Tag Archives: CEO turnover

More examples of what not to do AKA how to stay in the frying pan and not fall into the fire.

This is the second article in the series about what not to do.  The person suggesting this article asked for examples of things that might help you save yourself from yourself.  Please send me your examples and stories of things not to do.  Your confidentiality will be protected unless you want credit for the idea.  Sharing this experience, especially with younger executives is one of the best ways to serve the industry.  I have an outline of a third article and depending upon response, I could probably keep this going for a while since like a consultant friend of mine used to say, “One idiot can keep three consultants busy forever.”

Project planning

Ben Franklin’s adage goes, “Failing to plan is planning to fail.”  I have found this profound simple statement to be true time and again.

After being appointed interim CFO in a hospital, I learned that there was a major construction project under way.  The project and the rate at which the hospital was burning money on the project did not make sense to me.  To make a long, complicated story short, no one could produce a feasibility study to support the project’s value proposition or pro-forma analysis to support the project’s underlying  financing.  When no one could produce a sources and uses of funds analysis, I spent a couple of weeks creating my own from scratch.  When I was finished, it was clear that the project was underfunded by over $20 million and the hospital did not have sufficient reserves to cover the shortfall.  When this information was provided to the Board, after they recovered from the shock and horror, they decided to stop the project that would have resulted in a problem with the bonds used to finance the project by drawing reserves below bond covenant minimum requirements triggering a technical default.  The entire organization was oblivious to this looming disaster.

Ole Abe said that, “You should spend twice as much time sharpening your axe as you spend cutting with it.”  The implication of this admonition is obvious to anyone that has ever cut wood with an axe.  Still and yet, executives let distractions and competition for their time lead them to allow ill-conceived initiatives to go forward then they are surprised when the projects blow up on them.  If you want to entertain yourself, pick any executive out at a cocktail party and ask them if they have ever seen a project go bad.  The war stories you will hear are spectacular. Better yet, ask the ‘expert’ if they have ever seen a peer do something stupid.  Apparently, they have not heard or have disregarded the advice of Einstein, “Doing the same thing and expecting a different outcome is the beginning of insanity.”

Project control

Oh boy!  The easy part of a project is the planing and approval.  The hard part is execution.  There are a lot of challenges with project execution.  One is that other unanticipated confounding priorities arise in the organization that bleed capacity from the organization’s leadership to remain focused on a critical project.  Another commonly seen problem with project execution is the loss of key leaders during the course of the project.  All too frequently, critical assumptions underlying the project’s rationalization are proven inaccurate or incomplete once execution begins.  Sometimes, a project’s success is largely dependent upon one person and if that person leaves or is incapacitated, the entire project goes into jeopardy.

To some degree, a project is analogous to a marriage.  In order for it to succeed, more than 100% commitment is required from all sides.  Every effort you make to manage your risk can be thwarted by uncontrollable changes in your business partner(s).  There is no guarantee that the people that sold a deal and made commitments on behalf of your business partner will be around to honor those commitments.  If they made commitments that were not in the contract, they may not be allowed to honor them.  More than once before a project was completed, I have found myself dealing with an entirely different cast of characters.  What about a business partner that gets acquired during implementation and none of the commitments made before the acquisition are honored?  A business failure or overcommitment by a business partner can move into your life like bad in-laws.  This is why business partner selection is so important.  Too often, a decision maker will chose a business partner based on cost alone and in the process buy himself a set of problems that turn out to be exponentially more expensive than the most expensive option that was under consideration at the time the decision was made.

A project does not have to fail to become a disaster.  Delays in a project can be as damaging.  I do not know of a delayed project that resulted in a better outcome.  Sometimes, delays cause cascading problems.  Take a construction project for example where the electrical contractor is contracted to start on a date certain and the project is not far along enough for them to begin work.  This kind of a delay can rapidly spread throughout an organization and create enough problems to overwhelm the ability of the leadership team to address them.  This is the reason you were required to study PERT in school.  How often do you see it applied in practice?

If a mistake is to be made in project management, it should be biased in favor of overcompensation for potential problems.  I am regularly criticized for being too conservative and too hard on pro-forma analysis assumptions. Never the less, time after time I see projected revenues and time lines being overstated and projected expenses understated.

Waiting too long to intervene

I have watched executives demur from engaging an issue in hopes that it would go away.  I have rarely seen this strategy work.  More often than not, a problem in an organization will get worse the longer intervention is delayed.  There are a lot of reasons that this occurs not the least of which is that addressing operational problems most often involves dealing with a personnel problem.  I do not know many executives that enjoy taking on a personnel problem.  Vince Lombardi said, “Hope is not a strategy.”  Failing or refusing to intervene can allow a problem to become exponentially more damaging until it reaches the point that the organization’s financial statements are impacted.  Time and again as an interim, I have been asked, why it was going to take so long and cost so much to address a problem?  I have seen ten or more interim executives committed to address what had been allowed to become a major business problem on more than one occasion.  My answer to this question is always the same.  Cutting costs after an organization finally decides to address a problem only prolongs the time and cost necessary for the mitigation.  All too frequently, organizations create a problem by under-resourcing an area or initiative.  When this leads to a melt-down, the leaders charged with the mitigation are frequently frustrated by the cost and time associated with fixing the resulting mess.  Sometimes, I have to tell them for their future reference that the cost associated with keeping a process or function under control is always a small fraction of the time and resources necessary to straighten it out after it goes catawaumpus.  Every executive I know can relate one or more horror stories to prove this point.  More often than not, the fiasco is related to an I/T implementation where the costs and operational consequences associated with a failed project can exceed the original budgeted cost of the project.

Fire fighters are known for over-commiting resources to a fire.  This strategy is designed to err on the side of having more resource than is needed to address the fire as opposed to running the risk that a growing fire will overwhelm the resources that are available on site.  Once, I asked an interim CEO how it was going relatively early into his engagement in a very troubled large hospital.  His answer that I have never forgotten was, “The platform is on fire.”  A platform is like a ship.  When it catches fire, getting off is rarely an option.  You must fight the fire where it is and failure is not an option.  Remember the USS Forestall?  Skimping on resources when dealing with a problem like this can lead to figurative death in the form of an unplanned career transition.  A business problem is analogous to a fire in the organization.  If you are going to make a mistake addressing a problem, your personal risk will be much lower if you respond aggressively to a problem and err on the side of over-commiting resources until the problem is resolved and the situation stabalized.  The alternative is a potential conflagration.

Non-evidence based decisions

The mantra of UAB’s Doctorate of Administration in Health Sciences program is, “Evidence based practice in Healthcare Administration.”  I have commented before on what appears to be a paradox in healthcare.  On the clinical side, most of what is done is based on evidence gained from objective, peer reviewed research.  The purpose of the research is to yield better outcomes and safer facilities for patient care.  In the administrative suites of too many healthcare organizations, decisions are routinely made based on seat-of-the-pants hunches, historical precedent, little or no analysis, ridiculous assumptions, no assumptions, flawed analysis, systematic ignorance or reckless disregard of applicable evidence and research.  More often than not, harried administrators do not even bother to see if any applicable research is available to help them make better decisions.  In other cases, decisions are made for political expediency or to appease Dr. Huff-and-Puff.  I got into trouble in a Catholic hospital for suggesting the leadership team’s decision making ranged from magic eight ball to Ouija board.  I now keep a magic eight ball on my desk as a reminder to not fall into this trap.  It is funny to have younger people ask me what the magic eight ball is.  They’re not old enough in some cases to have ever heard of the magic eight ball and they are fascinated to see how it works.  It is a wonder some organizations get along as well as they do.

