Category Archives: Leadership Transition

Three Things Board Members Should Know When Attending Rating Agency Meetings

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I am often asked how board members can play a helpful role in rating agency meetings if they are invited to attend.

Below are three ways in which board members can add value to the rating presentation:

1) Acknowledge the organization’s challenges. Too many times the key issues that need to be addressed upfront are left to the end, when time is short. Examples may include a covenant violation, unfavorable variance to budget, downturn in liquidity, or an unexpected change in management. A rating should be able to endure the ups and downs of a business cycle but large swings in performance or covenant violations challenge the bandwidth of tolerance and need to be addressed early. Better meetings acknowledge these issues upfront before the analysts ask about them (said another way: the best defense is a good offense). If the analysts leave the meeting with the sense that management is on top of the issues, then that same confidence is brought forward to the rating committee.

Covenant violations have been on the rise since 2022 and board members should be well versed in the ramifications when there is a breach. In its simplest form, a bond is a promise to pay. To ensure full and timely repayment of that bond, hospitals agree to maintain certain financial covenants that serve as financial guardrails. Covenants are typically measured on an annual basis but may be measured more frequently per the terms of the agreements. The penalties for violating a covenant can range from a consultant call-in to an event of default with acceleration provisions. In any circumstance, covenant violations require an inordinate amount of time and resources to address and should be understood, even if at a basic level, by the board.

To that end, board members should maintain a basic understanding of hospital reimbursement and the ongoing challenges hospitals face, namely: inadequate reimbursement levels, labor shortages, perennial scrutiny over tax-exempt status, and the need to improve access and equity in healthcare. An informed trustee is a great trustee. One of the most impressive board members I met in my years as a ratings analyst was a business executive who was chair of a 25-bed critical access hospital and well-versed on the complexities of reimbursement. (You read that correctly: a 25-bed hospital, not a 500-bed hospital, academic medical center, regional or national system). Despite large-scale challenges as a small facility, that hospital continued to show good financial performance. Knowledgeable governance, working in tandem with management, had something to do with that.

2) Address how the organization will absorb additional debt if adding leverage. Ratings express the ability of a hospital to repay its debt; when debt increases, the ability to repay that debt can weaken. A board member or senior management should explain how they got comfortable adding leverage to the organization and what the benefits are of using debt to fund the projects, rather than, say, cash. Detailed, multi-year financial projections should show how the hospital will rebuild the balance sheet and absorb higher debt service. Projections are especially important when the size of the construction project or acquisition funded with the debt is material. This is also an opportunity for boards to demonstrate how the various skills and expertise they bring to the organization can be helpful. For example, individuals with real estate or construction experience can bring their experience to large projects. Individuals with experience in highly regulated or highly unionized industries can also bring their know-how to senior leadership.

3) Share the organization’s succession plan. Succession planning is one of the most important responsibilities of the board. Sam Altman’s wild ride (he’s in/he’s out/he’s in, again) as CEO of OpenAI and the mutiny his departure would have caused is a timely example of why succession planning is essential. From a ratings perspective, curating the very best leadership is viewed as a best practice of high-performing organizations. A good example of strong succession planning is Texas Children’s Hospital, the largest pediatric provider in the U.S. Earlier this year, the board and the CEO created the separate role of President (this title was previously combined with the CEO’s title) and launched a search that was completed in September. The new President will report to the CEO, who will continue in his role. The Chair of the Texas Children’s Board of Trustees notes that the new structure is intended to prepare the organization for its “next evolution in leadership.” The opportunity for the new President to work with Texas Children’s long-serving CEO should ultimately provide for a smooth leadership transition.

If we’ve learned anything from the past four years, it is the importance of strong governance and management. Undoubtedly, board members will be called upon for their guidance and expertise as turbulent times continue for the industry. Maintaining a basic understanding of the hospital’s financial challenges, supporting management, and building a succession playbook will be integral to the organization’s long-term success.

1 hospital operator among Bloomberg’s ‘Companies to Watch’

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https://www.beckershospitalreview.com/finance/1-hospital-operator-among-bloombergs-companies-to-watch.html?origin=CFOE&utm_source=CFOE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

HCA Healthcare is the single hospital operator that Bloomberg identifies as one of “50 Companies to Watch in 2024.” 

“From Alphabet and BYD to Eli Lilly and Vivendi, keep an eye on these global stocks this year,” the outlet proposes for the 50 companies out of the 2,000 firms assessed. Bloomberg analysts highlighted the companies as those warranting a closer look, based on “contrarian views and upcoming catalysts for change such as new leadership, asset sales or acquisitions, and plans for new products and services.” 

