EVERY HOSPITAL BOARD NEEDS A CEO SUCCESSION PLAN. HALF ARE FAILING.

https://www.healthleadersmedia.com/strategy/every-hospital-board-needs-ceo-succession-plan-half-are-failing

The organization needs to have a strong sense for who will lead next. That’s ultimately the responsibility of the board, not the incumbent. This article appears in the July/August 2019 edition of HealthLeaders magazine.

The departure of a CEO can severely disrupt an organization’s progress, especially when the leader leaves suddenly without a clear successor. Despite the well-known need for succession planning, an alarming number of healthcare provider organizations are chugging along without a plan in place, just hoping that their top executives stick around for the foreseeable future.

Forty-nine percent of hospital and health system boards lack a formal CEO succession plan, according to the American Hospital Association Trustee Services 2019 national healthcare governance survey report. That leaves them vulnerable to the disruptive gusts of a CEO’s sudden departure, and it can inhibit their ability to pursue longer-term strategies by leaving them overly dependent on one leader’s vision.

The failure of these boards to formalize CEO succession plans is outrageous and unacceptable, says Jamie Orlikoff, president of the Chicago-based healthcare governance and leadership consulting firm Orlikoff & Associates Inc. and board member of St. Charles Health System in Bend, Oregon. “Whatever the reasons are, it’s just a fundamental and inexcusable abrogation of a basic governance responsibility, so I am nothing less than shocked that the figure is almost 50%,” Orlikoff says.

Why Plans Aren’t Made There are typically a few basic reasons why an organization may be slow to finalize a CEO succession plan. Perhaps the current CEO just doesn’t want to talk about it, Orlikoff says. Some executives are more comfortable talking to their families about their own life insurance plans than they are talking to the board about what to do in the event of their sudden departure, he says. Or perhaps it’s the board members who don’t want to talk about it. Orlikoff says at least four board chairpersons for various organizations have told him in the past seven years that they don’t want their current CEOs to leave and that they don’t want to think about succession planning because the recruitment process is too burdensome. Or there could be an unhealthy power dynamic between the CEO and the board, with the CEO asserting control over tasks that should be handled by the board members, Orlikoff says.

What makes the relationship between the CEO and the board so tricky is how it ties together two distinct relationships. On the one hand, the CEO and the board are strategic partners defining and executing a shared vision. On the other, they are an employee and an employer. “Those are two very, very different and very important functions,” Orlikoff says.

“Some boards have great difficulty envisioning the distinction between those two roles.” A board should lean on the CEO as a strategic partner because the CEO is likely to know more about the industry and more about the local market than the board members do, Orlikoff says. But when the board neglects to assert its proper place in the employer-employee relationship, the CEO may be given free rein over a broader scope of issues than is appropriate, and that can impede the CEO succession planning process, he adds.

In other words, while it’s perfectly appropriate for a CEO to groom a potential successor, the board should not defer to the CEO’s selection, and the CEO should not insist that the board do so. How to Fix This The existence or nonexistence of a formal CEO succession plan is often a symptom of whether the relationship between a CEO and the board is healthy, Orlikoff says.

Notably, the task of devising a succession plan is one exercise that can improve that relationship, he adds. While the detailed steps each organization should take will vary from one situation to another, there are two specific items that Orlikoff recommends: 1. Ask about the mundane threat of a bus.

Whether you’re a CEO or board member for an organization without a formal succession plan in place, there’s one straightforward question you can ask to kickstart productive dialogue on the topic: What do we do if our CEO gets hit by a bus tonight? The question is nonthreatening. It doesn’t signal a CEO’s possible intent to resign or retire. It doesn’t suggest the board members are thinking about giving him or her the boot.

It simply asks, as a matter of fact, how the organization will maintain continuity in the event of an unplanned CEO departure, just as parents would speak with their families about life insurance, Orlikoff says. The CEO should tell the board, without any other senior leaders present, whom the CEO would pick to step into the interim CEO role, Orlikoff says. That will inevitably prompt follow-up questions: Would the interim CEO be a good permanent replacement? Which of the requisite skills do they lack? How well do they align with our long-term needs and vision?

The conversations about an unplanned CEO departure will flow naturally into questions about a planned departure. Where are we in the current CEO’s contract cycle? When does the CEO want to retire? What skills and traits will our next CEO need to lead the organization into the future of healthcare?

Conversations about an unplanned departure should begin on the very first day of a new CEO’s contract, Orlikoff says. Conversations about a planned departure should begin at the end of the CEO’s first year, he says. For a CEO with a five-year contract, the board should start asking halfway through contract whether the CEO wishes to renew a contract or leave the organization, and the board should know three years into the five-year contract whether the CEO wants to stay, he says.

