Where have all the leaders gone?
By John S. Lloyd, for HealthLeaders.com, Aug. 29, 2001
As CEOs le ave healthcare leadership - prompted by retirement, new opportunities or ineffective performance - governing trustees struggle to identify new leaders. Today's trustees need leaders with traits and skills that will drive a hospital's or system's cultural integration, enhance financial performance, and articulate vision and strategic objectives for healthcare's new challenges. Healthcare appears to be losing executives faster than new leaders are ready to replace them.
Industry analysts call this leadership-gap phenomenon a "war for talent." They estimate there exists a 40% gap between the talent supply and demand in healthcare. That gap could grow in the future. There are predicted to be 15% fewer leadership candidates in the critical 25-44 age range by 2006. Furthermore, training programs for these up-and-coming leaders are sorely lacking.
Few of today's healthcare executives plan to work in the "pressure cooker" of healthcare until age 65, a situation that compounds the talent gap. If CEOs who direct the top 40 healthcare systems nationwide follow recent patterns and retire on or before age 60, healthcare will need as many as 28 new leaders by 2006. Based on my personal contacts with these people, the leadership transition will happen sooner rather than later. Where are their replacements? Why is it so difficult to identify new leaders to fill their shoes? Here are some thoughts on the subject.
Healthcare organizational flattening has eliminated some leaders. Over the past 15 years, many integrated systems have trimmed the COO position - so fewer executives with a breadth of management abilities are ready to move into the CEO role.
Unlike other industries, where management tracks include experience in production, marketing, finance and operations, healthcare executives lack such training programs. Healthcare CEOs overwhelmingly agree there exists a lack of top management training. Physician executives rarely have broad financial responsibility; patient care executives have few responsibilities in external marketing; and when was the last time a CFO had responsibility for nursing? When a CEO vacancy occurs, the next-tier executive frequently lacks broad experience that is needed at the top level of the organization.
Few healthcare organizations, unlike industry at large, have developed "fast-track" training programs for young executives with the greatest potential. Healthcare chooses to view all young management recruits in an egalitarian fashion, with a belief that the "cream will naturally rise to the top." However, commercial businesses provide extensive in-house management training for their "up-and-comers." Why not healthcare?
Physician executives with MBAs lack broad management experience that most trustees see as essential to lead major systems. Even though the American College of Physician Executives and graduate schools of business report increasing numbers of physicians completing management courses and advanced degrees, physicians are slow to enter the executive suite at the top level. Even fewer have been successful in top management roles.
Mentoring is critical to the success of the next generation of leaders. But on-the-job challenges prevent many CEOs from devoting time to mentor successors or young executives who can become future leaders. CEOs say there just is not enough time.
Thoughtful succession planning is the responsibility of trustees and CEOs. In fact, many current healthcare CEOs believe they and the board should jointly choose the CEO's successor. But succession planning is often a "knee-jerk" reaction used only when a valued executive is being recruited elsewhere.
Women and minorities infrequently attain top positions in healthcare. The healthcare sector fails to adequately mentor such executives who often need more mentoring since they have not had appropriate role models earlier in their careers. Qualified women and minorities are available, but healthcare decision-makers often fail to look for them in the right places. It also appears that some women executives may choose to sidestep CEO roles and place more emphasis on quality-of-life issues. Organizational and individual resistance to women and minority executives still are barriers to overcome.
What CEOs Are Saying
If the leaders are that hard to replace, perhaps the board of the major organizations and systems should do a better job preparing for transition or keeping their CEO happy and productive. In that vein I asked the following questions of leaders at 13 of the most successful integrated delivery systems as identified by Salomon Smith Barney, Inc. in 1999: What are the three most important things you believe your board should do to ensure your continued leadership? and If you were to retire or leave your organization at your discretion, what are the most important criteria for recruiting and retaining your successor?
The average annual base compensation of the respondents was nearly $600,000; their average performance bonus was about $200,000; and several garnered deferred compensation in the millions, depending on age.
It was the opinions of these CEOs that healthcare governing boards should work diligently to retain their CEOs by maintaining strong relationships with them. All acknowledged that it is a risky business seeking a new CEO at a time when talent is in short supply. The following major messages surfaced:
Insist the CEO identify and nurture one or two internal candidates, regardless of the CEO's age. This enables trustees to choose a successor by considering both internal and external candidates.
Provide board encouragement and support to the CEO. The board should improve the process of conducting evaluations and following through on goals and objectives for the CEO. CEOs also note board members should improve the process of selecting board and committee chairs who will work cooperatively with them. Further, board members should educate themselves on key healthcare issues, set clear goals and objectives for themselves, and govern, not manage.
Enhance the CEO compensation package through such means as a retention bonus, supplemental retirement and deferred compensation plans, enhanced short- and long-term incentives, long-term contracts with significant severance provisions and other "golden handcuffs." CEOs believe their own compensation is competitive, but not that of their senior team, which results in an inability to attract and retain outstanding executives.
Conduct regular, documented performance reviews of the CEO, and insist the CEO do the same for his or her subordinates. Use established means to evaluate outstanding performance - and improve the evaluation process. Naturally, these include measurement against budgetary goals or pre-established ratios. The board should rely on qualitative and quantitative measures for quality care delivery, customer service and patient safety. Measure performance according to whether the organization is achieving strategic goals or enhancing relationships with physicians, employees and the community. Overall, they find fault not with the measurement indicators but with the evaluation process itself. CEOs believe boards should work with them to define goals and objectives - and review them periodically. Unfortunately, few organizations do this well.
In a new CEO, seek healthcare experience and leadership "intangibles." Seek demonstrated leadership, solid values, vision and strategic thinking. Find someone who is motivational and can create a culture of continuous improvement and community service. Create clear lines of authority, between board and CEO. The ability to build collaborative relationships with physicians and other stakeholders is key. Leadership must be the creative glue that holds the enterprise together and makes it successful. While these intangibles are difficult to articulate - and even harder to find in today's market - healthcare leaders must have them.
Healthcare boards that are successfully guiding hospitals and healthcare systems must ensure that their CEOs are building strong succession options for themselves other senior positions. By calling attention to these problems, I believe healthcare will work toward eliminating the leadership gap. Now, as in the future, the pressure will be on CEOs to perform effectively as competent, efficient, outgoing and articulate leaders. With planning and cooperation, both CEOs and trustees should feel reasonably certain they can retain outstanding leadership and ensure a smooth transition, even when it seems there are never enough good leaders to go around.
John S. Lloyd is vice-chairman of Witt/Kieffer, a leading healthcare executive search firm based in Oak Brook, Ill. He focuses his practice on assisting clients in finding senior-level leaders for hospitals, health systems, academic medical centers, physician group practices, long-term-care facilities and related healthcare entities. He can be reached by phone at 630-990-1370 or by e-mail at firstname.lastname@example.org
Seems like the perfect time for nurses to enter these management ranks and lead healthcare in a new direction.