With 182 hospitals and more than 37,000 hospital beds, Bloomberg analyst Glen Losev said HCA “faces cost and revenue challenges that point to a reduction in its operating margin. Wages are increasing, especially for nurses, as are non-labor costs because of general inflation. And fewer physician visits indicate softening demand for care in areas such as elective surgeries.”

HCA is tied to an estimated 5% increase to its revenue in 2024 with a market cap of $72 billion. 

The company posted $47.66 billion in revenue for the first nine months of 2023 compared to $44.73 billion in the same period of 2022. Its fourth quarter earnings are due later this month. 

Other healthcare companies recognized by Bloomberg as worth watching are Novo Nordisk, BeiGene, Boston Scientific and Eli Lilly. Weight loss drug possibilities drive potential for Novo Nordisk and Eli Lilly, with estimated revenue increases of 22% and 16%, respectively. 

5 fatal flaws of healthcare leaders: inspired by HBO’s ‘Succession’

Posted on by • Posted in Dysfunctional, Leadership, Leadership Alignment, Leadership Commitment, Leadership Compromise, Leadership Crisis, Leadership Culture, Leadership Excellence, Leadership Integrity, Leadership Legacy, Leadership Political, Leadership Qualifications, Leadership Skill Sets, Leadership Transition, Leadership Values, Leadership Vision • Leave a comment
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HBO’s critically acclaimed series Succession recently concluded its fourth and final season with a crescendo of family dramatics and falls from grace. If you haven’t seen the finale, bookmark this article for later. It contains spoilers.

Succession, for those unfamiliar, centers on the uber-wealthy Roy family, majority owners of the global media and entertainment subsidiary Waystar Royco. The plot revolves around the bullishly Machiavellian patriarch Logan Roy and his four adult children, each of them seeking (a) control of the family business and (b) their dad’s approval.

During its run, the show’s endless infighting and fascinating archetypes captivated viewers. But the 39-episode series also provided enduring lessons in dysfunctional leadership, which apply directly and saliently to U.S. healthcare.

As with Waystar Royko, the institutions of medicine (hospitals, medical groups, insurers, pharma and med-tech companies) need excellent leadership just to survive. With millions of dollars and hundreds or thousands of jobs resting on the decisions of top administrators, any major flaw can prove fatal—erasing decades of organizational success.

In any industry, poor leadership can undermine performance and threaten livelihoods. In healthcare, poor leadership puts lives at risk. Here are five dangerous types of leadership personalities, each inspired by a character from Succession: 

1. Connor Roy: the delusional leader

In the show’s second season, Connor, the eldest and oft-forgotten son of Logan Roy, launches his U.S. presidential campaign on a “no-tax” platform. When the eve of election arrives, he’s polling at less than 1%, yet he refuses to step aside, still convinced he is capable of doing the job.

Like Connor, healthcare’s delusional leaders overestimate their abilities. Their ideas are unrealistic and their vision for the future: pure fiction. But no matter how outlandish their outlook, delusional leaders will always find apostles among the disenfranchised who, themselves, feel undervalued and overlooked.

When confronted with the harshness of reality, deluded leaders and their followers double down, insisting that everyone else is myopic. “Just follow and you’ll see,” they demand.

Unless senior executives or board members step in to relieve this leader of power, the organization will be as doomed as Connor Roy’s bid for presidency.

2. Kendall Roy: the narcissistic leader

On the surface, Kendall is by far the most capable and experienced candidate to succeed his father. He’s a smart and articulate heir apparent who appears up to the task of CEO.

But underneath the gold plating, his every action is reflexively self-centered. As such, when the time comes to sacrifice something of himself for the good of the company, he freezes and falters, his decisions corrupted by the compulsion to put himself first.

Like Kendall, healthcare’s narcissistic leaders bask in praise and blind loyalty. They reject and punish those who provide honest feedback and fair criticism. Their obsession with status and self-importance blinds them to long-term threats and opportunities, alike.  

Unlike delusional leaders, who fail because their vision cuts against the grain of reality, the narcissistic leader’s passion for winning may advance an organization—in the short run. Long-term, however, their flaws will be exposed and weaknesses manipulated by seasoned competitors.