Hold executive sessions without the CEO present. An increasing number of hospital and health system boards are routinely listing executive sessions on their meeting agendas, and that’s a good thing, according to the AHA Trustee Services survey. A slight majority, 52%, of all respondents routinely included an executive session in the agenda of every board meeting, according to the survey report. But 26% of system boards, 59% of subsidiary boards, and 48% of freestanding boards still don’t.

Even if a board has an executive session, though, that doesn’t mean members are able to fully discuss the topics in their purview. The survey found that CEOs participate in the entire executive session for a majority, 54%, of all boards. That includes 41% of system boards and 57% for both subsidiary and freestanding boards. That deprives trustees of an opportunity to discuss the CEO in his or her absence and might impede the CEO succession planning process, Orlikoff says.

Related: 4 Steps for Planning CEO Succession Boards should think of their meetings in three stages, Orlikoff says. The first stage includes everyone in the room, including board members, the CEO, senior executives, and invited guests. The second stage is a modified executive session that includes the board members and CEO only, which is where the majority of the meeting should take place. The third stage should be an executive session with the board members only. “Confident, secure CEOs know that their boards need to go into executive session without them present occasionally in order to perform certain governance functions. They encourage it,” Orlikoff says. “Insecure CEOs or those who are attempting to control and manipulate the board are very uncomfortable with executive sessions and don’t want the board going into an executive session.”

It’s Mutually Beneficial While it may be difficult to prompt board members to think about a future under different leadership, CEOs who do so are not only investing in the organization’s long-term success but also signaling that they are the sort of leader willing to make investments in the organization’s long-term success. “When a CEO goes to the board and says, ‘You guys need to do this,’ … it demonstrates an incredibly high degree of confidence.

It also demonstrates an incredibly high degree of commitment to the organization,” Orlikoff says. “It shows that you’re thinking beyond yourself,” he adds. “You’re thinking about the best interests of the organization, that you’re willing to have difficult conversations for the good of the organization.”

“INSECURE CEOS OR THOSE WHO ARE ATTEMPTING TO CONTROL AND MANIPULATE THE BOARD ARE VERY UNCOMFORTABLE WITH EXECUTIVE SESSIONS AND DON’T WANT THE BOARD GOING INTO AN EXECUTIVE SESSION.”

KEY TAKEAWAYS

Not having a formal succession plan may be a symptom of an unhealthy relationship between the CEO and the board.

When CEOs prompt the board to think about who will lead next, it demonstrates self-confidence and commitment to the organization.

 

 

 

CFO Retirements Climb as Good Times Roll On

https://www.wsj.com/articles/cfo-retirements-climb-as-good-times-roll-on-11563355800

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Market watchers say the surging stock-market could be prompting finance chiefs to hang up the abacus before a downturn hits.

Bill Rogers had climbed the corporate mountain, ascending to the finance chief role at CenterPoint Energy Inc. He had just guided the Houston-based utility through the $6 billion purchase of natural gas and electricity supplier Vectren Corp. And he was approaching an important milestone: his 60th birthday.

So, in March, Mr. Rogers retired. “The timing was right,” he said.

It is an increasingly familiar refrain. CFOs are retiring at the fastest pace in at least a decade—a generational changing of the guard that experts put down to factors including the increasing complexity of the role and the booming stock market.

One in six executives who left the CFO position at a U.S. public company in 2018 did so to retire, the highest share since at least 2007, according to an analysis of 12 years of regulatory filings by Audit Analytics for The Wall Street Journal.

Many CFOs leaving the role are simply reaching retirement age. Others point to new pressure from expanding job descriptions, which now often encompass oversight of human resources and information technology. Meanwhile, a rich array of advisory opportunities for seasoned executives may be tempting some into early retirement.

The market also plays a role: CFOs’ compensation often includes restricted equity grants, which in some cases can only be cashed out in full after retirement. A hot stock market has made that option more enticing. The S&P 500 stock index, which recouped losses suffered during the 2008 global financial crisis by 2013, has reached record highs this year.

Warning sign

Campbell Harvey, a professor at Duke University’s Fuqua School of Business, said the uptick in retirements could show that the executives overseeing American companies’ finances increasingly believe the long bull market will soon come to an end.

“It’s an intriguing market timing signal by people that are well able to assess the pulse and direction of the U.S. economy,” he said. “These executives are sitting on a pile of stock and it’s difficult to sell that stock as an insider, so when do you want to retire? Do you want to retire when the stock market is near an all-time high, or do you want to retire in the depths of the inevitable correction that might be a recession?”

