Where have all the leaders gone?

[NRSKarenRN, BSN, RN]

Where have all the leaders gone?

By John S. Lloyd, for HealthLeaders.com, Aug. 29, 2001

http://www.healthleaders.com/news/feature1.php?contentid=27354

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.

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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 [email protected].

Seems like the perfect time for nurses to enter these management ranks and lead healthcare in a new direction.

[-jt]

"As CEOs leave healthcare leadership - prompted by retirement, new opportunities or ineffective performance - governing trustees struggle to identify new leaders. "

Wait a minute. Is this saying there is a shortage of hospital CEOs?????? Hmmm what happened? The bottomless pot of gold for healthcare administrators start to dry up or something?

Imagine...... a shortage of businessmen CEOs. I know a few RN/MBAs who could fill the bill.

[oramar]

As hard as I usually am on managment I will say this. There is a huge crisis all through health care that is being caused by consumer expectations. The public wants state of the art healthcare provided by highly skilled workers in adequate numbers. The conflict arises from the fact that the public does not want to pay for all of the above. To get any type of product you want in any amt you require any time you require it means large amounts of moola must be spent. We have all felt the stress of these impossible expectations.

[MollyJ]

Originally posted by oramar

As hard as I usually am on managment I will say this. There is a huge crisis all through health care that is being caused by consumer expectations. The public wants state of the art healthcare provided by highly skilled workers in adequate numbers. The conflict arises from the fact that the public does not want to pay for all of the above. To get any type of product you want in any amt you require any time you require it means large amounts of moola must be spent. We have all felt the stress of these impossible expectations.

Oramar, I agree so much with this and while I am not willing (as you are not either) to put crowns on the heads of hospital administrators, it is the health care consumers basic unwillingness to say what they are willing to give up (perfection vs comprehensive state of the art services vs low cost) that has driven this whole situation to ridiculous lengths. My college ethics prof always said, "We can PROVIDE much more health care than we can PAY FOR." I had another prof who said, "Managing unlimited resources is easy. It is much more difficult to manage limited resources," which of course describes our current situation. Until the health care consumer experiences some of the costs associated with the health care system they demand they will not moderate their demands in any way.

Aforementioned ethics prof did an exercise where he asked us to raise up our hands on what we were willing to do in order to "care for a hypothetical ailing grandma or grandpa." He would ask first if we were willing to give up a 3rd tV in our house (sure), a second car, a house with 3 bedrooms and on and on until we were being asked to give up very basic wants and needs. His point was that when and if care of a family member became directly tied to what we had, most of would quickly moderate what we thought was reasonable and necessary care. Though my description of the exercise doesn't do it justice, it's a very thought provoking point.

[-jt]

What does that have to do with businessmen CEOs who are leaving health care administration - "prompted by retirement, new opportunities or ineffective performance"?

Is the public to expect that in order to get better healthcare they have to be willing to pay hospital CEOs millions of healthcare $$$ in salary & perks? When a former CEO at my hospital was asked to "resign" after only 18 months into a 4 yr contract, he still got paid his stock portfolio and about a million $$$. He did have to give back the free top-of-the-line BMW and the free luxury apt overlooking the NYC skyline but he got the cash, stocks & more.

Another administrator stepped in for the interim until we got a new one. The interim CEO visited our facility 2 or 3 days a week for 2 - 4 hrs a day for almost 6 months. For that he received over $600,000 salary.... even though he already was the CEO of the hospital system we belong to. He was paid that money on top of his regular salary & perks. Where did that money come from? Are pts to expect that this is where their money should be going when they are paying for "healthcare"??

There is plenty of money to pay for healthcare in this country but when the head of HMOs like Oxford made $50 MILLION $$$ in salary in one year (not including perks and stock options) - from the premiums paid by its patients, & by the money it saved itself in REFUSING to pay for tests, procedures, referrals, and plain healthcare that those pts needed, you have to wonder about that argument that "there is no money to pay for healthcare" or that "the public is unwilling to pay more".

Money is there. The public is paying. Its just going into the big boys pockets. Somebody here once posted the breakdowns of the biggest HMO salaries - its disgusting that they have more than Ft Knox and have the nerve to say the public isnt willing to pay "enough" for healthcare.