Across four seasons, Kendall can’t fathom that anyone else might be a better choice to run the company. As a result, he underestimates a rival CEO who’s seeking to acquire Waystar, and he overestimates the loyalty of his siblings. In the end, he’s left hopeless and broken.

3. Roman Roy: the immature leader

Roman, the youngest Roy, is brash and witty, but also unpredictable and unrestrained. His penchant for foul language and cutting insults make for good television, but they’re the telltale signs of insecurity and immaturity.

Like all immature leaders, Roman is addicted to novelty and excitement, often acting without regard for the consequences. He’s fast-talking and loud, which makes him likable enough for many to overlook his incompetence. But he’s incapable of filling his father’s shoes.

Immature leaders get promoted before they’re primed and polished. They often lack boundaries and excel at the sport of making others uncomfortable. At times, they seem more interested in causing a scene than creating results. They chase big ideas—if only for the adrenaline rush—but can’t accurately calculate whether the risk of failure is 20% or 80%. This makes them very dangerous as leaders.

4. Shiv Roy: the political leader

In a world of deluded and despotic men, Shiv comes across as the voice of reason. Smart and strategic, relaxed and composed, Shiv carefully cultivates new allies but never establishes an identity of her own. This makes her an excellent political consultant (the job she has) but a poor candidate for CEO (the job she wants). 

Political leaders are better at advancing within an organization than advancing the organization itself. Like chameleons, these leaders change with the scenery, shifting alliances and values as organizational power waxes and wanes. While they’re busy focusing on rumors and relationships, they fail to muster real-life business acumen and experience.

Colleagues rarely respect those who play organizational politics. Once political leaders have accrued enough power and advanced their careers to the max, their shallow alliance and inability to drive performance leaves them stranded at the top—with nowhere to go but down.

5. Tom Wambsgans: the compromised leader

Not technically a Roy, Tom is Shiv’s husband and an eager aspirant for CEO.

Once appointed head of Waystar’s struggling cruises division, Tom conceals damaging information to protect his father-in-law. He is a willing henchman, ready to sacrifice his ethics for a shot at the corner office. To advance his interest, Tom repeatedly compromises his integrity, first with Logan, then Kendall, and eventually Lukas Matsson, the incoming global CEO who completes the hostile takeover of Waystar.

In what proves to be Tom’s final interview for U.S. CEO, Matsson asks him whether he will be willing to play the role of “pain sponge,” absorbing any negative fallout the company may experience. After he responds positively, Matsson tests him further by mentioning that he’d like to have sex with Shiv. While viewers squirm in their seats, Tom doesn’t object. For him, every compromise is simply a means to an end.

Compromised leaders are skilled at making promises. They seek support by vowing to fulfill wants and palliate pains. Depending on who these leaders aim to please, they’re willing to slash budgets or raise salaries, regardless of the financial impact. Ultimately, they’ll do anything to keep people happy, even if they have to sink the business in the process.

The three attributes of excellent healthcare leaders

In the final season of Succession, Logan tells his offspring, “I love you, but you are not serious people.” He is both accurate and accountable. Logan was not a serious father and, as a result, his kids were poorly equipped for life and leadership.

The healthcare industry is replete with stories of once-successful institutions falling on hard times under poor leadership. Although there’s no one way to run an organization, all great healthcare leaders share three characteristics:

1. A clear mission and purpose

Leaders have three jobs. They must create a vision, align people around it and motivate them to succeed. To accomplish these tasks, executives may use carrots and sticks, incentives and disincentives, or positive and negative reinforcement. But these tactics will fail unless they reflect a clear mission and purpose.

Years ago, former CMS administrator Don Berwick started a program with an audacious goal of maximizing patient safety and preventing unnecessary deaths. He called it the 100,000 Lives Campaign. And when he spoke of the program, he leaned hard on its righteous mission. Instead of presenting metrics and statistics, he talked about the weddings and graduation ceremonies that parents and grandparents would attend, thanks to the program and the people behind it. Even hard-weathered clinicians in the audience had tears in their eyes.

Financial incentives drive change in healthcare, but rarely achieve the outcomes intended. Everyone engaged in the 100,000 Lives Campaign knew exactly what they needed to accomplish and were motivated to do so.

2. Experience and expertise

Bold ideas and glittering promises always capture attention. Words are powerful and relationships can take aspiring leaders far. But when it comes time to turn big plans into action, there is no substitute for a leader who has been there and done it well.