Indecisiveness
I was perusing novelty signs in a gift shop in Indiana when a sign captured my attention.  It said, “Decision making around here is like a squirrel crossing the road.”  Indecisiveness can be dangerous when it is practiced in the front office.  At its least, indecisiveness can lead to project and initiave delays.  At worst, it can wreck not only projects but the credibility of executives with their Boards.  There’s a one liner that says, “The road to failure is littered with run over squirrels.”  In an earlier article I said, “If you are a decision maker, make a decision.”  Not making a decision is making a decision.
As before, I would like to thank Dr. Christy Lemak Professor and Chair of the UAB Department of Health Services Administration for the inspiration or should I say assignment that resulted in this article. I am looking forward to seeing my grade.
Please feel free to contact me to discuss any questions or observations you might have about these blogs or interim executive services in general.  As the only practicing Interim Executive that has done a dissertation on Interim Executive Services in healthcare in the US, I might have an idea or two that might be valuable to you.  I can also help with career transitions or career planning.
The easiest way to keep abreast of this blog is to become a follower.  You will be notified of all updates as they occur.  To become a follower, just click the “Following” link that usually appears as a bubble near the bottom this web page.
There is a comment section at the bottom of each blog page.  Please provide input and feedback that will help me to improve the quality of this work.
This is original work.  This material is copyrighted by me with reproduction prohibited without prior permission.  I note and provide links to supporting documentation for non-original material.
If you would like to discuss any of this content or ask questions, I may be reached at ras2@me.com. I look forward to engaging in productive discussion with anyone that is a practicing interim executive or a decision maker with experience engaging interim executives in healthcare.

Should I pursue professional credentialing?

I need to start this article with a disclaimer.  I am HIGHLY BIASED in favor of professional credentialing.  If this is offensive to you, stop reading this now.  I am fairly well credentialed.  I have a Masters of Business Administration degree and a Doctorate of Science in Healthcare Administration.  I hold Fellowship certifications from both the Healthcare Financial Management Association (HFMA) and the American College of Healthcare Executives (ACHE).  I hold HFMA certifications in Managed Care and Patient Financial Services (PFS).  I am in the first class to be certified by HFMA in managed care and I was the national co-valedictorian in my HFMA PFS exam class.  I served a sentence on HFMA’s Board of Examiners (BOE) including a year as Chairman of the BOE.  The BOE is responsible for HFMA’s professional certification program.  Other than this, I have not done much to improve myself professionally or promote professional certification.

Lest this come across as self aggrandizing, you should know that I had a rough time in high school but ended up being the first in my family to earn a bachelor’s degree and that undergraduate degree was bestowed by The University of Virginia’s McIntire School of Commerce.  One of the highlights of my service to the healthcare profession is my service on HFMA’s BOE.  A number of changes to the HFMA certification process occurred during my service on the Board and as the Chairman of the BOE that I am very proud of.  Changes that were focused on making the certification process more objective and making the preparation process more efficient.

You’re damn right I think credentialing is important.

More than anything else, I think a professional credential makes a statement about you.  I discuss this in my article about getting ahead.  Holding professional credentials makes a statement  that you have shown willingness to go beyond the minimum required by a job to be recognized by your peers in your discipline as being one of the best among them and an example for others seeking career advancement and improvement.

Professional certifications usually require a combination of education, experience and ability to demonstrate mastery of a discipline.  The effort required to obtain a credential is useful in that in the process of achieving the recognition, it is impossible to not learn something or possibly a lot.  This knowledge is helpful in career development and can differentiate you from your peers in a competitive job or search situation.  Among your peers, those with professional certifications are typically held in higher esteem.

For some credentials and some disciplines, certifications are minimum requirements for certain roles.  There was a time when holding an ACHE Fellowship was practically a minimum requirement for becoming a hospital CEO.  That is not as true today because of the shortage of FACHEs and the effects of some head-hunters focused on making their own jobs easier by convincing Boards of Directors that requiring professional certification will unnecessarily restrict the pool of candidates.  My question of a Board making a decision like this is why would they want to expand their net to catch applicants that did not feel that getting certification in their discipline was important?  Ironically in hospitals, these Boards preside over medical staffs that increasingly require Board Certification of their members.  My question is if they support requiring Board Certification of their physicians, why would they intentionally establish a lower threshold for the executives operating the organization?  If the demand was higher for certified leaders, it could result in an remuneration differential and lead to more executives seeking certification.  If I was advising a Board or a hiring executive, I would and have required headhunters to build a very strong case for recommending consideration of a non-certified executive when certified executives are available.

If you are an executive that is interested in career advancement, my advice is that credentialing is one of the first things you should consider.  The type of credentialing you pursue can vary depending upon your current or desired role.  In nursing for example,  a wide variety of credentials are available.  Many nurses carry several credentials.

We have all heard the adage that if something was simple or easy, everyone would have it. This principle certainly applies to credentialing.  Credentialing can be expensive, time consuming and difficult.  Credentials require a combination of minimum education, in-role experience, examinations, service under the tutelage of another certified leader and the like.  Each discipline has a process for determining the requirements for one of their members to be recognized as the best among them.  Some are more rigorous than others.  An argument can be made that the more onerous the process, the higher the value of the credential and the greater the degree to which a credentialed executive is set off from his peers.  In the case of HFMA, the credential is a Fellowship and it is earned by less than 10% of the members.  If you are a HFMA member, start paying attention to the certified status of your peers and look at their career advancement success compared to the 90%+ of uncertified members.  It should not surprise you to discover that the type of people that pursue professional certification are the same type of people that tend to advance their careers faster than others.  Is it the credential?  To a degree, I would argue that the answer is yes.

Please feel free to contact me to discuss any questions or observations you might have about these blogs or interim executive services in general.  As the only practicing Interim Executive that has done a dissertation on Interim Executive Services in healthcare in the US, I might have an idea or two that might be valuable to you.  I can also help with career transitions or career planning.
The easiest way to keep abreast of this blog is to become a follower.  You will be notified of all updates as they occur.  To become a follower, just click the “Following” link that usually appears as a bubble near the bottom this web page.
There is a comment section at the bottom of each blog page.  Please provide input and feedback that will help me to improve the quality of this work.
This is original work.  This material is copyrighted by me with reproduction prohibited without prior permission and attribution.  I note and  provide links to supporting documentation for non-original material.
If you would like to discuss any of this content or ask questions, I may be reached at ras2@me.com. I look forward to engaging in productive discussion with anyone that is a practicing interim executive or a decision maker with experience engaging interim executives in healthcare.

What is a blind reference?

Some people naively think that the only reference checking that is done is with the references given by a candidate or to a head hunter.   Executives recruiting for talent will peruse your CV looking for places where you and they might have common acquaintances.  They will also look for places that some of their friends and professional contacts might have insights.  When these links are found which is most of the time for an experienced recruiter or hiring executive, you are about to become the victim of a blind reference.

