High CEO Turnover, No Succession Planning Plague Hospitals

The nation's hospitals are seeing continued relatively high leadership turnover, but most providers are doing little if anything to plan for it. 

Thomas C. Dolan, president/CEO of the American College of Healthcare Executives, says a new survey from his organization tracked hospital CEO turnover at 16% nationwide in 2011, the same as in 2010. Between 2001 and 2009, he says, CEO turnover has run between 14% and 18% nationally.

By comparison, average annual CEO turnover is about 13% for Fortune 100 companies, he says.

Dolan has a ready explanation for the high turnover. "First of all, in general they are very difficult jobs and they have never been harder with healthcare reform and demands from the various stakeholders often conflicting in nature," he says.

"Secondly, if you are good at one of these jobs you get recruited constantly."

"Third, unfortunately if you are not good, there is little tolerance for poor performance. As best we can figure out about 20% of those 16% who turn over every year are being terminated," he says.  

"The last one is the Baby Boom retirement. The average hospital CEO is approximately 55 years old. That is the median and clearly a number are older than that and they are heading into retirement," Dolan says. "I expect that 16% to stay constant and maybe creep up in the next few years."

Dolan says it's hard to put a price tag on the cost of this leadership flux. "But I can tell you that when there is a vacancy at the top things don't happen," he says. "Partnerships are not made. New people are not hired. Sometimes senior people might start looking for other positions. Medical staff may defect. Whenever there is a vacuum in that top leadership position, there is a tendency in that organization for push back until a new leader is appointed."

Hawaii, Puerto Rico, and Wyoming led the nation with hospital CEO turnover rates of 35%, 30%, and 29%, respectively, in 2011. However, Dolan warns against reading too much into one year of data. "Hawaii and Puerto Rico, for example, have relatively small numbers of hospitals. So, one or two random changes could affect them disproportionately," he says. "What are more likely to affect turnover are highly competitive areas, low reimbursement states, things of that nature."

Along with the high turnover, Dolan notes, 58% of hospital CEOs have been on the job less than five years, and that also has the potential to create problems in continuity of leadership.

"We pretty much know from the management literature that if you go in and make positive changes in an organization, if you aren't there for at least five years to make sure those changes aren't woven into the fiber of the organization, oftentimes organizations will go back to what they were doing in the past," he says. "You might have a great CEO who makes a lot of changes, but if she or he leaves in a few years oftentimes the organization will revert to its old ways."

Even with more than a decade of relatively high CEO turnover, Dolan says a large majority of hospitals still have no succession plans in place.

"We did a survey on this a few years ago and only about 20% of hospitals have a CEO succession plan," Dolan says. "When we prod them and ask 'why don't you?' the most common response is 'we just hired a new CEO.' We come back and say 'the median hospital CEO tenure is only four years.'"

While succession planning is the primary responsibility of the hospital board, Dolan says that CEOs should be active partners. "As soon as a new CEO is hired the board and the CEO should agree to develop a succession plan and start working on it immediately," he says.

"First of all they have to determine whether they can groom people from within," he says. "In a very small hospital you may not be able to. Then you have to make sure that you have somebody who can fill in on the interim as you recruit somebody from the outside."

Larger healthcare organizations may have the luxury of grooming several internal candidates for the top spot. "If the CEO leaves, then hopefully you are promoting from within, supporting that individual with on-boarding and coaching their first year because it's always a big change moving to No. 1 even if you've been No. 2 in the organization," he says.

Whenever possible, Dolan says, the new CEO should be promoted from within. "The evidence from the industry is very clear that the most successful companies promote from within," he says. "Their returns are better. Their stability is better."