Exceptional performance, not promises, separate great leaders from the rest—and success from failure. In every industry, past performance is the best predictor of future success. Of course, poor leaders can get lucky and even great ones in bad circumstances may fail. But the odds always favor those who have achieved recurring success throughout their careers.

3. Personal integrity

Emerging leaders can work on their weaknesses. Coaching, training and even therapy can help them quell maladaptive behaviors.

But everything changes when an emerging leader becomes the head of an organization and faces a crisis. As risks and pressures intensify, people tend to fall back on approaches and habits they learned in the past, particularly problematic ones. Whenever tested, the Roy children did exactly that.

After Logan’s death early in the final season, the fatal flaws of each Roy child came into clear view. As a result, the Waystar board made the safest choice for successor: none of the above.

Like a true Shakespearean tragedy, the flaws of the characters in Succession exceeded their abilities.

In healthcare, that’s a guaranteed prescription for failure.

The dawn of the interim CFO

Posted on by • Posted in Interim CEO, Interim CFO, Interim Executives, Interim Resources, Leadership, Leadership Skill Sets, Leadership Transition, Recruiting, Succession Planning, Talent Competition, Talent Identification, Talent Imperative, Talent Pipelines • Leave a comment
https://www.cfodive.com/news/dawn-interim-cfo-leadership-finance-executive-search/649975/?utm_source=Sailthru&utm_medium=email&utm_campaign=Issue:%202023-05-17%20CFO%20Dive%20%5Bissue:50544%5D&utm_term=CFO%20Dive

With companies fighting for financial know-how, a spotlight is beginning to shine on leaders who can bring the skill sets and expertise firms need in the moment.

Demand for interim leaders shot up significantly during the past 12 months, a report by Business Talent Group, a Heidrick & Struggles company, found, rising 116% year-over-year. Requests for on-demand finance chiefs in particular saw a considerable spike, increasing by 103% YoY, boosted by both continued economic uncertainty and the growing complexities of the CFO role. 

The rising demand for interim CFOs is also partly due to growing awareness of the availability of such short-term expertise, said Sandra Pinnavaia, Chief Innovation Officer for BTG.

“Companies, as they get more comfortable and aware of the fact that there is this on-demand talent world, it allows them to contemplate different kinds of changes and uses than before,” Pinnavaia said. “So I do think there’s an underlying driver here, that is in a sense, supply creates demand.”

The interim CFO’s appeal

For companies, interims can help firms navigate through tricky periods or transitions. Requests for interim CFOs made up half of all interim C-suite requests, according to the BTG report. Companies are specifically searching for financial leadership skilled in financial controls, accounting and audit. Demand for such expertise rose 76% YoY.

For finance leaders, the higher demand coincides with gains in the compensation and benefits that accompany the role, said Jack McCullough, President of the CFO Leadership Council.

There’s better money available for CFOs who do this type of contract or interim work, leading to more executives interested in these types of jobs, McCullough said in an interview. For example, some part-time CFOs have begun to receive stock options, he said, referring to a CFO who received the benefit at three startups.

Taking an interim role can also be a refreshing change for finance leaders who want to apply their skills in new areas, according to Diane Buckley, managing partner of Forte Financial Consulting LLC. Buckley, a veteran of Big Four accounting firm Ernst & Young, was drawn to interim and fractional CFO work because it afforded her the option to share her skills with growing companies and “really be impactful day one,” she said.

“It was like, ‘I can bring value to smaller companies that may not at this point in their growth warrant a full-time CFO, but I can bring that skill set to them,’” she said in an interview.

On the supply side, shifting workforce trends may be prompting more companies to take a second look at what they need from their leadership.

Talent shortages across the accounting and finance space mean companies may be facing a year-long period to find a qualified CFO, making it more necessary to put in an interim “even if it’s not the ideal person,” McCullough said.  

Meanwhile, the pandemic has also left a lasting mark: BTG clients have tapped more interims because “they have been forced over the last few years, to redefine their whole way of working,” Pinnavaia said.

“Now obviously we have a huge spectrum — there are companies that are back full-time, in-person every day, and there are companies that have really changed their business model and they’re not in-person at all,” she said. “But I think that has loosened up the aperture for what would be an acceptable solution” when it comes to leadership, she said.

The right talent at the right time

Hiring on-demand talent also allows companies to find a leader who can meet their needs in the moment — and since many interims come into a company to solve a particular problem or meet a specific goal, one’s skills are “kind of by definition matched to what the issues are,” said Reed Malleck, CFO of Ratio Therapeutics.

