When providers identify a potential M&A candidate and perform due diligence, there are no guarantees that a formal agreement will be concluded. In fact, there are a number of financial and operational ways that a potential deal can be derailed.
According to the 2018 HealthLeaders Media Mergers, Acquisitions, and Partnerships Survey, respondents report that the top three financial reasons an M&A involving their organization was abandoned before or during the due diligence phase are concerns about assumption of liabilities (21%), costs to support the transaction were too high (19%), and concerns about price (19%).
Note that the full extent of a prospective organization’s financial liabilities may not be apparent until the due diligence phase is completed, which may explain why this aspect plays a major role as a deal breaker.
Respondents say that the top three operational reasons that an M&A involving their organization was abandoned before or during the due diligence phase are incompatible cultures (30%), concerns about governance (24%), and concerns about the operational transition plan (21%).
Interestingly, based on net patient revenue, a greater share of large organizations (47%) than small (25%) and medium (17%) organizations mention incompatible cultures, an indication of some of the challenges providers face when integrating large organizations with disparate cultures.
Pamela Stoyanoff, MBA, CPA, FACHE, executive vice president, chief operating officer at Methodist Health System, a Dallas-based nonprofit integrated healthcare network with 10 hospitals and 28 family health centers, says that organizational culture exists both at the senior leadership level as well as throughout an organization, and problems can arise because sometimes they can be different.
“You have two senior leadership teams sitting in a room trying to agree on deal points and reach a philosophical agreement. Oftentimes, you have cultural compatibility at the senior level (those who are consummating the deal) but find that culture throughout the remaining levels of the organization is not as conducive to a merger. That is something you don’t necessarily see until later, after the deal is done,” she says.
… One said, “I cannot get my head above water to breathe during the week.” Another described stabbing her leg with a pencil to stop from screaming during a particularly torturous staff meeting. Such complaints are supported by research showing that meetings have increased in length and frequency over the past 50 years, to the point where executives spend an average of nearly 23 hours a week in them, up from less than 10 hours in the 1960s. And that doesn’t even include all the impromptu gatherings that don’t make it onto the schedule.
Read the rest of “Stop the Meeting Madness” at Harvard Business Review.
In my experience, and some I learned the hard way, there are a few killers of good leadership.
I decided to compile a list of some of the most potent killers I’ve observed over the years. Any one of these can squelch good leadership. It’s like a wrecking ball of potential. If not addressed, they may even prove to be fatal.
It’s not that the person can’t continue to lead, but to grow as a leader – to be successful at a higher level or for the long-term – they must address these killers.
Defensiveness – Good leaders don’t wear their feelings on their shoulders. They know other’s opinions matter and aren’t afraid to be challenged. They are confident enough to absorb the wounds intended to help them grow.
Jealousy – A good leader enjoys watching others on the team excel – even willing to help them.
Revenge – The leader that succeeds for the long-term must be forgiving; graceful – knowing that “getting even” only comes back to harm them and the organization.
Fearfulness – A good leader remains committed when no one else is and takes risks no one else will. Others will follow. It is what leaders do.
Favoritism – Good leaders don’t have favorites on the team. They reward for results not partiality.
Ungratefulness – Good leaders value people – genuinely – knowing they cannot attain success without others.
Small-mindedness – Good leaders think bigger than today. They are dreamers and idea people.
Pridefulness – Pride comes before the fall. Good leaders remain humbled by the position of authority entrusted to them.
Rigidity – There are some things to be rigid about, such as values and vision, but for most issues, the leader must be open to change. Good leaders are welcome new ideas, realizing that most everything can be improved.
Laziness – One can’t be a good leader and not be willing to work hard. In fact, the leader should be willing to be the hardest worker on the team.
Unresponsiveness – Good leaders don’t lead from behind closed doors. They are responsive to the needs and desires of those they attempt to lead. They respond to concerns and questions. They collaborate more than control. Leaders who close themselves off from those they lead will limit the places where others will follow.
Dishonesty – Since character counts highest, a good leader must be above reproach. When a leader fails, he or she must admit their mistake and work towards restoration.
A leader may struggle with one or more of these, but the goal should be to lead “killer-free”. Leader, be honest, which of these wrecking balls do you struggle with most?
What would you add to my list?
Sending a senior executive off-site to expand his perspective was part of the Cincinnati-based health system’s leadership institute, which aims to develop the skills of some 1,000 administrative and physician executives and prepare them for new roles.
While many executives move around within their organization’s network, the approach aimed to expose the employee—who had spent much of his career at TriHealth—to another corporate culture and operations.
“We obsess about spending $2 million on a CT scanner, but we can’t find a way to spend $10,000 on investing in our leaders,” said TriHealth CEO Mark Clement, who launched the system’s leadership institute about ½ years ago. “I would argue that investments on improving talent within our organization produce dividends far greater than a piece of equipment.”
For many providers, it’s the end of an era. Hospital, health system and physician group executives are seeking new leaders. They are prompted by an exodus of top healthcare executives, a generational transfer of power highlighted by the departures of senior managers like Dr. Toby Cosgrove, former Cleveland Clinic CEO; Michael Murphy, CEO of Sharp HealthCare who is retiring in 2019; and outgoing Mayo Clinic CEO Dr. John Noseworthy.
Organizations are actively searching for what’s next and who will take them there. Industry consolidation is accelerating that conversation. But there is wide variation on their approach and level of preparation.
There’s a lot at stake, both from a cultural and financial perspective, said Mark Armstrong, vice president of consulting operations at Quorum Health Resources. Good managers translate to engaged employees, he said.