A surge in deal activity has also been a factor. Last year was one of the busiest on record for mergers and acquisitions. Deals can trigger contract clauses that accelerate vesting requirements of restricted shares, giving CFOs an incentive to walk away, said Rhoda Longhenry, co-head of the financial officers practice at executive recruiter True Search.

The robust economy allowed Kenneth Pollak to retire from the CFO position at women’s apparel company Eileen Fisher Inc. in 2017 at the age of 66. “If the stock market didn’t come back, then I would say there was a good chance I would have worked a few more years,” he said.

Under pressure

CFOs are also tapping out because of escalating demands, recruiters said. CFOs once focused on regulatory compliance, accounting and reporting of financial results. Today, they are increasingly involved in setting strategy, finding and executing deals, and overseeing operations, technology, cybersecurity, talent management, human resources and risk.

Comparing the turnover rate for CFOs and CEOs provides some support for the idea that financial executives in particular are facing increased pressure at work. In 2009, the departure rates for CEOs and CFOs—for all reasons, not just retirement—were roughly the same, at 13.5% and 13.4% respectively, according to Audit Analytics. By 2018, the exit rate for CFOs had risen to 17.5%, compared with 15.2% for CEOs.

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“The role has become increasingly more sophisticated,” said Peter Crist, chairman of executive recruiting firm Crist|Kolder Associates. “The pressure on a public company CFO is very high.”

Neil Edwards said his once-high blood pressure has eased to a normal range since 2014, when he retired at 59 from his role as CFO of internet-access company United Online Inc. “In the early days I really looked forward to getting into the office,” he said. “The last 18 months were very hard work. I was tired at the end of it.”

Retiring executives are also presented with more options, as consulting and outsourcing has permeated into more fields, recruiters said.

“We don’t believe anybody at this level ever retires, they are looking for flexibility,” said Gail Meneley, co-founder of Shields Meneley Partners, a Chicago firm that helps executives find their next job.

Mr. Edwards saw retirement as a second act, not the final scene. He does some consulting. He also puts his skills to use as a volunteer, helping impoverished schools in Cambodia with their finances.

Once Mr. Pollak was satisfied with his nest egg, his next priority was keeping busy. In his first year of retirement from Eileen Fisher, he traveled to Europe with his wife and secured a seat on a company board.

Downshifting from his hard-charging schedule was still a challenge. “When I was doing the board work and consulting, I was busy,” he said. “But there were times when I woke up on a Monday morning and wondered what I was going to do with the week.”

For Mr. Rogers, the aim of retiring from CenterPoint before age 60 was to leave time for his postwork goals. Since retiring, he has walked the Camino de Santiago in Spain with a group from the University of St. Thomas in Houston, one of several organizations that Mr. Rogers advises.

“You really can’t be sure what your health is after age 70,” Mr. Rogers said. “I have other interests, I want to make sure I have some span of time to see what I might do with them.”

 

 

 

Will you get your Money’s Worth?

https://interimcfo.wordpress.com/2019/06/03/will-you-get-your-moneys-worth/

InterimCFO

All about Interim Executive Services in healthcare administration.

Will you get your Money’s Worth?

Abstract: This article is a continuation of the series on the value proposition of Interim Executive Consulting.  In this article, I look at the value proposition from the consultant’s perspective.

Recently, I was discussing an interim opportunity in a smaller hospital with a referral source.  The prospective argument was that the client did not have the capacity (did not want) to pay a market rate fee.  You never hear hospitals argue with their lawyers or other consultants on this point, but I digress.

Based on my experience, there are two things that you can be sure of in any interim engagement.  One is that as soon as you think you have an idea of what is going on around you, you had better get ready for a big and sometimes very nasty surprise.  The other is that you are going to find challenges and problems in the situation that the client either intentionally withheld or that the client had no idea of in the first place.  Some clients have told me after skeletons started falling from closets that they harbored the fear that if they were fully transparent that an interim consultant would refuse the gig.  What they do not know is that as professional Interim Executives, we usually do not get the call until the situation is challenging and that if we are distressed by the surprises and uncertainty that characterize Interim Executive Services, we would have found something else to do.  Remember, firefighters run toward a fire when everyone else is running away.