CFOs often need to operate in “four dimensions,” he said in an interview, including accounting, operational skills, investor relations and the ability to participate in the execution of strategy for the business.

“If you’re a permanent CFO, you have to cover all of those, even though you might be really good at only one of them,” according to Malleck, an experienced interim executive who took on several such roles as an engagement partner with executive talent firm Tatum, a Randstad company.  “But as an interim person, it’s more targeted, like, ‘we need a guy who’s really good at operations. We need this thing to be fixed.’”

Being able to slot one’s skills perfectly into the situation can be a huge benefit for CFOs, many of whom are dealing with expanding job creep. While becoming an interim is not necessarily less stressful than a permanent CFO position, “in a way, you get relief when you get to the point where you fix everything, and when you’re in a permanent role that never happens,” Malleck said. “When you’re in a permanent role, there’s always something new that’s a new problem.”

With CFOs taking on more responsibility for areas like digital transformation, keeping up with the books and juggling other operational needs across the organization, “the CFO is blamed for this and blamed for that … increasingly, people get burnt out or there’s a loss of trust,” he said.

“Hundreds of analysts are looking at your stock and your performance, the market and the competitors and the technology and you have to explain things not once a quarter, but like five times a day,” Malleck said.

Succession planning is vital

Another often unexplored benefit of on-demand talent is as a source of expertise for future company leaders. A shortage of talent in the finance and accounting fields is worsening, with potential accountants lured away by shinier fields such as technology.

As a result, building a pipeline for executives with CFO skills is crucial.

Moreover, CFOs who were at the top financial seat the last time the U.S. saw serious inflation in the 1980s have long since retired, McCullough said. Finance leaders today face a “steep learning curve.” 

“CFOs, through no fault of their own, they haven’t had to develop the skills” necessary to navigate current economic turmoil, he said.

Many CFOs with decades of experience are also either looking to retire, or seeking promotion rather than lateral opportunities, said Shawn Cole, president of boutique executive search firm Cowen Partners.

The jump from the CFO to the CEO seat is “way more commonplace” today than it was just a few decades ago, Cole said in an interview, opening up more opportunities for finance heads. Promoting internal candidates to an interim chair can be an easier and more affordable way for certain companies — faced with both a dearth of qualified external candidates and shaky succession planning — to fill the seat while they hunt for a long-term replacement, he said.  

“For the last decade or so, businesses have been in like a boom or bust kind of scenario,” Cole said. “And so I think there’s just this lack of investment in a future generation.”

Whether an internal or external interim hire, the executive should also be a welcome and engaged part of the search for a long-term candidate, Cole said. It is part of their fiduciary obligations to a company and its shareholders to “do the necessary due diligence to make an informed hire.”

While internal interims can be an affordable choice, there can also be drawbacks: the “most damning issue” being when an internal interim pick is acting both as interim CFO as well as retaining the responsibilities of their original role at the company, Cole said.  

“So what they wind up being is CFO in name only and they still are fulfilling the role of financial reporting or something like that,” he said. 

Interims and on-demand talent will probably play a greater role in a company as time goes on, Pinnavaia said. She pointed to clients who might think they need an interim CFO, for example, but who are really searching for an expert or CFO who is able to do a specific project with the existing leadership team. In such a scenario, hiring an interim controller or another executive on-demand with the right finance skills would be the best way forward, she said.

“I’m very excited about this as an innovation in how business gets done,” she said. “It is a way of applying … real time alignment of skill and capacity against particular challenges or opportunities in the business.”

5-hospital system exits bankruptcy with 5 new C-suite leaders

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https://www.beckershospitalreview.com/finance/five-hospital-system-exits-bankruptcy-with-5-new-c-suite-leaders.html?origin=CFOE&utm_source=CFOE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

Segundo, Calif.-based Pipeline Health, now a five-hospital system, exited bankruptcy Feb. 7

Former CFO Robert Allen has replaced Andrei Soran as CEO. Mr. Allen previously served as group CEO for CHA Hollywood Presbyterian Medical Center in Los Angeles. He also held CFO positions at San Francisco-based Dignity Health and Keck Medical Center of USC, Valley Presbyterian Hospital and Sherman Oaks Hospital and Health Center, all in Los Angeles.