A ‘blind reference’ is an investigation into your past by a hiring executive that you know nothing about.

I do not put a lot of faith in  references provided by a candidate although I have had candidates give me references that were not very complimentary of them.  If you are going to give a reference, at least have an idea about what they are likely to say about you.  No one that has any sense is going to intentionally give a bad reference on a candidate to a stranger.  I also disregard reference letters.  No one is going to write a letter that states the candidate is bad.  On occasion, I will write a reference letter for someone as a personal favor but I aways counsel them that reference letters in my opinion are a total waste of time.  The only time I pay any attention to a reference letter is if I know the author.

Because of political correctness and the cold legal realities associated with references these days, the best you are going to get from formal references in most cases is that the candidate was hired on one date and departed on another date.  The most you are likely to learn is that the candidate actually did work for the firm you are contacting for the stated period of time.  They will rarely tell you anything more because references are subjective by nature in most cases.  Subjective references that cause a candidate to be ruled out of a search can become a liability for the person that gave the reference.  This is one of the reasons that blind reference checking has grown in my opinion.

If I get a reference call on a candidate being evaluated by someone I do not know, I refer the call to HR where I know what they are going to be told.  Even if the reference call comes from a friend,  I know the candidate and I know them to be bad, usually instead of giving a bad reference, I will usually refer my friend to HR where they will get the standard, canned response.  The hiring manager gets the message.  If a friend encounters me refusing to give a reference, they get the message.

The more frequent call that I get is from a decision maker that is checking references that are not on the candidate’s list.  These are the calls that are dangerous for candidates because they are blind to the candidate; hence a blind reference call.  The candidate will never know in most cases they were vetted through a blind source.  This is one of the many reasons why it is so important to keep up your networking and to not burn bridges unnecessarily.  If you left a place under questionable circumstances, you need to have a good explanatory story and you need to be forthcoming and transparent.  Of course a blind reference is not necessarily a bad thing.  Under the right conditions, it can propel you to the front of the line.  I received a blind reference call on a candidate I happened to be considering at the same time.  I told the blind reference caller that they could dispense with their questions because my reference will be very simple, “If you do not hire her, I will.”  I had worked with this candidate before and she is outstanding.  She was going to end up with a gig regardless of how the reference checking worked out in this case.

When I get a blind call from someone I know and trust, they are going to learn the whole story.  The reason is that I know I can call them to have the favor returned at some point in the future.  If the candidate departed under less than ideal circumstances or told a story that I know to not be true, I will give the reference to HR as stated above.  This usually surprises the decision maker that hoped to get something from me.  The fact that I refuse to provide a reference for someone that the decision maker knows I know well usually tells them enough, especially when I put off multiple requests for help.   About the third time I refuse to provide any information, the recruiting executive gets the message.  If you are going to engage in this activity, you have to be absolutely certain that your confidence will be protected.  This is the main reason that I resist giving references to head hunters unless I know them personally because it is hard to be certain your confidentiality will be protected.

When you are looking for a job, who will the hiring decision maker call?  What will they be told by people you used to work around?  Time after time, I have received blind reference calls.  Often, these calls are about someone that has done little if anything to endear themselves to me or to even keep in touch.  People like this generally do not return calls, ask of an acquaintance while offering nothing of value i.e., they do not engage in networking, they do not accept meetings or referrals, they do not attend or participate in industry related networking or continuing education activities such as ACHE or HFMA.  I wonder what these people expect I am going to say about them?  And of course, all of this is above and beyond anything I might know about their acumen, experience or capabilities.   I would rather not receive these calls in the first place but I do not control who calls me.

I do not know what it is about some people.  In one case, I reached out to an executive that I thought might benefit from my insight about handling executive turnover in his organization.  He humored me then never called me back in spite of the fact that I specifically requested a call regarding a wealth of information that I volunteered.  I never heard from him and I do not expect to hear from him because his failure to take my advice was at least partially responsible for his own firing a couple of months later.  A few weeks ago, I got a blind reference call.  The guy was seeking employment with a consulting firm and I knew the hiring executive very well.  What do you think happened?

This kind of thing does not have to happen to you.  If you are smart, you will get serious about networking and building as many positive relationships as you can.  Many of these relationships come from active participation in associations, alliances and industry peer groups.  You should volunteer your time to give yourself exposure to people that you might need for a job some day and in the process help them develop a positive impression of  you.

There is a saying that there are three kinds of people;  Those that make things happen, those that watch things happen and those that wonder what happened.  You never know when someone is going to make a call to someone that you might not even know; about you – a blind reference.  When that occurs, what will the results of that call be?  If you or someone you know is having difficulty getting a job and their qualifications appear competitive, they may be the victim of blind reference checking which puts them in the category of wondering what happened.

Please feel free to contact me to discuss any questions or observations you might have about these blogs or interim executive services in general.  As the only practicing Interim Executive that has done a dissertation on Interim Executive Services in healthcare in the US, I might have an idea or two that might be valuable to you.  I can also help with career transitions or career planning.

The easiest way to keep abreast of this blog is to become a follower.  You will be notified of all updates as they occur.  To become a follower, just click the “Following” link that usually appears as a bubble near the bottom this web page.

There is a comment section at the bottom of each blog page.  Please provide input and feedback that will help me to improve the quality of this work.

This is original work.  This material is copyrighted by me with reproduction prohibited without prior permission.  I note and  provide links to supporting documentation for non-original material.

If you would like to discuss any of this content or ask questions, I may be reached at ras2@me.com. I look forward to engaging in productive discussion with anyone that is a practicing interim executive or a decision maker with experience engaging interim executives in healthcare.

Where is Mark Richt?

A lot of people do not understand executive succession events.  It is common for a leader to be liked inside and outside the organization.  The performance of the leader is seen differently based upon the perspective of the viewer.  While many may see a leader as ‘nice’ and ‘trying hard’ others see him as ineffective.  In several of my articles, I make reference to the fact that as you progress in leadership, you are evaluated more on the results of what you do than the effort expended in leadership.  Some times, personal or organizational limitations inhibit the potential of a leader to be effective regardless of how hard he tries.  Ultimately, the people responsible for the leader conclude that in order for the organization to reach its perceived potential, a leadership change is necessary.  It is at this point that executive turnover begins and it is almost always followed by collateral turnover as lower level leaders are replaced in an effort to improve the ability of the organization to better meet its challenges or mission.

In Georgia, we have an excellent example of this phenomena.  When someone asks me what happened to someone or how the organization could do something so harsh to such a nice guy, I ask them, “Where is Mark Richt?”  In November of 2015, the University of Georgia announced that Mark Richt was leaving.  Many wonder why.  This gives me an opportunity to launch a Socratic dialog.  My questions usually go something like this:

Would anyone argue with the following premises?

That Mark Richt was not a nice guy?

That he compiled a record at Georgia and in the NCAA that places him among the icons of sport leadership?

That he did not understand the game of football?

That he did not want to win?

That he did not live an exemplary Christian life?

That he intervened in the lives of dozens if not hundreds of young people to set their lives on a better course?

And in spite of all of this, he is gone.  However painful the transition must have been for him, at least it was a homecoming of sorts as he has returned to his alma mater in Florida.

