Keys to Succession Planning in Healthcare
March 31, 2023 – The number of CEO changes at U.S. companies surged 49 percent from 112 in January to 167 last month, says a new study from executive outplacement firm Challenger, Gray & Christmas. February’s total is up 11 percent from the 151 CEOs who left their posts in the same month in 2022. Hospitals announced 18 CEO exits for a total of 41, 58 percent higher than the 26 announced through February last year.
“We will likely continue to see increased CEO exits in hospitals as they recover from the pandemic, consolidate, and respond to both worker shortages and increased costs,” said Andrew Challenger, leadership expert and senior vice president of Challenger, Gray & Christmas. It’s a sign of the times. Leader resignations across the board are skyrocketing, leaving organizations in flux.
Succession planning is one of the most effective ways any leadership team can prepare for the departure of a CEO or other executive, according to a report from healthcare search firm Kirby Bates Associates in Orlando, FL. It mitigates organizational downtime, streamlines the transition process, and shows the existing internal talent that there are opportunities for upward mobility.
“Poor succession planning (or not planning at all) will directly affect an organization’s bottom line,” said Kirby Bates Associates. “A Harvard Business Review report alleges that poor planning regarding the leadership pipeline will inevitably increase executive turnover rates and cost up to $1 trillion per year in the S&P 1500 alone. It goes on to state that the excessive tendency to hire outside leaders rather than promoting from within comes at ‘three major kinds of costs: underperformance at companies that hire ill-suited external CEOs, the loss of intellectual capital in the C-suites of the organizations that executives leave behind, and for those companies promoting from within, the lower performance of ill-prepared successors.’”
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Secondly, executive talent is increasingly hard to find, between the Great Resignation and the pandemic’s exacerbation of critical workforce gaps, said the search firm. Prolonged vacancies in leadership inevitably damage an organization’s bottom line, culture, and morale. “It’s never been more critical to have a succession planning process in place,” said Kirby Bates Associates.
CEO Succession Planning’s Guiding Principles
Before starting the succession planning process for a CEO, organizations should be mindful of these guiding principles to set themselves up for success, said the search firm.
- CEO and Board Chair Buy-In: The current CEO and board chair must be onboard and aligned, said Kirby Bates Associates. They should be aware of rising talent, identify potential successors early on, and monitor their performance.
- Development Plan: Once a potential successor or successors have been identified, they must be developed professionally and prepared for the role. This can be done through sponsorship and mentorship programs, continuing education, and other leadership development programs.
- Role Clarity: Determine the successor’s strengths and weaknesses and clarify the expectations once they ascend to their new position. “In some cases, organizations may find a one-to-one replacement isn’t as feasible as once thought, so identifying such gaps and planning role responsibilities ahead of time is crucial,” said the search firm.
- Frequent, Direct Communication Early On: Communication and transparency between the current CEO, the board, and the successor(s) are key throughout the process. “The succession plan for the next CEO should begin on the current CEO’s first day,” said Kirby Bates Associates. “If succession planning is put on the back burner, things can get awkward in the future once it is brought up. If the board brings it up to the CEO, the CEO may begin to worry about their job security. On the other hand, if the CEO brings it up to the board, the board may begin to wonder if there is a flight risk. New developments must be handled with a unified front with a spirit of cooperation and transparency.”
Extending Succession Planning
Today, there is a greater appreciation for the value of succession planning for all leadership roles across the organization. In addition to the benefits of creating a more robust, better-prepared leadership bench and facilitating smoother leader transitions, enterprise-wide succession planning is recognized as an essential tool for recruitment and retention. “A shared vision is created when leaders and their supervisors communicate regularly about a path for future career advancement,” said the search firm. “This clearly articulated vision of an individual’s career advancement path creates strong ties to the employer and decreases flight risk of leadership talent.”
- Keys to Enterprise Succession Planning
“The first step to a healthy succession plan is to make a wide array of assessments,” said Kirby Bates Associates. “This includes any current or anticipated challenges for the next one to five years. Once organizational pain points are recorded, all key stakeholders must come together to determine the core competencies, skills, and institutional knowledge the ideal candidate must possess.” Here are a few questions organizations should ask themselves during this phase:
- What roles are needed to support continuity?
- How can we start developing leadership qualities in rising talent?
- Can one person address organizational deficiencies, or will it take a dedicated team?
Once the needs of the role are determined, the organization should look inwardly at potential candidates, said the search firm. “Leadership should take the time to brainstorm about high-potential candidates — those who possess the core competencies and knowledge,” said Kirby Bates Associates. “During the talent evaluation process, stakeholders should categorize any skill and competency gaps, be able to determine how to attract the strongest candidates, and begin creating a solid leadership development plan.”
- Leadership Development
The final key to a flourishing succession plan is leadership development. This process is two-fold: preparing the incoming leader and capturing the departing leader’s knowledge.
“The best way to develop internal talent and prepare them to step into critical leadership roles is by implementing a sponsorship program,” said the report. “Sponsorship is a method of leadership coaching in which the coach (often an executive) actively participates in the success and development of the protégé. After all, nothing prepares an incoming executive like the current one taking them under their proverbial wing.”
Sponsorship programs allow current leaders to advocate for rising talent, provide ample opportunity to create or bolster diversity and inclusion initiatives, and give the protégé a glimpse into the expectations. “The protégé, on their own, may even be able to identify organizational pain points or skill gaps that exist under the current leader and begin planning their strategies to address them,” said Kirby Bates Associates. “This knowledge transfer is crucial in building confidence in the new leader and fostering a collaborative leadership atmosphere.”
Founded in 1988 as Bates & Associates by two leading nurse entrepreneurs, Kirby Bates Associates has been continuously owned and operated by nursing executives. The firm offers portfolio of leadership services including interim leadership, executive search, leadership coaching and operations consulting. Melissa Fitzpatrick was named president of Kirby Bates in 2020. In 2017, the company became part of the Jackson Healthcare family of companies.
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Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media