Four other leaders have also been appointed to executive positions:

  • Steve Blake has been promoted to CFO
  • Vince Green, MD, has returned to Pipeline as chief medical officer
  • Patrick Rafferty assumed a new role as COO for Pipeline’s Los Angeles market while also serving as CEO for Coast Plaza Hospital in Norwalk, Calif. 
  • Elaine Stephenson has been promoted to vice president for human resources

Pipeline filed for Chapter 11 bankruptcy Oct. 2, and its plan to emerge was confirmed Jan. 13. Over the last few months, the system has worked through a restructuring process that included selling two Chicago hospitals, evaluating vendor contracts, creating a business plan with realistic financial goals and securing financial agreements with key stakeholders. It now owns four hospitals in the Los Anegeles area and one in Dallas.

In a memo sent Feb. 7 to employees and affiliated physicians, Mr. Allen wrote, “Hospitals across the country face similar financial challenges. You should take great pride in knowing that our company stands on solid footing now with a clear path forward. And I am proud — and grateful — that our employees and physicians have stayed with us, keeping their focus on delivering quality patient care throughout this period of uncertainty.”

Pipeline’s path forward includes a renewed commitment to quality care and an improved workforce strategy, according to Mr. Allen. 

“That means providing the right care in the right place at the right time to every patient who comes to us and ensuring timely patient discharges,” he said in a Feb. 7 news release. “We also will focus on enhanced workforce management to care for the patients we serve and to enhance our critical relationships with our employees.”

The gig economy is back — even for execs

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https://www.beckershospitalreview.com/hospital-management-administration/the-gig-economy-is-back-even-for-execs.html?origin=CFOE&utm_source=CFOE&utm_medium=email&utm_content=newsletter&oly_enc_id=2893H2397267F7G

Contract or “temp” employment used to be viewed as a means of supplemental income: a side hustle to an average day job, or a way to pay the bills while searching for full-time work. Now, gig work is back in style, and more workers want in on the flexibility — including C-suite executives, Korn Ferry recently reported.

The gig economy surged when older millennials, born in the 1980s, began rejecting the one-firm careers their parents had, according to Korn Ferry. Although they are currently midcareer, older millennials have switched jobs 7.8 times on average. Baby boomers are also using temporary work to keep busy during retirement, and Generation Z appreciates the flexibility that comes with contract labor. 

As temporary work grows in popularity, its influence is spreading to the C-suite. Interim executives are becoming more likely to be tapped when a leader departs, Korn Ferry reported. This gives organizations like health systems, which urgently need leadership in a rapidly changing industry, more time to conduct their searches for full-time replacements. 

Sixty percent of executives predict that the number of interim workers at their companies will “substantially increase” within the next three years, Korn Ferry reported. In a period of economic instability, temporary labor can mean less commitment and cost than a permanent worker. But there are downsides to contract labor, too. Since they lack benefits, many contract workers demand higher pay — which can trickle down and lead their permanent counterparts to ask for matched salaries. In the healthcare industry, this is visible in travel nurses’ paychecks, and their controversial effects on health systems’ finances. 

For better or for worse, contract labor does not appear to be dying out anytime soon. Fifty-eight million U.S. workers now consider themselves “independent,” Korn Ferry reported — an estimated 36 percent of the total workforce. 

Duke Health credit rating downgraded amid integration and macro concerns

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https://www.beckershospitalreview.com/finance/duke-health-credit-rating-downgraded-amid-integration-and-macro-concerns.html?utm_campaign=bhr&utm_source=website&utm_content=latestarticles

Durham, N.C.-based Duke University Health System was downgraded to an “AA-” credit rating amid concern over its planned integration of the Private Diagnostic Clinic, a for-profit medical group with over 1,800 physicians, Fitch Ratings said Dec. 8.

The rating, declining from “AA,” applies both to specific bonds the group holds and to its overall Issuer Default Rating. In addition to the integration of the PDC, Fitch also cited concern over macro issues such as labor and inflationary pressures, which have helped to drag down operating results for the health group.

“While the transition of the PDC into the Duke Health Integrated Practice will only be effective in July 2023, the uncertainty of the proposed change had already caused some disruption to PDC’s ability to recruit physicians and may have had a negative impact on volumes,” Fitch said.

But while such integration will likely lead to an “extended period of lower operating results,” Duke Health is expected to gradually return to much stronger performance given its robust fundamentals, the ratings group added. Historically, the hospital system had pre-pandemic operating EBITDA margins of over 10 percent, compared with a fiscal year 2022 figure of just 2.1 percent.

The health system, which reported $4.5 billion of total operating revenues in 2022, said its CEO, A. Eugene Washington, MD, will step down in June 2023.