The reason for the transition is that the people responsible for Mark’s employment concluded that the program was not going to reach its expected potential under his leadership.  Those of us familiar with SEC football know that this means that nothing much matters in GA if you cannot beat Alabama and Florida consistently.

People are inclined to blame a lot of things for a situation like this.  Things like recruiting, the players, the coaches, facilities, funding, the play book, play calling and on and on.  Sometimes a coach like a business leader is handicapped by unexpected loss of talent due to behavioral issues like those pointed out in another of my articles, injuries, transfers or other losses.  The reason is irrelevant.  The leader of an organization or part of an organization is accountable for the results achieved or lack thereof and a responsibility that cannot be abdicated rests upon his shoulders.

Sometimes, leadership turnover induced in an organization makes things worse.  We will see as the season progresses if the Georgia team has achieved improvement.  As is the case in situations like this, it may take some time (several seasons) before the final analysis can be done.  As I have said before, if you are a leader, you have to lead; from the front.  You cannot wait for someone to tell you what to do.  In order to be effective, you must take initiative and frequently risk if you wish to keep yourself ‘off the radar.’  This is unless you have reached the limits of your capability and are falling victim to the Peter Principle.  If this is the case, you still have control of your destiny.  You must continue to invest in yourself though study, professional credentialing, post-graduate education or other means of continually re-inventing yourself and maintaining your relevance to a constantly changing and increasingly challenging environment.

The current healthcare environment is difficult to say the least.  As the industry transitions to value based payment, many of the rules and assumptions of the past are crumbling before our eyes.  Individuals and organizations that are capable of adapting and prospering in this rapidly changing environment will do well while many others will fall by the wayside.  Leadership is hard enough in a ‘stable’ environment if there is such a thing.  It is infinitely more difficult in an environment where the organization is striving to improve itself while it reacts to external environmental forces.

What is the outcome of your self assessment?  Are you up to the challenges?  Do you understand the nature of coming heightened demand to make your area better?  If so, are you up to the challenges and opportunities that are being presented?

One of my personal challenges is that I am ever cognizant of the difference between what I believe are my capabilities those of my team of leaders and what I believe the environment is demanding.  I will never be satisfied that we are accomplishing as much as our collective potential should deliver.  As a result, I spend a great deal of time in continuous study and research in an  effort to improve my ability to understand and properly respond to challenges, opportunities and risks that come my way every day.  I feel the burden of leaders reporting to me, the staff of the organization, the patients, the medical staff and the hope of the community that we will ‘get it right’ for them.  I find the exhilaration of this dynamic environment stimulating and I am up to the challenge.  My hope for you is that through these articles and your development of you own capability you will be inspired to emerge as one of the strongest leaders in your organization.

As the healthcare environment continues to become more challenging, organizations and their leadership teams are being shaken out.  This is what is causing a lot of the consolidation we are seeing in the healthcare industry.  Leaders, systems and processes that worked in the past are failing in this tougher environment.  Some of the problem is government induced problems that are difficult if not impossible for community hospitals to overcome.  An example is the cumulative effects of government healthcare policy on rural hospitals that are systematically being forced out of business.  In spite of these handicaps, some organizations do better in a given environment than others.  There is a dearth of leadership in healthcare just like there is in professional sports, business and other endeavors.  One of the causes of the inordinately high turnover in healthcare administration is a continuing effort on the part of hospital Boards and executive leadership to improve the caliber of talent and this effort is one of the reasons that good people are being turned out of organizations at an alarming rate.  One of the few benefits of this activity is that it is creating growing demand for Interim Executive Services.

Please feel free to contact me to discuss any questions or observations you might have about these blogs or interim executive services in general.  As the only practicing Interim Executive that has done a dissertation on Interim Executive Services in healthcare in the US, I might have an idea or two that might be valuable to you.  I can also help with career transitions or career planning.

The easiest way to keep abreast of this blog is to become a follower.  You will be notified of all updates as they occur.  To become a follower, just click the “Following” link that usually appears as a bubble near the bottom this web page.

This is original work.  This material is copyrighted by me with reproduction prohibited without prior permission.  I note and  provide links to supporting documentation for non-original material.

If you would like to discuss any of this content or ask questions, I may be reached at ras2@me.com. I look forward to engaging in productive discussion with anyone that is a practicing interim executive or a decision maker with experience engaging interim executives in healthcare.

What is the value proposition of an Interim Executive?

Interim Executive Services as defined in my ‘About‘ page is not as common in the US as it is in Europe.  On the continent, in order to practice as an interim executive, a person needs to have a certification similar to a CPA in the US.  In the US, it is still the wild west when it comes to interim executives.  A few years back, a private enterprise in NC attempted to establish a credential for interim executives but the effort failed so now it is a buyer beware market.  There are firms providing interim services but in my experience these firms do very little in terms of either training or providing oversight for their interims.  The interims are placed and they are usually on their own from that point.  This raises the question of the value proposition of an interim executive because the proposed pricing is usually higher than the hourly rate for the employee being replaced.

In my experience dealing with buyers of interim services, the first and often most heavily weighed consideration is the cost of the interim resource.  The less sophisticated the decision maker, the more likely that they will be motivated primarily if not exclusively by cost.  This is because they do not get or choose to ignore the value proposition.  This has happened to me time after time.  Each time, I held my ground and demanded a fair premium for my services.  In each case, I told my client that if they did not find value in my services, they could terminate me without cause or notice.  Once they had a chance to experience what a sophisticated interim executive could provide, the cost issue was not raised again.  A decision maker that seizes an opportunity to buy interim services at a small or no premium should be worried about what they will be getting for their money.

I am aware of interim firms that prey on executives in transition that are desperate for income.  Some of these interims will take any job at any price.  The interim firm then sells their services based on price alone and is successful getting a markup of 30% to 50% while providing a price sensitive decision maker just what they paid for.

What would rationalize a premium for a sophisticated interim executive?  There are many considerations that a decision maker should contemplate in addition or in lieu of rate.  I am making repetitive use of the adjective ‘sophisticated’ when referring to interim executives.  There are differences in the sophistication of interim executives and the decision makers that engage them.  These differences are discussed in an earlier article.

The criteria below while useful in understanding the value proposition of a sophisticated interim executive may be equally if not more valuable in evaluating potential interim resources for fit in your organization.

I would advise against hiring the first interim you see unless you have a recommendation from a source that you highly trust.  When I worked with Tatum, they made it a habit to present at least two resources on each project so that the decision maker would have the ability to see more than one alternative and make their own choice instead of letting the interim firm sell them on whoever happened to be currently sitting on their bench with nothing better to be doing at the time.

Experience – One thing worth paying a premium for is experience.  The typical interim executive is a late career individual with a lot of experience, usually in a number of organizations.  The depth and breadth of this experience allows them to assimilate quickly an organization and to begin creating value almost immediately.  This is particularly true if the interim has on-point experience, something you should always look for.

In addition to career experience, it is worth paying a premium for an interim executive with multiple interim engagements on their CV.  The approach to a position as an interim is radically different from what one would take as an employee.  It is worth paying a premium for an experienced interim unless you already have another interim in the organization that can serve as a mentor.