Another principle of doing interim work in my experience is that there is no correlation between the size of the organization and its capacity to produce drama, challenges, and vexing problems.  An argument can be made, and my on-point experience confirms that the risk is higher the smaller the organization because smaller organizations do not have the intellectual and bandwidth resources necessary to avoid creating or falling into serious problems.  If the issues have anything to do with compliance, the potential risks to the interim executive increase exponentially, especially if they are going to be executing documents or making representations on behalf of the organization.  Compliance related signatory authority risk is a risk that cannot be insured by either the consultant or the client. I told the referral source that if anything, there should probably be a significant premium associated with going into a smaller place.

What is a client to do?  I try to mitigate this risk for my client by offering a no-notice, no-fault termination clause in my contract.  The day that the client decides that I am not providing value, I am out of there.  I do not wish to become a perceived burden to an organization during what is already likely an awkward transition.  I have not been released from an interim engagement.  To the contrary, the opposite is true.  In every one of my interim engagements, the timeline has been extended, extensively in some cases once the client appreciates the value proposition.  My average ’90 – 120′ day gig lasts around nine months, and my longest has been over two years.

I have stated repeatedly in these articles that I do not follow bad people and I stand by that contention.  However, this does not mean that there will not be serious problems in an organization.  I followed a CFO that was compelled to resign among other things for digging in over what he believed was a non-compliant acquisition of a physician practice that had millions of dollars of goodwill baked into the deal along with lavish estimates of the value of furniture, fixtures, and equipment.  In another situation, the CEO had been overridden on multiple occasions by a Board that was determined to do non-compliant deals with physicians.  I could go on and on about these types of challenges.

Problems do not have to be compliance related to be challenging and of high potential value.  During the course of every engagement, I am routinely asked, “Is this the worst you have ever seen?”  Most of the time the answer is no, and in every case, it is situation specific.  I was engaged by a hospital to assess the revenue cycle.  Other than the AR being currently fairly valued following multiple unfavorable audit adjustments, about everything else in the revenue cycle process was broken as the client had expected.  The resulting intervention increased cash collections more than $10 million in the next year on around $300 million of revenue.  As an aside, in an organization of this size with a typical operating margin in the 3% range, this intervention more than doubled operating income so, in context, it was a pretty big deal.  This organization was trying to save money by doing things like buying thinner tongue depressors and cutting the amount of soap housekeeping could put in mop buckets while it threw away all of the savings and more in the revenue cycle.  It was the worst revenue cycle operation I have seen measured by results or lack thereof.  This same organization had some of the strongest and highest performing functions in other areas that I have experienced.  Even in the revenue cycle, I got to meet some of the smartest, most dedicated people I have ever known.  They were handicapped by a dearth of leadership and decrepit systems.  None of this supported a conclusion that the organization was terrible or on balance, it was the worst I have ever seen although the revenue cycle concerns did have something to do with the prior CFO being ‘freed up to seek other opportunities.’

What is a consultant to do?  My advice is to the degree possible and reasonable, stand your ground on your professional fee.  It would be nice if you knew you were going to a cake-walk that would mainly be a paid vacation and that you could confidently offer a come-on rate to land the gig.  You know the reality is that you are probably going into a complicated, high-stress situation that is going to tax all of your physical and mental capacity.  This situation is exacerbated by desperate or ignorant consultants and firms that will take any gig at any rate when they have an unsophisticated buyer or just to have something to do.  I have considered offering such a price based on not finding any problems.  For example, I could offer a 30% – 50% discount for a lush sabbatical that would be reversed if (when) issues begin to emerge.  Maybe I could even bargain to double my rate upon discovery of the first compliance problem.   Unfortunately, the world does not work this way, and if you are up against an unsophisticated or ignorant potential client, there is an excellent chance you are going to be undercut by an equally ignorant potential consultant.  You have to decide for yourself how much risk you are willing to take on.  How much is it worth to you to put yourself, your net worth and your family’s livelihood into play in a situation where you may be exposing yourself to the risk of becoming the target of a government compliance investigation?  In a bad case scenario, you could become a witness in a hostile position vis-a-vis the client. The government is currently pursuing multiple felony charges against John Holland (look him up on the internet) even though he alleges and there is apparently little evidence that he benefited directly or indirectly from compliance problems that occurred in organizations he served.  By the way, John may and probably did inherit some of the issues that resulted in criminal charges, i.e., the problems were present in the organization when he started.  Tell me again Mr. cut-rate consultant or firm how anxious you are to get yourself into a situation like this?  By the way, if you are placed by a firm and compliance problems emerge, you are going to be on your own.  Do not forget this.