MetroHealth fires CEO over more than $1.9M in unreported bonuses

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https://www.beckershospitalreview.com/hospital-management-administration/metrohealth-fires-ceo-over-more-than-1-9m-in-unreported-bonuses.html?utm_medium=email&utm_content=newsletter

The board of trustees at Cleveland-based MetroHealth System has fired President and CEO Akram Boutros, MD.

Dr. Boutros was fired Nov. 21 after the board received findings of a probe into compensation issues involving more than $1.9 million in supplemental bonuses, Vanessa Whiting, chair of the board, said in a statement posted on the health system’s website. The probe found that between 2018 and 2022, Dr. Boutros authorized the compensation for himself, without disclosure to the board.

“We have taken these actions mindfully and deliberately but with sadness and disappointment,” Ms. Whiting said. “We all recognize the wonderful things Dr. Boutros has done for our hospital and for the community. However, we know of no organization permitting its CEO to self-evaluate and determine their entitlement to an additional bonus and at what amount, as Dr. Boutros has done.”

Dr. Boutros took the helm of MetroHealth in 2013. Last year, Dr. Boutros announced his plans to retire at the end of 2022. In September, MetroHealth named Airica Steed, EdD, RN, its next president and CEO. Dr. Steed, who is executive vice president and system COO of Sinai Chicago Health System, will take the helm of MetroHealth Dec. 5, according to Ms. Whiting’s statement. Meanwhile, Nabil Chehade, MD, executive vice president and chief clinical transformation officer at MetroHealth, will assume the CEO’s duties on an interim basis.

Ms. Whiting said MetroHealth discovered the compensation issues related to Dr. Boutros while preparing for the CEO transition, and an internal investigation took place, led by the Tucker Ellis law firm.

She said Dr. Boutros admitted to conducting self-assessments of his performance under specific metrics he established and authorizing payment to himself of more than $1.9 million in supplemental bonuses between 2018 and 2022.

According to Ms. Whiting, Dr. Boutros repaid more than $2.1 million in October, representing the supplemental bonus money paid without board approval for performance in calendar years 2017 through 2021, plus more than $124,000 in interest.

She said the board has also implemented immediate CEO spending and hiring limitations through Dec. 31, 2022, and Dr. Boutros has self-reported to the Ohio Ethics Commission.

MetroHealth’s internal investigation is ongoing.

Among Dr. Boutros’ accomplishments at MetroHealth were helping annual revenue increase from $785 million to more than $1.5 billion; growing the health system’s workforce from 6,200 to nearly 8,000 while seeing employee minimum wage increase to $15 per hour; and developing Ohio’s only Ebola treatment center.

Companies mull benefits of interim CFOs

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Interim CFOs can cut through politics to help navigate companies through murky waters, experts say.

As they face financial difficulties, leadership crises or other inter-company developments, many firms have ceded their financial reins to interim executives over recent months.

Retailer Bed, Bath & Beyond quickly named their chief accounting officer as interim CFO following the death of their previous financial head earlier in September, for example, while real estate investment trust (REIT) Tanger’s chief accounting officer also recently served a stint as their interim financial head after the REIT ousted their previous CFO, a 28-year company veteran.

One of the reasons to tap an interim CFO is simply to provide peace of mind for the company and its shareholders while the search to find a more permanent candidate is ongoing, said Shawn Cole, president of boutique executive search firm Cowen Partners in a recent interview.

While some searches are as short as 38 days, the majority of executive searches can take between four to six months, a period where remaining without financial leadership is untenable. Firms seeking interims must still consider several key factors when choosing such an executive, however, Cole said.

Companies seeking external candidates, for example — which can be due to inter-company turmoil or, as is often the case, because the company may lack the bench strength to pull forward an internal candidate, Cole noted — should take care to consider “professional interims” for the position as opposed to an unattached CFO, he advised.

“I would just be very cautious that you are not just hiring an unemployed CFO,” Cole said. “There’s plenty of wonderful professional interim CFOs out there that are excellent at consulting. You don’t necessarily want to get yourself into a position where you are engaging just an unemployed CFO, that needs a job.”

Getting a fresh perspective

Bringing in an external interim can also grant companies benefits they may not see with internal candidates, for that matter, explained Mike Harris, CEO of Patina Solutions. Patina, which focuses primarily on placing interim executvies, was acquired by fellow executive search company Korn Ferry this past April.

It can help other executives, notably the CEO, to get “fresh perspectives and viewpoints,” he said.

