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#MeToo era highlights importance of emergency CEO succession plans

Healthcare CEOs haven’t been bolting under the weight of #MeToo accusations at nearly the same rate as other industries, but the sector is not immune to surprise exits.

Athenahealth co-founder and CEO Jonathan Bush, for example, left swiftly in June amid allegations of physical abuse and sexual harassment. But there are other reasons, too. The CEO of PinnacleHealth, currently UPMC Pinnacle, stepped down suddenly last year, reportedly to “seek an alternative career path.” In Ohio, Summa Health CEO Thomas Malone resigned last year, shortly after hundreds of physicians and staff members expressed displeasure with his leadership. And many industry insiders were surprised last week when Cerner Corp. President Zane Burke announced he would leave the company on Nov. 2 after five years in the role. John Peterzalek, Cerner’s executive vice president of worldwide client relationships, will take on Burke’s duties and become chief client officer.

A number of governance experts say the current environment—in which CEOs can leave without notice for behavioral or performance reasons, an illness or injury, or if they’re plucked away by a competitor—highlights the importance of having two succession plans: one for a typical departure, such as a planned retirement, and another specifically for a surprise vacancy in the top spot.

Summa Health officials declined to comment. A UPMC official said having “deep bench strength” bolsters the organization’s succession planning, both long- and short-term but declined to offer specifics.

“Boards are certainly aware now that sudden departures—they’re not ordinary course—but they can happen,” said Michael Peregrine, a partner at the law firm McDermott Will & Emery. “And I think clearly the #MeToo environment has driven that home.”

But experts say a surprisingly low number of not-for-profit health systems have emergency succession plans, even if they have a plan that covers departures under typical conditions. It’s more common at for-profit hospital chains, which are under greater pressure from investors to have such plans in place.

It’s not an issue that’s studied often, but the data that exist paint a grim picture. Only 17% of healthcare CEOs said they had a successor who was prepared to step into their role, according to a study from Witt/Kieffer.

Only 31% of CEOs said their succession plans had been updated within the past two years, and the frequency of such updates had declined between 2011 and 2014, according to the most recent data available from the American Hospital Association.

It’s perhaps understandable why so many hospital and health system boards don’t have emergency succession plans—it’s not an easy subject. It’s kind of like having an end-of-life conversation, but—like it or not—that’s the job directors signed up for, said Jamie Orlikoff, whose consultancy specializes in healthcare governance.

“A number of boards are in denial,” he said. “They don’t want to think about it … and don’t plan for it. It’s a fundamental abrogation of the governance responsibility.”

There can be a fear of offending the CEO or of an awkward situation. Some boards mistakenly think if they bring up the subject, the CEO will consider leaving, said Steven Berkow, an executive director of research at the Advisory Board Co.

“The closer you get to the CEO, the more awkward people feel about having this conversation,” he added.

What’s your plan?

Most importantly, a plan should have one or a few names of the top “plug and play” candidates who could step into the CEO role immediately. Experts recommend choosing a top candidate, along with second and third choices. Boards should vote on and reassess their choices annually.

One point that polarizes the experts is whether to tell the interim candidate or candidates they’ve made the list.

In Orlikoff’s experience, the vast majority of boards decide to keep the information confidential, which is what he recommends. Alerting the candidate could lead to a bevy of other conversations including compensation, whether they’ll be considered for the permanent job, and more. And then there’s the question of whether they’ll be able to keep it secret. Plus, there’s always a chance the board will change its mind during its yearly review. “Politically, it’s very challenging,” Orlikoff said.

Mark Madden, executive vice president and managing principal of the healthcare search firm Cejka Search, differed, saying there are pluses to talking with the chosen successor.

“If you want to get their support, why wouldn’t you want that person to know?” he said. “First of all, are they interested and do they have the capabilities?”

Another benefit of telling the person is they will have a chance to develop their skills so they’re ready to step into the CEO role if needed, Madden said. If there is more than one person on the list, boards should keep those conversations confidential among the short-listers.

Orlikoff, by contrast, said grooming can still take place without telling the person, so long as the CEO is involved and can help train the candidate.

The plan should also designate whether that person will continue to do their previous job as well, something Orlikoff advises against. Instead, he tells systems to plan two to three levels deep. If the chief financial officer takes over as interim CEO, for example, who would take over those duties?

A succession plan should determine if the interim CEO will be paid more, and whether that person will be in the running for the permanent position.

The Advisory Board’s Berkow suggested having evaluation criteria that guide the decision toward an interim CEO with the skills to lead the system in its intended future direction.

“It’s very important to do that divorced from your candidates,” he said.

Lyndean Brick, CEO of the healthcare consulting firm the Advis Group, said a good plan should also contain a strategy for getting the word out about the interim CEO to stakeholders, including rating agencies. That’s something Brick said has been missing from recent #MeToo departure announcements.

“I don’t see somebody coming forward and saying, ‘Here is Mary Ellen Smith or John Smith and he is prepared and ready to go. This person was our identified successor and they’ve just taken the job. They’ve stepped right in,’ ” she said.

Analysts with Moody’s Investors Service, Fitch Ratings and S&P Global Ratings said they might ask whether health systems have succession plans as part of a broader examination of governance, but they’re very unlikely to downgrade a system for not having one.

“If someone gets hit by a bus, what is the plan? Who would step in?” said Kevin Holloran, a senior director at Fitch. “It’s kind of a normal thought process, and I’m not sure we would downgrade someone if that was the only fault they had.”

The long view

Mayo Clinic’s board never has to stress out over whether to tell its interim CEO candidates, because they’ll always know ahead of time.

The not-for-profit healthcare giant’s bylaws state that in the absence or disability of its CEO, one of the three physician vice presidents leading its operations in Arizona, Florida or the Midwest would take over on an interim basis. The current CEO chooses one of the three to take over. If he or she doesn’t choose, the interim CEO will be either the Florida or Arizona vice president, whoever has been in the role longer, said Josh Murphy, Mayo’s chief legal officer and secretary of its board of trustees. Physician vice presidents must have been at Mayo for the preceding five years to land those positions.

“We believe that a physician vice president must have the capability, the potential, to be an enterprise CEO,” he said. “So we would definitely expect a physician vice president who assumes the role of interim CEO to have the potential to be in that role permanently.”

That adds pressure to the current search to replace the Florida executive, Dr. Gianrico Farrugia, who the health system announced in August would replace Dr. John Noseworthy as its next CEO. Murphy said Mayo’s board will likely make its pick in November.

When AMGA CEO Donald Fisher died of cancer last year, the event immediately triggered a succession plan that had been in place for years, said the association’s current CEO, Dr. Jerry Penso. The board named an interim CEO shortly afterward and already had an executive search firm identified. The plan also outlined how the AMGA would communicate Fisher’s passing to staff, members and the public.

At Central Maine Healthcare, whose embattled CEO Jeff Brickman has received votes of no confidence from staff at all three of its hospitals, the health system takes succession planning seriously, spokeswoman Kate Carlisle wrote in an email. It has a plan that the board reviews annually.

“We are always working to evolve and refine the plan, ensuring that the organization is well-positioned to manage the departure of any senior leader, should that be necessary,” she said.

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