If you are a decision maker and you are getting resistance to rate discounting from interim executive services providers, it is probably because of their prior experiences and bias about potential problems in your organization.  Instead of dismissing them for something cheaper, you might want to understand better where they are coming from and how that might translate into risk you are bearing that you might not even recognize.  You have to accept the fact that you would not be seeking interim services if you did not have a significant challenge on your hands.  Your best defense against getting into a deal that could make the situation worse is to negotiate an agreement that can be exited rapidly and without recourse. You may have problems that are as yet undiagnosed.  Your run in your current situation could be riding on the ability of the interim executive you choose to pull your bacon out of a fire and potentially save many of your direct reports’ jobs in the process.  What is that worth to you?

Contact me to discuss any questions or observations you might have about these articles, leadership, transitions or interim services.  I might have an idea or two that might be valuable to you.  An observation from my experience is that we need better leadership at every level in organizations.  Some of my feedback is coming from people that are demonstrating an interest in advancing their careers, and I am writing content to address those inquiries.

The easiest way to keep abreast of this blog is to become a follower.  You will be notified of all updates as they occur.  To become a follower, click the “Following” bubble that usually appears near the bottom of each web page.

I encourage you to use the comment section at the bottom of each article to provide feedback and stimulate discussion.  I welcome input and feedback that will help me to improve the quality and relevance of this work.

This blog is original work.  I claim copyright of this material with reproduction prohibited without attribution.  I note and provide links to supporting documentation for non-original material.  If you choose to link any of my articles, I’d appreciate a notification.

If you would like to discuss any of this content, provide private feedback or ask questions, you can reach me at ras2@me.com.

 

 

 

Healthcare Industry Consolidation Raises New Workforce Challenges

https://www.amnhealthcare.com/healthcare-industry-consolidation-raises-new-workforce-challenges/?utm_source=email&utm_medium=pardot&utm_campaign=story-3

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When health systems consolidate, one of the major challenges they face is integrating, managing, and optimizing their much larger workforce. The newly integrated workforce must deliver on the value promised by the consolidated enterprise, which is why healthcare industry consolidations need the most advanced workforce solutions available.

The mission of every sector in the consolidation — whether it’s in enhancing the patient experience, improving care quality, realizing economies of scale, expediting the shift from volume- to value-based care, implementing new population health strategies, improving revenue cycle management, or launching new technology — is dependent on the effectiveness of its workforce.

Most healthcare organizations already face workforce problems in the form of shortages of nurses, physicians, technicians and technologists, coders, leaders, and others. Consolidation doesn’t relieve shortage problems, because most organizations’ workforces are already stretched very thin. The paramount challenge may be that the new organization must integrate workforces that have entrenched and often widely different quality standards, procedures, training, values, and cultures. Consistency across the newly consolidated organization must be attained through standardization and adoption of best practices.

Consolidation is producing sophisticated regional enterprises of vertical services and facilities stretching across multiple states, including some emerging as Fortune 500 companies. Solutions to workforce challenges need to become more sophisticated to match this growing organizational complexity. A continuum of effective workforce innovations, many of which have been in use in other industries, are now available in the healthcare industry, though they have been largely untapped until recently.

The talent imperative in healthcare can be effectively addressed through these innovations. Comprehensive managed services programs that optimize the contingent workforce are becoming mainstream. Radical new credentialing innovations can be leveraged to improve time-to-revenue and productivity for physicians and other clinicians. Predictive labor analytics can accurately forecast patient volume months in advance and then match scheduling and staffing practices to the forecasts. Workforce solutions also are available to help find the best talent for leadership roles, which are critically important to guide an industry undergoing fundamental change to revenue based on value instead of volume. The vital realm of health information management is another area where workforce solutions can raise performance in quality, efficiency, and revenue generation.

However, when it comes to workforce solutions, many healthcare organizations remain in a reactive mode, with managers scrambling to fill holes in staffing needs on a daily basis. And many still rely on inadequate paper-based and other outdated systems to manage workforce challenges. Such practices do not fulfill the needs of the sophisticated healthcare organizations emerging from the wave of consolidations. Modern healthcare workforce solutions are needed, but many healthcare organizations don’t have the resources, capacity, or bandwidth to develop and operate these solutions on their own. Or, they are unaware that advanced, technology-enabled workforce solutions are available.

The bright spot is that new entities emerging from consolidations can often leverage combined resources to invest in advanced workforce solutions that will ensure that their enterprise-wide workforce is optimized and performing at its highest level.

Expert workforce partners who are entirely focused on solving healthcare workforce problems hold the key. Such partners are found outside the walls of hospitals and healthcare systems, and the best ones can quickly integrate with patient-care organizations to customize solutions. Since the healthcare workforce is the greatest differentiator in the success of a healthcare enterprise, the services of an expert workforce solutions partner are critical during and after consolidation.