Examining the Wave of Leadership Changes: The Need for Succession Planning at All Levels (Part 1/3)
Author: Robert Thorn
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. 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 an urgency and often hasty and poor decision making, such as hiring or promoting a 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. 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, and over 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 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 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 develop no new services. There is essentially no one to “own” the future direction of the organization.
Despite strides successfully made to increase employee engagement levels between 2010 and 2019, these gains were quickly lost when the pandemic hit at the beginning of 2020. Employee engagement across all industries saw its first annual decline in a decade in 2021, according to Gallup, with a drop from 36% engaged employees in 2020 to 34% in 2021. Overall, the ratio of engaged employees to disengaged employees in 2022 is 1.9 to 1, compared to 2.1 to 1 in 2021 and 2.6 to 1 in 2020. 2019 represented a record high for engagement, when that ratio was 2.7 to 1. In healthcare, about 20% of workers have quit since the pandemic started, and up to 47% of them plan to leave their positions by 2025. Leadership matters, now more than ever, at all levels. As with healthcare executive roles, when a manager or department director leaves, a succession plan is critical. Short of a succession plan, an external, experienced interim leader is warranted to keep an organization on task and employees engaged.
In Part Two of this series, the introduction of an external interim leader, both at the executive level and division or department level, will be examined and justified.