Credentials – In addition to being highly experienced, sophisticated interims tend to carry above average credentials.  Things like advanced degrees, CPA certifications, ACHE, HFMA  and/or fellowships.  These credentials may or may not specifically make one person better than another but the probability that a credentialed executive is going to have a higher level of cognitive capability and an innate drive toward personal excellence is a pretty safe bet.  Another consideration is that no one requires executives to seek advanced education and professional credentialing.  In a situation where everything else is equal, I will always favor a credentialed individual because the very fact that they have obtained a credential is proof of their drive to go beyond the minimum required to get by.  In my experience, credentialed executives are always superior for this reason alone.  As most of us that are credentialed know, you do actually learn something in the credentialing process that might come in handy once in a while.

Expertise – Knowing what you are doing should count for something.  I have seen more than one decision maker hire the first resource they could find that had a heart beat only to make the situation infinitely worse when the interim executive failed.  Most decision makers I have met do not know how to supervise or manage an interim executive.  For example, I would argue that most CEOs do not have the ability to manage a CFO from a technical or risk management standpoint.  I discuss this phenomenon in an earlier article.  The risk for the decision maker is that if the interim fails, the decision maker will usually be held accountable.  The interim will go on to the next gig while the decision maker that may not have been considering relocating finds himself hanging paper from home.

MentorshipSophisticated interims are invaluable in the potential they present to mentor rising executives in an organization.  A sophisticated interim executive that knows how to mentor properly can help turn younger leaders into rising stars.  In addition, interim engagements frequently lead to demand for additional interim resources that were not anticipated at the beginning of an engagement.  In this situation, an interim that has the capability to manage and/or mentor other interims can bring a very high value to an organization.  I have engaged a number of interims while serving as an interim myself.  I can say from experience that I believe I have delivered substantial value by making sure that the other interims were doing what they are supposed to be doing.

Judgment – You have probably heard the one liner that says, “Good judgment comes from the experience we get by exercising bad judgment.”  I would argue that having the ability to bring above average experience and judgment to bear on a problem is worth paying for.  Experienced executives, especially interim executives can be expected to have better judgment than a decision maker might be accustomed to.

Stability – A transition situation is unstable by definition.  My practice has shown me that the only thing you can be certain of in a transitory situation is that you cannot be certain of anything.  Some people have difficulty dealing with unstable, unpredictable situations.  After or arguably before a decision maker initiates a transition, they should be thinking ahead about their next steps and high among them should be an effort to stabilize the situation so that a business interruption or a bad outcome may be avoided.

Morphing deals – Some people need predictability and stability in order to function effectively.  They are unnerved by constantly changing circumstances and seize up.  An experienced interim executive knows that as a project progresses, things will happen and changes will become necessary that were not initially expected.  The project morphs from one set of circumstances to another.  It is worth paying for experience that can not only help stabilize a situation but experience that can adapt to unforeseen challenges.

Easy to sever – I have seen interim engagements fail.  There is no way that I know of  to accurately predict in advance if the interim executive will be what was expected or whether or not they will be effective in your organization.  In the event that the engagement is not working, you should have the ability to have the interim replaced immediately without cause or notice.  I discuss this in my article about contracting.  If the interim deal is not working, it is highly unlikely that it will improve.  I have had to terminate an interim before the end of their second week in an organization.  In the event that something like this occurs, the sooner you act, the less the potential for damage.  The other side of this is that the issue may not be anything worse than a bad fit.  I am happy to be the easiest person in the organization to get rid of but if I am expected to bear this risk, part the premium I receive justifies me taking this risk.

Interim services firms will endeavor to mitigate this risk by asking for minimum engagement time periods.  My advice would be to pay the premium and refuse to accept a minimum term as explained in my contracting article.

Velocity – In my article about contracting, I talk about the importance of velocity as it relates to interim engagements.  Frequently, decision makers procrastinate about making a decision but once they make up their minds, they want the resource TOMORROW.  Providing this kind of flexibility is worth paying a premium for especially if the resource you want has been waiting for you to make a decision.  If you want a resource to sit around waiting for you make a decision and be at you beck and call at any time, you need to be prepared to pay a premium for this luxury.

Rapid acclimation – When I was at Tatum, the firm’s mantra was ‘Velocity.’  The connotation is that the firm focused on rapid response.  What I have learned from the stages of an interim engagement is that once a decision maker decides to bring an interim executive in, they want them tomorrow.  Part of the premium a decision maker pays is to get  an interim executive  to get to their site quickly,   Sophisticated interim executives also know how to assess a situation quickly.  This skill and experience allows them to become productive much faster than would be expected of an employee.  Decision makers tend to vacillate and procrastinate about a decision to bring in interim resources.  They should not be unhappy about paying a premium for a resource that can help them compensate for the time it took to get the interim on their site.

No benefits – An interim deal is simple from the perspective that it usually only involves the professional fee and out of pocket expenses.  Unsophisticated decision makers will compare the salary rate of the departed employee with the billing rate of the interim and conclude that the interim is expensive without taking into consideration that the employee had benefit cost somewhere in the range of 25% of their compensation.  Not having an interim executive on the organization’s benefit plan is clean and can be a cost saving aspect of the engagement.

Living and travel burden – If you don’t think an interim executive deserves a premium, try living in a hotel and traveling every week.  Not only does this create an expense that substantially adds to the cost of an interim engagement, it is very hard on the interim executive.  The longer the engagement lasts, the harder this becomes on the interim.  It is too easy for decision makers to forget the interim executive as they are going home a warm meal and the privilege of going to bed with their spouse while the interim is separated from their family, eating out and going to sleep in a cold bed.  This aspect of interim executive consulting by itself warrants a premium.  I accept that the burden of travel goes with Interim work but I wonder if the price my family and marriage have paid for me to do this work has been worth any amount of money.  I have lost my sensitively about what I ask for my services primarily be causes of the burden that the interim lifestyle places on the consultant.  I discuss this in detail in my article about becoming a an interim executive.

While I could take the position that it is not a problem of mine, I deeply resent the cost associated with being an interim executive.  Travel, food, temporary lodging and other costs associated with an interim executive is a significant proportion of the total cost of an interim resource.  It drives me crazy to pay these costs or incur them on behalf of a client.  This is one of the strongest reasons for making sure that you are getting your money’s worth from any interim you engage.

Hired independently or via a firm – My experience is showing me that there is a growing population of ‘free agent’ interim executives.  Firms that place interims will take somewhere in the range of 30% – 50% of the total professional fee for their overhead and profit.  In addition, because of what I would describe as oppressive government overreach, most if not all firms now require their interims to work on a W-2 instead of a 1099 or K-1.  This can result in the interim losing tax benefit in the best case and paying tax on out-of-pocket expenses in the worst case.  While free agent interims can be harder to find because you have to know how to network to find them, they can be less expensive because they are not taking a hair cut in a direct deal.  In my experience, a free-lance interim is likely to be much better than interims that come from firms for a variety of reasons that are beyond the scope of this article.

