The average tenure of CEOs leading hospitals and health systems in this country is just 3.5 years, according to several sources. This historically indicates high CEO turnover that is disruptive and problematic for organizations in many ways. Is there a remedy for high CEO turnover?
In the experience of Gallagher MSA Search, a division of Gallagher Benefit Services, Inc., the problem of CEO turnover often begins with the search process itself. We strongly believe that a more thorough search process can lead to a better match that has the potential to last a very long time. According to our internal statistics, the average tenure of CEOs placed by Gallagher MSA Search over the last 25 years is 7.8 years. A statistic that I like to share with boards is my own personal track record: of the 15 or so CEO searches that I have either led or co-led in my ten years with Gallagher MSA Search, all but two of the people we’ve placed are still in those roles today.
No matter the circumstances that create the need for a search, be it retirement, resignation, or involuntary departure, a CEO transition is disruptive and runs the risk of compromising an organization’s ability to fulfill its mission and strategic initiatives. So, if Gallagher MSA Search is called upon to lead a search for an organization that has experienced unusually high CEO turnover in its recent past, we begin by trying to determine the root cause of this turnover.
Here are a few of the reasons we’ve uncovered:
Ambiguous definition of the role and expectations of the CEO
Misinformation provided to candidates during the recruiting process
Misalignment around the respective roles and responsibilities of the CEO and the board
The community doesn’t meet the needs of the CEO and his or her family
What comes to mind as I write this is the old joke about the man who just died and has to make a decision whether to spend eternity in heaven or hell. He’s given the opportunity to tour both, and can’t believe what he sees in hell. Instead of a dark, fiery place, it’s more like a five-star resort, complete with all the food and drink he can consume, and golf courses that would rival Pebble Beach or Augusta National. So, after a tour of heaven, the man decides to spend his eternity in hell. When he arrives the next day—now for good—he encounters that dark, fiery place he was envisioning before his visit the day before. He turns to his suitors to ask what happened, only to be told, “Yesterday we were recruiting you.”
I would estimate that at least 50% of the healthcare leaders’ resumes my colleagues and I review have at least one short stay on them. It is not at all uncommon for an otherwise successful career to be marred by a stay of less than two years, and in some cases, less than a year. When we probe candidates about these short stays, we usually hear a response consistent with one of the points above. Quite often CEOs tell us about a misalignment with the board, or an over-meddling board. This can take many different forms, including a board that won’t let the CEO make any management moves without prior approval, or a head-in-the-sand mentality when it comes to decisions that need to be made to ensure the long-term viability of the institution, especially strategic alliances with larger systems. Or we will hear stories such as, “I was told during the interview process that the organization was on a quality journey, and when I arrived, I found out the only thing that mattered were the finances.” Less common, but something we do still hear from time to time, is that the new CEO had no idea just how dire the financial condition of the organization was until after starting the job. By this time, another position has been resigned, a house has been sold and a new one bought, and a family has been relocated. Tragic—and truly disruptive for all parties.
Our search process—with process being the operative word—is designed to gain as much information and knowledge as we can about the hiring organization, our client, and the candidates we present. The due diligence on the organization side of the equation takes many forms, including multiple onsite meetings with a wide cross section of stakeholders, a pre-search questionnaire sent to an even wider array of stakeholders, and the gathering of materials. We will also ask to have a community tour, usually conducted by a local realtor or by one of the organization’s physician recruiters, so we can learn about housing options, schools, churches, recreational and shopping options and the like. All of this early intelligence gathering informs our position profile, which includes a critical component we call “areas of first-year emphasis.” Before going to potential candidates with this profile, it’s endorsed by the board or the search committee during a meeting in which we discuss and ultimately agree on these first-year priorities, as well as the profile of the ideal candidate.
Due diligence on the candidate side of the equation takes multiple forms as well: phone screening interviews during which we ask questions such as, “what does a move to __________ look like for you and your family,” a three-hour face-to-face interview, thorough reference checking, executive assessment testing and background checking. The due diligence culminates in a presentation to the search committee of a panel of candidates, all of whom have the skills, experience, and leadership qualities necessary to succeed in the role, and just as importantly, all of whom have strongly declared their interest in leading this organization in this community.
Along the way, we’re sharing as much organizational information as we can with candidates, always taking an “eyes wide open” approach, and always operating with the mindset that there is never the perfect candidate, nor the perfect organization. Through a two-phase interview process, we attempt to provide the candidates, their spouses, and the organization every opportunity to learn as much as possible about each other before they make their final decisions.
Our final pledge to our client is a post-hire follow-up. For at least two years after the new CEO is in place, we’re checking in with both the candidate and the board chair to see how things are going. We’re on the lookout for issues that may indicate less than a perfect marriage—the issues articulated above. Similar to a marriage, if we’re able to learn of and deal with these issues before they’re out of control, we have a much better chance of resolution. Nine times out of ten, these are quick, touch-base courtesy calls during which we hear from all involved that everything is going fine.
In closing, I will share that there is nothing more gratifying in this business than hearing from a CEO several years into his or her assignment just how well things are going, and how appreciative they are for this particular opportunity to lead.
For more insights and information on executive placement, visit Gallagher MSA Search.