“If someone is coming in for six months they can tell it like it is, they can come in and make a quick assessment,” he said. “Candidly, it does take out the politics if you’re in there on a limited basis.”

Similar to Cole, Harris pointed to a growing population of what Harris terms as “career interims,” who are working in that capacity because they enjoy the flexibility of movement — they get to go in and get critical projects done for the company, he said.

Turning to an external interim can also help companies execute on particular goals such as a restructuring, said Harris, nothing that what companies need from someone taking on the position for six months could be “very different” than what firms may be looking for out of a permanent CFO. Their short tenure means interims can be “very objective” and have a “big impact” at a company in a short period of time, he said.

“The reason [interims are] usually coming in there is because they have something in their background that’s going to be very helpful for the situation that company is facing,” he said.

Companies may also take advantage of an interim CFOs’ skills as a sort of mentorship for their existing CFO — the executive in the permanent seat may lack M&A or other key experience, for example, that an interim may be able to provide during their short-term tenure.

Tapping insider knowledge

Pulling forward internal candidates to fill the CFO gap can also have benefits for firms if possible, as such candidates have intimate knowledge of the companies’ status and needs that outside executives may lack.  

This may be the case for struggling payment processor PayPal, another example of a firm who recently appointed an interim CFO — moving Gabrielle Rabinovitch, their SVP of capital markets into the seat for a second time after the newly-minted CFO departed for medical leave.

In PayPal’s case, the company needs “stability” in its financial chair, which has been lacking since the departure of its previous CFO John Rainey to retailer Walmart, said Josh Crist, managing director for Crist|Kolder Associates.

“It may be time to think about a young internal player as an interim,” Crist wrote in an email regarding PayPal’s CFO woes. “Institutional knowledge should be key given strategic issues the company faces.”

Such a candidate may prove to be a permanent fit at the company, for that matter, he said.

“I believe the current interim might actually be correct for the full time gig! I believe they need an internal player who has seen the nuts and bolts/knows the operating and strategic plan and can help execute,” Crist wrote in an email. “I don’t believe they need a high-level strategist.”

The future of the CFO seat

While companies must carefully consider what it is they are seeking out of an interim — or even a permanent — CFO candidate, qualified executives also have their pick of potential options as the market for executive talent grows more competitive.

CFOs who would have potentially retired or left their current roles years earlier, but were stymied by the pandemic, have now begun to do so, contributing to a narrowing of the potential talent pool. For that matter, the list of responsibilities handed to modern CFOs has grown over recent years, but companies may not have fully adjusted their leadership structure accordingly, Cole said.   

“The CFO is no longer the chief accounting officer,” Cole said. “They really effectively should be the right hand to the CEO. While many companies have increased demands of the CFO, they haven’t necessarily brought the CFO into that light. And so I think companies that can show a CFO candidate that they will have a position of significance of their organization, be that strategic business partner to the CEO, I think that goes a long way.”

The wave of CEO retirements is upon us

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https://mailchi.mp/11f2d4aad100/the-weekly-gist-august-12-2022?e=d1e747d2d8

 In just the first half of this year, more than 60 hospital CEOs have retired or left their roles, according to search firm Challenger, Gray and Christmas. Retirements are up 48 percent from the same time last year. Part of this is generational, as many Baby Boomer leaders are at retirement age, but the latest wave comes after many delayed planned exits during the pandemic to guide their organizations through the crisis. 2

Now, after two-plus grueling years of leading through COVID, executives are ready to pass the baton. The latest high-profile announcement came this week, with Salt Lake City-based Intermountain Healthcare’s CEO Marc Harrison announcing his plans to leave the system for a role at venture firm General Catalyst. 

The Gist: As a recent piece from Modern Healthcare points out, many systems have known their CEOs were exiting well in advance, but the significant cultural and financial consequences associated with choosing a new leader, especially during a period of industry-wide change, are presenting boards with hiring decisions as difficult as they are important.

Astute organizations have been planning ahead for these transitions, developing a bench of next-generation leaders, and providing them exposure to the board. COVID also served as a helpful stress test to identify talent who rose to the occasion to lead confidently and calmly through the crisis, while simultaneously weeding others out who floundered under uncertainty. 

The next generation of leaders will need different skills to navigate current and future challenges, including rethinking the role of the health system in response to a new class of disruptors, and managing through a workforce crisis that will require evolving the labor model while meeting new demands for workforce diversity and engagement.