Summary – I could go on but I trust that as a decision maker or an interim for that matter, you can see that there is plenty of justification for a premium for interim executive services.  The premiums I have seen run 50% or more over the base salary of the executive being replaced.  If you are a decision maker, you should not be afraid of paying a premium to get superior skills and resources brought to bear quickly on complex or dangerous business problems and or transitions.  Quibbling over rate can slow down the process of getting the right resource and can prevent you from getting the best possible skill in place.  One of the most profound value propositions of an interim executive is their ability to raise the probability that the decision maker that hired them will not also become a victim of the transitions that created the need for the interim in the first place.  In my experience, decision makers routinely discount this aspect of an interim engagement’s value that is in  my opinion one of the strongest reasons for paying a premium for the right interim.

If you are an interim executive, you should not ever sell yourself short.  I took a haircut on a deal that was only supposed to last 3 months to mitigate on behalf of the firm something that I had nothing to do with.  After three months, the firm would not get my rate corrected and the engagement ended up lasting thirteen months.  I will not work with that firm again because they have demonstrated in more than one case involving me that they cannot be trusted.  As an aside, from my perspective in this case, the firm detracted significantly from its value to me while adding insignificantly to the client’s value.  If you have experience as an interim, you know that one certainty is that you are probably going into a situation that will turn out to be significantly different from what was described and invariably more challenging.  You also know that there is a very high probability that you are going to be in the organization much longer than the decision maker assumes at the onset.  In my  experience once you have proven your value, decision makers will take considerably more time getting you out than they took getting you in.  I have helped decision makers over the cost hump by reminding them that hiring me is a no risk proposition.  They can send me packing the day that they decide that the engagement is not working or that I am failing to produce more value than they expected.  I am happy to take this risk as long as I am being appropriately compensated.  I have yet to be sent packing.  In every case, I have remained much longer than initially expected or planned.  Some interim firms prey on unsophisticated executives in transition by buying them at or below what they were receiving as an employee and reselling them at a market consulting rate.  If you allow yourself to be prostituted in this manner it is your own fault.

In closing, I believe there is substantial justification for paying a premium for interim executive services.  I postulate that the time usually lost by decision makers that struggle with the decision to bring an interim in can quickly create costs and/or losses that far exceed any premium.  As I said in an earlier article, if you are a decision maker, make a decision.

Please feel free to contact me to discuss any questions or observations you might have about these blogs or interim executive services in general.  As the only practicing Interim Executive that has done a dissertation on Interim Executive Services in healthcare in the US, I might have an idea or two that might be valuable to you.  I can also help with career transitions or career planning.

The easiest way to keep abreast of this blog is to become a follower.  You will be notified of all updates as they occur.  To become a follower, just click the “Following” link that usually appears as a bubble near the bottom this web page.

This is original work.  This material is copyrighted by me with reproduction prohibited without prior permission.  I note and  provide links to supporting documentation for non-original material.

If you would like to discuss any of this content or ask questions, I may be reached at ras2@me.com. I look forward to engaging in productive discussion with anyone that is a practicing interim executive or a decision maker with experience engaging interim executives in healthcare.

 

 

CFO Radio Interview

On October 17, 2011,  I was interviewed by Lorraine Chilvers on CFO Radio on the topic of Interim Executive Services.  The interview that lasted around 45 minutes is proceeded by some industry news.  During the course of the interview, I am asked about a variety of aspects of Interim Executive Services.  Since Lorraine has insight into the Interim Executive Consulting business, her questions were deeply probing and she did a very good job of engaging me on many of the more important aspects of Interim Engagements and the Interim Executive lifestyle.

Lorraine and I previously served together at Tatum.  Eventually, we went our separate ways.  I went on with my Interim Executive Services career and Lorraine went on to found Delaney Consulting and CFO Radio.

At the time of the interview, I was serving as the Interim Chief Financial Officer of The Central Florida Health Alliance serving Leesburg and The Villages in central Florida.  I recently listened to the interview again and it struck me that the material in the interview is just as current now as it was then.

The interview may be found here.

Are you a CEO? Have you been caught looking? Do you know anyone that has been caught looking?

I recently took part in reminisces of some of the organizations that some of my friends and I have served or known about.  One of the more common reasons for CEO turnover is an unexpected accounting adjustment.  Eight figure adjustments that go the wrong way are too common and there are few things that will get a CEO fired faster than his board learning that they are going to have to absorb a $50+ million loss that occurred on the CEO’s watch.  Like it or not, the CEO will be held accountable for hiring or retaining a CFO that could not produce accurate and timely financial reports.  He is expected to have a sufficient grasp of what the CFO is doing to control their work.

A common cause of this type of an adjustment is overstatement of the value of accounts receivable or stated another way, understatement of contractual allowances.  These understatements lead to interim income statements being overstated in terms of operating margin.  How does this happen?  Sometimes the CFO does not fully understand what he is doing, his models fail or he becomes confused by changes he cannot explain.  In other instances, CFOs are under withering pressure to produce results to meet expectations of a financial plan, corporate organization or worst of all, incentive compensation targets.

In my experience, few CEOs appreciate the degree of potential error in net revenue estimates or the degree to which their CFO may be exercising judgment in the determination of the appropriate valuation of accounts receivable.  Unless there is absolute transparency and crystal clear communications between the CEO and CFO on these issues, there is a very good chance that the CEO is setting himself up for a very unpleasant surprise.

Given this risk, what is a CEO to do?  How does the CEO manage and mitigate this risk?  How can he know his balance sheet is properly stated?

Without going into vexing detail about how all of these calculations are done, there are a few high level indicators that every CEO should be watching as indicators that things are not as they appear.  First, the CEO should review and understand every adjusting entry made by the outside auditors during the external audit.  Each of these entries represents either the correction of an error found by the auditors or a difference of opinion between the auditor and the CFO as to how a transaction should be recorded.  In a perfect world, there would be no audit adjustments and they are sometimes symptomatic of problems in your finance department.  If you have experienced adjustments, your focus should be to see that they are eliminated.  If your finance team cannot get this done, you have a problem that will probably not improve on its own.  These errors are also symptoms of the fact that your interim financial statements were not correct.  The magnitude of the adjustments or the difference between the last interim statement and the audit indicates the lack of precision of your finance team.

The CEO should also be cognizant of the contents of the management letter.  The management letter addressees internal control matters.  Again, in a perfect world, there would be no comments.  I have seen organizations that did not even get a management letter which is almost as bad.

Another thing the CEO should be doing is meeting privately with the audit partner.  There is no one that is in a better position to evaluate the efficacy of an organization’s accounting and finance functions.  My point here is not to address the audit process but to help a CEO avoid being blind sided by a large, unexpected adjustment.

Time and again, I have seen CEOs taken totally by surprise when their auditors recommend large, unfavorable adjustments to the value of receivables, revenues and profits.  All of these items are directly linked.  Time and again, the CEO that likely had no idea what was going on in his finance department is one of the first victims of the transitions these events precipitate.  The point of this article is to explain this linkage and give a CEO a couple of VERY POWERFUL tools to identify a potential problem.

Each month, your accounting department revalues receivables and in this process recomputes the reserves needed to reduce receivables to their realizable amount.  While these calculations can be very complex, the idea behind them is simple and compelling.  The other side of the adjustment to the value of receivables is the contractual allowance on the income statement.  The contractual allowance is what reduces gross revenue to net revenue.  If the contractual is too small, net revenue is inflated which leads to an inflation of operating income.  If the contractual is too large, net revenue and operating income are unnecessarily reduced.  Unfortunately, most errors go the other (wrong) way.  Note that I am including bad debt expense in this discussion as it too is a deduction from revenue (contractual) that reduces self pay receivables to their realizable amount.

