Corporate succession plans critical to maintaining healthy organizations.

By Cindy Sanders

With the exception of the occasional coup, those who inhabit the royal world understand the path to throne is clearly delineated.

This is a lesson corporate counterparts might want to take to heart. Rarely is there a clear-cut route to the corner office. But just as kingdoms and governments have toppled for lack of leadership, companies and practices can fail (or at least falter) unless key stakeholders have prepared for a C-suite shakeup.

A recent nationwide survey conducted by Witt/Kieffer, a national executive search firm specializing in senior leadership searches in healthcare and higher education, uncovered a reluctance among the 200 responding healthcare CEOs age 55 and up to focus on the future when it comes to retirement and succession strategies.

Highlights from the survey findings included:

• More than 40 percent of all respondents indicated they were more than five years away from retirement.
• In the 55-59 age group, 71 percent said they had no current retirement plans or were more than five years away from retirement. More than a third (36 percent) in the 60+ age group had the same response.
• There were multiple reasons for a reluctance to retire ranging from the desire to achieve more goals to pure enjoyment of the job. However, more than half (52 percent) also indicated there was no one currently in the organization ready to step into the CEO role.
• While slightly more than half (51 percent) said they had worked with the senior management team to identify potential successors, only 39 percent had worked with the board to develop a formal succession planning process, 29 percent had actually identified a successor to step into the CEO role, and 17 percent believed the successor was prepared for the new job.

Elaina Genser, senior vice president and western region managing director for Witt/Kieffer, said part of the impetus for the survey stemmed from an internal observation regarding the increasing age of the company’s clients and the average age of the candidate slates for leadership positions. She said if you asked current chief executive officers nearing retirement age how old they were when they stepped into their first CEO position, many would respond that they had been in their mid-30s. “And if you asked if they would (consider) someone 35 to take their role, they would look at you and say, ‘You’ve got to be crazy.’”

She continued, “A lot of people are staying longer in their jobs so it’s taking longer for people to step up.” Furthermore, “More physicians are going into CEO positions. They are entering into leadership roles much later in their careers—almost like a second career.”

Creating a Succession Plan

While experience is unquestionably an excellent trait, the issue that arises, Genser noted, is identifying and nurturing the next generation of leaders.

Creating a succession plan becomes an important mechanism to prime the leadership pipeline. “I think boards are becoming more cognizant of the need to have a succession plan to protect their organization,” she said.

“I think it’s on people’s radar, but actually implementing it is not as simple as it seems,” she continued, pointing to the survey results. For busy CEOs who aren’t considering retirement in the immediate future, it’s easy to let succession planning slip to the back burner.

“When I see it getting done is when the board has been very directive with the CEO,” Genser said, such as making the identification of a potential successor part of next year’s annual review.

Finding the Right Leader

Of course, finding the right successor is a whole other issue. The chief operating officer is often seen as the logical step-up position. However, Genser noted, in light of cost-cutting efforts, a number of healthcare companies have eliminated that position.

Other internal C-suite executives might also fill the bill, but often there are gaps in their skill sets. Even when a COO is on staff, the nature of the job calls for an inward focus on day-to-day operations. An effective CEO, Genser said, also has to have an outward focus on community relations, strategic planning, fundraising and the board.

Even when the logical candidate exists in-house, she continued, preparing that person to step into the corner office requires forethought. Once a successor has been identified, she said the CEO has to be prepared to mentor that person, give the candidate stretch assignments to expand skill sets and broaden the individual’s role.

“A lot of companies only have CEOs meet with the board,” Genser noted. However, it’s important for the named successor to have meaningful exposure to the board.

Succession Process

The succession process can be tricky—especially starting with setting an expiration date on the current CEO. Genser said the ideal timeline to bring a candidate along is between one and three years with five years probably being the outside limit to keep the successor engaged and moving toward the end goal.

“After the first 18 months, you’re going to have a pretty good idea whether or not it’s going to work,” she said.

During stretch assignments for an internal candidate, a critical weakness might become apparent. That, Genser said, doesn’t mean the individual is off the table, but it does mean the board and current CEO need to find ways to address that weakness through additional training, classes, exposure and mentoring.

Sometimes it simply becomes apparent the person selected is never going to be the right fit. When that happens, the board needs to be forthright and say, “These are the areas where we see you are not developing, and as a result, we have a question whether you can be the successor in the timeline we’ve developed,” Genser explained.

Throughout the process, she continued, “You have to have critical conversations. That takes sophistication on the part of everyone involved, and those are sometimes difficult conversations to have.”

Ultimately, though, putting in the hard work before the current CEO departs helps ensure continuity and a company’s long-term health.

Survey Highlights

A recent nationwide survey conducted by Witt/Kieffer, a national executive search firm specializing in senior leadership searches in healthcare and higher education surveyed 200 healthcare CEOs age 55 and up regarding their retirement and succession strategies.

Highlights from the survey findings included:

• More than 40 percent of all respondents indicated they were more than five years away from retirement.
• In the 55-59 age group, 71 percent said they had no current retirement plans or were more than five years away from retirement. More than a third (36 percent) in the 60+ age group had the same response.
• There were multiple reasons for a reluctance to retire ranging from the desire to achieve more goals to pure enjoyment of the job. However, more than half (52 percent) also indicated there was no one currently in the organization ready to step into the CEO role.
• While slightly more than half (51 percent) said they had worked with the senior management team to identify potential successors, only 39 percent had worked with the board to develop a formal succession planning process, 29 percent had actually identified a successor to step into the CEO role, and 17 percent believed the successor was prepared for the new job.