always ensure a more positive outcome, especially when leaders come and go often, which is why working through a defined process, and using an external interim leader, can drive a shorter yet more productive and positive outcome. After all, when not done properly, if an organization or department was not losing money before a transition, it could very well be losing money by the time a new leader starts, perhaps permanently.
To be most effective, external interim leaders assume all responsibilities of the permanent leaders whose roles they are temporarily filling. They use the same job descriptions and have the same authority for hiring, firing, contracting, spending, compliance, quality, etc., as the leaders they are succeeding. By doing so, it allows the organization to operate as it would in ordinary times, with behavioral and performance expectations.
As times of transition can also be times of political challenge, an external interim leader can often address both behavioral and performance issues more objectively than internal leaders assuming interim roles, as external interim leaders have neither baggage nor fear of future fallout, which can be the case when an internal person returns to their original role or is put in the leadership role permanently. This objectivity also yields benefits to the governance of an organization, whether it is a board or corporate-structured, as assessing, reporting, and addressing issues is a key responsibility of an interim leader. Otherwise, unseen problems that may have contributed to the original leadership departure may continue to contribute to more turnover, regardless of the level in the organization.
Perhaps the most significant role an external, experienced interim leader can bring to an organization is a calming presence during uncertain times.
Assuming they have done this before, external interim leaders will have the necessary experience to guide boards and staff through leadership changes elsewhere. Leaving an organization in a better place than it was in when the transition started is not an unrealistic expectation, which is why having the authority to function effectively in an interim role is critical. It should be noted that if there is an internal candidate for the permanent position, it is often tempting to place such a person in an interim role. The rationale for this is to “let them carve their teeth” or to have them “test drive” the role. This can be costly if the candidate is one of the 83% of people not ready for the permanent role. Instead, it is appropriate for the internal candidate to be vetted for the position through the exact same process as external candidates, ensuring the strongest candidate is selected rather than having a process succumb to the pressures of convenience.
Would a traditional healthcare leader with a Master’s Degree in Healthcare Administration (MHA), or Master’s Degree in Business Administration (MBA), be capable of taking on a new role in an operating room, serving in a clinical capacity because they have a deep understanding of healthcare operations?
Whether or not an executive search firm is used, under certain circumstances, it may very well make sense to have the external interim leader facilitate or chair an internal search committee for the permanent candidate. Based on the interim leader’s objective assessment of the position, needs of the organization, and skill sets, specific candidate qualifications can be identified and sought through the search. If using an outside search firm, these specific attributes being sought by the organization can be communicated to the firm so that it has a most solid idea of what to look for.
Even though the interim leader may have only been in the role a short while, he or she can provide an “insider’s perspective” of the role, as well as ensure others’ perspectives on the search committee are being recognized. The interim leader can also be the point person for any internal resources needed, including Human Resources, which may require some coordination for application processes, vetting requirements, background checks, skills and personality assessments, salary surveys, and logistics for site visits by candidates.
The permanent leader recruitment process should take between 90 and 120 days and needs to stay a top priority for the organization. While not wanting to be hasty, there is no reason this process should be prolonged, keeping in mind the longer the transition, the more costly it is to the organization. Having the external interim leader as the point person for the recruitment process ensures this recruitment stays a top priority and that the organization is responsive and deliberate in each step it takes to find and secure its next leader.
That does not mean an organization should take shortcuts or compromise its search efforts. Even in communities that feel they are at a disadvantage (remotely located, small town, high leadership turnover in the past, politics), the right candidate is out there. If that candidate is not found after screening and bringing a round of candidates, at least three, in for on-site interviews, review the job description, salary/benefits package, and attributes the search committee is seeking in candidates, make any necessary adjustments, and repeat the process; the right candidate will be found.
Part 3: Leadership Transition Planning and the Importance of a Warm Handoff
As stated in Part One of this series, during a change in leadership, more than 30% of hospitals stop or postpone strategic planning; and many strategic initiatives are abandoned. 25% of hospitals stop or delay the development of new services altogether.
In addition, many new priorities can arise as a result of the transition. Therefore, with the selection of a new leader, there comes an opportunity for the new leader and organization, division, or department, depending on roles, to start off in the right direction. This is especially true for smaller and rural healthcare organizations, as the need for focused strategic planning in rural communities has never been greater.
According to the Journal of Healthcare Finance, “The hospitals that come up with a strategic plan and are proactive will stay open, and staying open means saving jobs and opportunities in the community.” While strategic planning on the heels of a leadership transition is a method for getting a hospital or department back on track, it is much more than that. Strategic planning can be the difference between a hospital staying open and closing. In that case, it can be the difference between the life and death of a rural community and its residents. According to a University of Washington study, when an urban hospital closes, there is no material impact on its community.
However, when a rural hospital closes, the community mortality rate rises by 5.9%. Therefore, ensuring a warm hand-off between the interim leader and the permanent leader through a short-term strategic (work) plan, no more than 12 to 18 months into the future, enough time for the new leader to get a bearing on their surroundings without being committed to long-term strategies, can make all the difference in the longevity of the new leader and the success and sustainability of the organization.
It is common for departments at every level to become confused about what’s going on during and after a transition in leadership. Employees, among others, want to ensure the organization will have a long-lasting future. They want to know where the organization is headed and the steps it takes to get there. Effective departmental or organizational planning can help create clarity, improve communication, and improve employee engagement, which in turn drives quality.
A strategic plan should address the key issues, the organization’s or department’s vision and goals, and the steps to get there. Whether or not a hospital or a department has an existing strategic plan, a change in leadership is always a fresh opportunity to look at things objectively to see where the organization sits in meeting its goals. It is a time to check-in with key staff to gain a perspective on where they feel the organization or department is “hitting its mark” or missing it.
After all, employees want to be recognized and heard. Using this post-transition plan, with the interim leader facilitating the process, addresses both long-term issues and those resulting from the leadership change. Being transparent in this process can greatly impact productivity, engagement, and quality. Again, the interim leader can bring objectivity and familiarity to the process, and it can be performed in a matter of days or weeks to ensure a smooth transition while maintaining focus, momentum, and direction.
In other words, it does not have to be overly complicated. Extra skills such as recruitment and planning facilitation may appear specialized and uncommon; however, they are not necessarily so for a seasoned interim leader, and another reason to consider such a resource rather than sliding an existing resource into an interim leadership role. By bringing in a leader who can address operational issues while also recruiting and planning, organizations can leverage a more cost-effective solution in terms of time and dollars.
Once this plan is completed and the “warm hand-off” has successfully occurred, and the interim leader has left to tackle new challenges in other organizations experiencing a leadership change, improvements between former leadership and new leadership can be seen. According to the American College of Healthcare Executives, these improvements include hospital culture, 73% of the time; medical staff relations, 71% of the time; employee morale, 71% of the time; board relations, 69%; community relations, 63%; and, financial performance, 60%. As these statistics show, when leadership transitions are managed effectively, with the right “hand-offs” in place, organizations can respond in kind.
About The Author
Robert Thorn - MBA, FACHE
Advisor to Thaxton Leadership and has served in both interim and permanent healthcare leadership roles across the country.
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