How on earth can a CEO know if all of this is right?  The answer is extremely simple.  The CEO needs to look at only two indicators.  The first is the ratio of cash collections related to patient services to net revenue.  Net patient service revenue (NPSR) is nothing more complicated than an estimate of how much of the gross revenue will ultimately be collected.  If the NPSR estimate is correct, it will be proven over time by cash collections related to that patient revenue.  In other words, if your cash collections related to patients is less than your NPSR, you have a potential problem brewing.  In every situation where I became engaged in an organization that had just experienced a large adjustment to receivables, the cash to NPSR statistic was well below 100%.

A lot of people fail to grasp the magnitude of money involved in these estimates.  One organization I served was running a cash to NPSR ratio of 93% just before it experienced a write-down in receivables of over $60 million.  Consider a medium sized hospital with $1 billion of gross revenue.  Every percentage point of $1 billion is $10 million per year.  Be understated by 7% as was the case in the example I cited and you are looking down the barrel of a $70 million accounting adjustment that will reduce (or maybe obliterate is a better word) your operating margin for years and set you on a new, unplanned career path.  If anyone had been looking at this statistic, this tragedy may have been averted.  In the cited case, both the CEO and CFO along with a few others were ‘freed up to seek other opportunities.’

Changes in the magnitude of receivables (AR Days) can affect this statistic but if the cash is much below 97.5%, you had better start getting an explanation of the cause.  Why do I say 97.5%?  To account for normal variation, it is not unusual to see this statistic vary across a 5% (+/- 2 1/2%) range.  When it gets outside of that corridor, the CEO had better be pressing for answers.  He cannot say he was surprised by a proposed adjustment if his cash to NPSR ratio was low. He (and his CFO for that matter) should have seen it coming.

The second key indicator is yield on gross revenue.  What is NPSR as a percentage of Gross Patient Revenue?  The nominal value is not particularly  important as it varies widely by organization and by region of the country.  The explanation of this phenomena is beyond the scope of this article.  If the organization raises its prices and nothing else happens, yield will decrease because all payors do not participate equally in a price increase.  For example, an organization does not realize much of a price increase charged to Medicaid and/or self pay patients.   If the yield is going up, there are two primary reasons.  The first is that revenue cycle performance is improving significantly and if this is the (rare) case, good for you. This improvement should be validated by a decrease in gross and net A/R days. The second reason for increasing yield is that the contractual allowances discussed above are inadequate and you have increasing risk of an unfavorable adjustment in your future.  As I stated earlier, the nominal value of the yield statistic is not as important as its change over time.  A change in yield can be reconciled to the dollar by someone that knows what they are doing.  If the statistic is not decreasing slowly over time, you should be asking for explanations or seeking help from independent advisors to help you understand what is happening if you do not like the explanations you are getting.

A lot of the financial pressure on hospitals has a root in yield that is declining faster than gross revenue is increasing but that is the topic for another article. 

I would be the first to agree that it is unfair to see a CEO get whacked for a problem like this developing on his watch.  Unfortunately, I have seen this happen time after time as one unsuspecting CEO after another became a victim to judgment or accounting errors in their finance department.  I had Board members in a hospital that had relieved the entire leadership team at one time express remorse for knowing something was wrong but not knowing what questions to ask.  A savvy CEO will know what indicators to watch to give himself the best possible chance of not being caught looking.

Please feel free to contact me to discuss any questions or observations you might have about these blogs or interim executive services in general.  As the only practicing Interim Executive that has done a dissertation on Interim Executive Services in healthcare in the US, I might have an idea or two you would find value in.  I can also help with career transitions or career planning.
The easiest way to keep abreast of this blog is to become a follower.  You will be notified of all updates as they occur.  To become a follower, just click the “Following” link in the menu bar at the top of this web page.
This is original work.  This material is copyrighted by me with reproduction prohibited without prior permission.  I note and  provide links to supporting documentation for non-original material.

If you would like to discuss any of this content or ask questions, I may be reached at ras2@me.com. I look forward to engaging in productive discussion with anyone that is a practicing interim executive or a decision maker with experience engaging interim executives in healthcare.

Why do CEOs get fired or leave organizations anyway?

In my previous post, I made reference to comments written by ‘TiredofTheOverpaidFailures’ in response to a Becker Review article.

Among other things, this writer said, “As a healthcare staffer for 35 years from entry-level employee to Director, I’ve literally never seen any CFO or CEO leave our organizations for any reason other than to “spend more time with my family”.  It’s true, because in every case they collected an inflated golden parachute for the next 2-3 years and indeed manage to take off time to spend with their family or most of the time do part-time consulting at some other organization where they have no idea the horrific failure they were in the previous position. For that matter, what shape they left the organization in.  They usually consider them “the expert” because they are from somewhere else.”

Clearly, he or she  was very bitter about what they had observed in the front office of their organization over a long period of time.

It is true that some of the folks occupying C-suite offices are not that stellar but more often than not, when they leave it is rarely because they are an idiot.  The system does a pretty good job of weeding out idiots before they can reach positions of such power and influence although I have seen a number of suspects among the casts of characters I have dealt with in healthcare administration.  So if the CEO is not an idiot, why let him go?  I will discuss a variety of situations that I have seen that I believe explain in part why CEO turnover in healthcare is so high.

I frequently hear complaints about what a Board is and is not doing with respect to the organization and the CEO.  A healthcare organization is not much different from a professional sports team.  The Board is the owner and the CEO is the coach.  In the end, like a sports team, the Board only has one switch or lever to use to guide the organization; hire the coach or fire the coach.  As long as the Board has not decided to fire the coach (CEO), by default they are supporting or at least tolerating him.  He is still their guy until the notice is delivered which can happen on the same date that an incentive award is given.  If you do not like what you see the CEO doing, it is not necessarily his fault.  Look to the Board for responsibility for the actions and results of their CEO.

The CEO is taking the organization in the wrong direction.  This does not mean that the direction is actually wrong.  Usually, it is very different from the predecessor’s course of action.  Sometimes, a new CEO will read that the reason for his predecessor’s failure was that he had the organization on the wrong track and the new CEO over compensates and sure enough, in two years or less, the Board concludes the new guy is on the wrong track.  This bad outcome is the fault of the Board.  Strategy and organizational direction is NOT the responsibility of the CEO.  It is the responsibility of the Board.  The CEO can facilitate the process but it should be a Board initiative so that the guidance to the CEO is clear and that the strategy transcends different CEOs should turnover occur.  In fact, a smart Board will insure that a candidate CEO concurs with their strategy BEFORE he is hired.

The leadership of the medical staff comes into the Board room.  I have counseled many CEOs on this phenomena that I believe to be one of the most common reasons for CEO turnover.  Name one case where the leadership of the medical staff went into the Board room and said “The boy is done,” and the Board fired the medial staff.  IT DOES NOT HAPPEN.  Every CEO lives in fear of this phenomena and he has seen many of his peers fall to this situation.  Therefore, CEOs are always constrained in what they can accomplish in the organization because if they push the medical staff too far, even if it is for the right reason, they are done when the vote of no confidence comes.  The CEO typically is hired from out-of-town and relocated to the hospital.  The Board rationalizes that the CEO can find another job elsewhere while doctors are ‘rooted’ in the community.  Whether this logic holds or not, the end result is the same in every case.  If anyone is aware of any case of a Board firing the medical staff and keeping their CEO, I would like to know about it.