But only about 33% of U.S. workers are actively engaged in their jobs, and a mere 15% of employees strongly agree the leadership of their organization makes them enthusiastic about the future, according to a 2016 poll by Gallup. The firm estimates that disengaged employees cost the U.S. $483 billion to $605 billion each year in lost productivity.
“Even when systems know someone is retiring, it is interesting how few of them still don’t have an assertive plan in place,” Armstrong said. “Any kind of turnover can be disruptive, especially if there has been a trend of declining performance. It’s not unusual for a ratings agency to have heightened concerned when a CEO leaves.”
Almost every system grapples with a huge retention problem, which can make it difficult to plan ahead, said Alan Rolnick, CEO of Employee Engagement and Retention Advisors. The most costly departures are often experienced nurses, he said.
“It’s not just the cost of replacement but the loss of institutional knowledge,” Rolnick said.
TriHealth’s leadership program highlights potential candidates within the system who could fill upcoming vacancies. It puts executives on a multiyear track that assesses potential areas for improvement and exposes them to systemwide quarterly leadership training sessions and other development opportunities. The company’s vice president of finance, Brian Krause, spent a week at BJC HealthCare in St. Louis, relying on connections TriHealth had with the organization. Krause is also planning on spending some time at the University of Pennsylvania Health System, as well as a few other systems.
Since launching the institute—which is conducted with the help of the consultancy Studer Group—TriHealth’s employee engagement improved from the 26th to the 74th percentile, which has helped the organization generate a 3.5% operating margin—one of its highest margins in recent history, Clement said. Its patient experience scores are also up from the 50th percentile to the 75th, helping to drive an increase in admissions, bucking the national trend.
Ideally, promoting from within will ensure cultural and operational continuity and motivate executives, Clement said. “When you bring new senior executives in from other organizations, it can be a threat to the culture,” he said. “For an organization like ours that has invested a lot of money in building a culture based on value, engaging team members and flattening the organization, it’s often best to promote from within.”
Ascension also recently launched a diversity inclusion campaign that seeks to cultivate minority leaders.
“The types of leaders are changing,” Ascension CEO Anthony Tersigni said at the American College of Healthcare Executives’ 2018 Congress on Healthcare Leadership in March. “The time for guys like me who started as a hospital operator is passing.”
The CEO of a Fortune 100 company told Tersigni several years ago that he spends about 30% of his time on leadership development. Tersigni, who at the time only spent a fraction of that on cultivating executives, said that interaction completely changed his perspective. Ascension has since partnered with a number of universities to build a better leadership curriculum and management pipeline.
“Disruption in the healthcare industry is not going to come from the hospital across the street, it has been coming from outside the industry,” Tersigni said. “We need to understand how they think, how they act, how they make decisions, because it is a lot faster than healthcare can dream of.”
Renton, Wash.-based Providence St. Joseph in 2017 partnered with the University of Great Falls in Montana, in part, to create a stable pipeline of managers to feed into the integrated health system. The university, which was renamed University of Providence, will include professional and certificate programs for Providence St. Joseph’s more than 111,000 employees.
The health system has also implemented mentoring and leadership development programs that have increased its women executive cohort by 50% over a three-year period.
“Diversity begets diversity,” said Dr. Rod Hochman, CEO of Providence St. Joseph, adding that women and minority leaders will help the system better understand its most vulnerable populations. “We are looking for folks with different perspectives who can help lead us through this time of change.”
Whether the successors are internal or external, establishing a strong executive pipeline requires a proactive and standardized approach, and the board should take the lead, industry analysts said.
A health system should identify the competencies it needs to lead the team going forward and where the gaps are, said Craig Deao, a senior leader at Studer Group. “The three keys leaders of tomorrow need to have are getting people to do things better—performance improvement; getting them to do new things—innovation; and helping people do those things—engagement,” he said.
Managing the process rather than the people will translate to more innovative and engaged employees, according to Rolnick. It starts with communication, he said.
“Today, the average employee of a hospital has no idea of the strategic direction of their organization and what their role is,” Rolnick said. “You have to tell them as much as you can, and be open and honest.”
Beyond employee engagement, executives need to understand how to interact with patients. As the industry adapts to thinking of patients as consumers, that requires a different lens, Deao said.
“People need to understand how to shape behavior and apply concepts of psychology to running the business,” he said.
Healthcare is becoming more consumer- and technology-oriented. Health systems are also focusing more on nutrition, transportation, education, fitness and other social factors that influence an individual’s health.
Novant Health, for instance, is launching a new leadership program that looks to train untapped community leaders in Charlotte-Mecklenburg, N.C. The program involves a combination of teaching sessions and mentoring that aims to reach individuals who otherwise wouldn’t have access to programs that hone their leadership skills, said Tanya Blackmon, executive vice president and chief diversity and inclusion officer at Novant.
While there is a significant learning curve, experience in consumer insight, marketing or technology can better equip individuals to tackle healthcare’s current challenges, said David Schmahl, executive vice president of consultancy SmithBucklin and chief executive of its healthcare and scientific industry practice.
“The experience people are obtaining in leadership roles outside the healthcare field is critical,” he said.
The role of healthcare leadership has evolved into a platform used to convey a moral foundation, spanning conversations from racism to gun control. They have to balance their role as an influencer while dealing with budgets, managing their boardrooms, implementing both long-term visions and short-term goals, and maintaining an engaged workforce.
The average tenure of healthcare executives and managers is also decreasing, particularly among CEOs, nurses and physicians, which exacerbates labor shortages. A C-suite executive’s pay is still tied to financial metrics, but quality, safety and patient satisfaction are becoming a more prominent determinant.
While Novant’s initiative isn’t necessarily geared to develop successors, it signifies how the definition of a leader is evolving.
“We are looking at trying to tap talent across all spectrums,” Blackmon said. “We’re not leaving any area untapped.”