Its enough to make you sick! Just look at some of these reports:

http://www.healthleaders.com/news/newspage1.php?contentid=26725&CE_Session=ac64b825c2a7a981b04feb938040b9a3

http://www.healthleaders.com/

[-jt]

HMOs PROFITABLE in 2000

A new study by Weiss Ratings Inc. says American HMOs returned to profitability last year after three straight years of losing money. The study of 492 companies shows HMOs earned nearly $1 BILLION $$$ in 2000.

Reuters Health/Yahoo!, Aug. 6, 2001

FULL STORY

http://dailynews.yahoo.com/h/nm/20010806/hl/hmos_1.html

[oramar]

Dear -jt, The first thing that came to my mind when I read the article was exactly what you said in your post. You write like a journalist by the way, very professional. The second thing the jumped into my mind was what I posted. Since you said the first thing that popped into my mind so well I thought I would post another view. Makes for some interesting corespondence.

[Mijourney]

Hi. -jt, you made an interesting point in your first post. In the article there were several references to physician executives, but none to nurse executives. Wonder what a nurse with formal education in law and/or business could do in a leadership role? I happen to know of a few with this training and they are definitely out of the box with their leadership. As we all know, nursing is an all encompassing profession. At the bedside, we do marketing, finance, production, accounting, human resources, etc. along with our traditional expected duties. I feel that we get a much more rounded experience in more areas then physicians do with patients. Yes, I know we have had some disappointing leaders in nursing, but I think they were/are blinded by their own perceived status and our apathy.

With an increasing shortage of CEOS, maybe it's time to look at restructuring upper management and making it more decentralized. It's time to empower the followers and the followers to want to be empowered.

[-jt]

article:

WASHINGTON (Reuters Health) - After losing money for three straight years, the US health maintenance organization (HMO) industry returned to profitability last year, earning nearly $1 billion, a study of 492 companies released Monday by Weiss Ratings Inc. showed.

The industry's $990 million profit last year was fueled by rising premium rates and by managed care companies closing or selling unprofitable lines of business, healthcare and financial analysts said. The HMO profit of $990 million last year followed a loss of $199 million in 1999, $864 million in 1998, and $755 million in 1997. In 1996, the industry posted a profit of $746 million.

Health plans have been ``much more aggressive'' in increasing premiums to match rising costs, Phil Blando, a spokesman for the American Association of Health Plans, told Reuters Health.

Most health plans have increased premiums by 8% to 12% annually last year and this year, Rob Mains, a research analyst with Advest Inc., told Reuters Health. However, smaller HMOs have boosted rates between 12% and 18%.

However, it was the big HMOs--those with more than 500,000 members--that led the industry back to profitability, according to the Weiss study. Of the 31 largest HMOs, only seven lost money, and that group as a whole boasted $1.2 billion in net income for 2000, Donna O'Rourke, Weiss' healthcare analyst, told Reuters Health.

The three most profitable HMOs for the year were Blue Cross of California (net income of $349.6 million); Oxford Health Plans (of New York) Inc. (net income of $225.2 million); and Kaiser Foundation Health Plan Inc. of California (net income of $162.6 million), according to Weiss.......

O'Rourke said that the costs of implementing a possible Patients' Bill of Rights and a further loosening of traditional managed care techniques may also increase costs.

Hmos Profitable in 2000 >>

http://dailynews.yahoo.com/h/nm/20010806/hl/hmos_1.html

Why in the world would a patients rights law increase costs when pts are already paying such high costs that just 3 HMOs had incomes of $349.6 MILLION, $225.2 MILLION, and $162.6 MILLION $$$$? Ttheir stock options alone (posted here previously by Natalie I think) were upwards of $200 MILLION $$$ besides that.

How can they have the nerve to say we have to pay more when they are already making those kinds of profits? The head of Oxford (my HMO) is a young guy & lives in a castle on acres and acres of pristine land in Connecticut. Paid for with dollars we pay for "healthcare". Multiply him by how many more pocketing healthcare premimums and the argument that "the health care consumers basic unwillingness to say what they are willing to give up (perfection vs comprehensive state of the art services vs low cost) has driven this whole situation to ridiculous lengths" is a little hard to swallow. Why is the money going to HMO administrators and not to pay for the actual care & technology the pts are paying for? Why do we have to give up state of the art (or even just plain quality) care instead of them giving up some of those ridiculously obscene profits & putting the money where its supposed to go - to the care of the pt?

When they say they "lost millions of dollars" one year - it really only means that they didnt make as much as the year before. So if in 1999 they had an income of $200 million and in 2000 they ONLY had an income of $180 million, they say they "lost" money and cry for increased rates to be paid by the pts. Thats whats ridiculous.

(thanks Oramar & I agree with you about interesting correspondence)

[Barbara Rose]

jt & ormar,

I have to agree with you. I just dropped my insurance in August, since I am self employed I have to pay all my insurance and additional costs. With a PPO, I still was excluded for life on my arthritis, even though I take no medication for it or have any disabilities, and I was limited on my HTN, the cost? only $500 per month, plus my deductible and co-pay amounts. I am now putting the money in a medical savings plan rather than making the insurance company rich. I usually spend 50 a month on medical unless there is a problem, or routine 6 month med refill visit, etc. I don't feel sorry for the poor insurance companies or the CEO's. Insurance companies don't take any risks anymore, and CEO's are moving out of health care to make more money in other areas, including consulting for health care providers!!!!!!!!!!!

It is a sad time in our history when we have the ability to heal and save but not the money to do so. By the way, I was also refused a critical illness policy because breast cancer runs in my family!!!! So, if I don't win the lottery, I guess I will be up a creek if I get sick soon. Thanks for letting me get it off my chest.

By the way, when I finish school, with my dual master's in nursing and business, I dare them to ask we about the job!

[-jt]

hey BJ.....I heard there are a few healthcare CEO positions open!

lol

[-jt]

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Executive PayWatch (Yahoo)

- describing the problems of runaway CEO pay, listing of top overpaid executives, and what you can do about the problem.

http://www.paywatch.org

PioneerPlanet - Business (MSN)

Big pay not always linked to top performance For years, companies have been chanting the mantra of pay for performance: The pay of CEOs should be linked to the fate of their firm's stock. But several studies have shown -- and plenty of anecdotes hav

http://pioneerplanet.com/archive/ceopay

Medicare managed care plans overpaid, the government's General Accounting Office (GAO) says (MSN)

Home - Yahoo! - My Yahoo! - Help Home | Top Stories | Business | Tech | Politics | World | Local | Entertainment | Sports | Science | Health Yahoo! News Health Headlines Research thousands of health terms, drugs, and diseases Friday Jun

http://www.calnurse.org/cna/new1/yho062599a.html

Who Should Set CEO Pay? The Press? Congress? Shareholders? (MSN)

Media critics charge that CEOs with outrageous salaries are running U.S. corporations into the ground. Politicians claim overpaid CEOs are the root cause of the U.S. competitiveness problem. Add a recessionary business climate to the fact that some (Harvard Business School)

http://www.hbsp.harvard.edu/hbsp/prod_detail.asp?92302

US CEOs Are Overpaid. (MSN)

CEOs of US corporations are paid too much for what they do; too much more than their average worker

http://management.about.com/library/weekly/aa060401.htm

Inequality.org on CEO Pay (MSN)

Facts & Figures Newswatch Resources Experts Contents About Us Tell A Friend E-mail To: RELATED STORY CEO Pay 1999 CEO PAY April 19, 2000 Executive Pay 2000: An Embarrassment of RichesA look at

http://www.inequality.org/ceopay200

CEO pay greed soars out of control while workers earn less (MSN)

When's the last time you had a 224 percent raise?

http://www.thirdworldtraveler.com/Society/CEO_Greed.html

http://www.fa-ir.org/ai/wagegap.htm

SBSM March 1996 - Faculty Research Report (MSN)

{ March's Front Page | BMag Main Page } Wage imbalance fallout by Barbara Buell Huge salary imbalances between CEOs and the people who work for them can send bad vibes throughout an organization, weakening loyalty and eroding the talent

Stanford Business School

http://www-gsb.stanford.edu/community/bmag/sbsm0397/wagefallout.html

Drexler, Millard - Bizjournals.com (MSN)

Industry news column focuses on the executive compensation package of The Gap's CEO http://sanfrancisco.bcentral.com/sanfrancisco/stories/1996/06/24/newscolumn4.html

http://64.15.227.211/NYPost?cookie=999578648-QWDWXUIYQZGQXJPATXFD&query=Overpaid+CEO&lang=1&phrases=off&qtype=0&rpp=10&cb=NYPost&&index=1