A major project fails.  Even projects conceived or started before a CEO’s run starts can fell him.  Major construction projects or I/T projects that are not on time, not on budget or fail to come up flying on both wings represent major risks to a sitting CEO. The CEO does not do the project but he will be held accountable by the Board for failing to put the correct staff, resources and controls in place to ensure that the project is successful and to prevent a medical staff revolt if the medical staff is impacted by the project.

The results are just not there.  A financial plan or a strategic plan should be the result of a process or negotiation undertaken between the Board of Directors, their CEO and his management team.  The plan outlines the intended course of the organization over the coming period.  Once the plan(s) are approved, it is the responsibility of the CEO to execute the plan and deliver the results.  Frequently, the CEO is constrained by limitations of his team and in order to accomplish the organization’s objectives, the team has to be changed.  Sometimes different skill sets or different levels of capability are required than what is present on the incumbent team.  If the CEO fails to deliver the agreed results, the Board is justified in considering removing him for failure to execute.  If the failure is due to weakness of the management team, the CEO still owns the problem.  This is what provokes a lot of the collateral turnover discussed in a previous blog.

Speaking of results, a common error of new CEOs is their failure to get an independent, objective assessment of the organization or conduct their own upon arrival.  A Board tends to be more tolerant of issues that are documented and associated with the prior regime.  A CEO that fails to deliver a thorough assessment to the Board in the earliest part of their run in an organization will discover that after a few months, they will ‘own’ all of the problems in the organization whether they created them or not.  Documenting the initial state of the organization is a good way to establish a base line and clearly delineate what existed at the inception of the CEO’s employment.  An assessment is also a good way to facilitate and support requests for incremental resources to quickly address initial problems.

An Illness or accident interferes with the CEO’s ability to execute.  Sometimes, a CEO is beset by an uncontrollable illness that renders them incapable of continuing their duties.  Boards do not do as good a job of succession planning as they should and when something like this happens, the organization is thrust into an unexpected transition situation.  Sometimes an interim whether internal or external can bridge the gap but if the CEO is permanently disabled, a transition becomes inevitable.  WellStar Health System in Atlanta suffered such an incident in a widely publicized accident when their CEO was riding a motorcycle that he bought at a charity event was struck by an automobile and killed.

Indiscretion.  Don’t ask me why indiscretions occur.  Clearly they arise from CEOs that fail heed the adage of keeping their pen out of the company inkwell.  I know of a case where a CEO fornicated with a physician in a hospital stairwell under the watchful eye of a security camera.  The physician was impregnated and the resulting scandal thrust the organization into an unplanned transition.  A CEO’s position in an organization is very powerful and they have a lot of groupies.  Some of them allow it to go to their head and before they know it, they are felled by their own ego,.

Illegal activity.  The same is true of illegal activity.  Why an otherwise intelligent person with a living standard well above average would engage in illegal activity is one definition of insanity.  This behavior is a living example of Lord Acton’s adage that power tends to corrupt; absolute power corrupts absolutely.  Illegal activity within an organization frequently involves collusion and the fallout can result in collateral turnover and losses of time and resources while the organization is forced to focus on remediation of the crime and the resulting transitions.  A GA hospital CEO ended up in prison following convictions related to government programs.

Fit.  Sometimes, there is a fit problem that was not detected during the interviewing and vetting process.  This lack of fit could be based on personality, skill set or interaction/management style.  Whatever the reason, the hire was a mistake and it will not end well.  Sometimes, family fit is discounted and the CEO’s engagement ends up failing because the family did not relocate or did not tolerate the relocation.

Culture.  A friend quoting his Italian mother liked to say, “The fish stinks from the head.”  Indeed, the culture of an organization emanates from the office of the CEO and the Board room.  The longer a CEO’s predecessor has been in place, the more deeply ingrained the culture he will inherit.  The harder or faster he pushes to implement cultural change, the greater  the risk that he will be come a victim of his efforts.  Organizations resist cultural change and pushing too hard or too fast has more than once resulted in a CEO leaving an organization sooner than he planned.  This is true even if the CEO is acting at the DIRECTION of the Board.  I know of a case where a Board ordered a CEO to take a course of action that resulted in a serious conflict with the medial staff.  The Board had decreed that, “this will not stand.”  Never the less, when the leadership of the Medical staff showed up in the Board room, the CEO was done.  The Board had such remorse that they prepaid over five years of severance but the CEO still left the organization.  By the way, the first successor did not last very long either.

The CEO decides to move on.  It would be nice if organizations created an environment where career advancement transitions could be more open and managed in such a way as to create less turmoil as a result of the transition but this is frequently not the case.  Usually, the first notice a Board has of this situation is when their CEO announces his resignation and thirty-day notice.

Retirement.  Sometimes, the CEO survives until retirement.  If the retirement is handled properly, an orderly succession takes place.  If not, even a retirement can lead to a difficult transition.

The main point of this discussion is to lay groundwork to address the question referenced in my previous blog about the wisdom of severance packages and why I think they are generally the right thing for an organization to do.  My goal in this blog is to illustrate how risky it actually is to be a CEO.  There are a lot of things, many of which are out of the control of a CEO that can lead to CEO turnover.  Part of the reason for a severance agreement is to mitigate risk on both sides of an executive employment deal.  While much of the discussion here has focused on the CEO, the same principles apply to every C-Suite executive generally defined in each organization as the executives reporting directly to the CEO.

Please feel free to contact me to discuss any questions or observations you might have about these blogs or interim executive services in general.  As the only practicing Interim Executive that has done a dissertation on Interim Executive Services in healthcare in the US, I might have an idea or two you would find value in.  I can also help with career transitions or career planning.

If you would like to discuss any of this content or ask questions, I may be reached at ras2@me.com. I look forward to engaging in productive discussion with anyone that is a practicing interim executive or a decision maker with experience engaging interim executives in healthcare.

What happens following CEO turnover

On 18 December 2014, an article written by Tamara Rosin was published by Becker’s Review about CEO turnover.  You can see the article here:  beckershospitalreview.com/hospit…

There is excellent discussion following this article about the sorry quality of some of the people in healthcare leadership positions and allegations of questionable practices related to severance agreements.  There are plenty of situations where severance packages are a very good idea and I generally recommend them.  I will address this topic in a future blog.

There is also debate regarding the statistical validity of Ms. Rosin’s analysis.  Setting all of that aside, one fact is clear; there is a LOT OF CEO turnover in healthcare.  This is not the first time I am aware of  Challenger, Gray & Christmas  (CGC) publishing information about Healthcare turnover.  Writing for FierceHealthare News on 28 FEB 2012 Karen Cheung-Larivee cited CGC while asserting that healthcare turnover was the highest of all industries.  Healthcare CEO turnover higher than other industries – FierceHealthcare

To me the salient question is not so much about what industry has the greatest degree of turnover but what happens within an organization when leadership turnover occurs?  The answer according to research conducted by Amir Khaliq Perceptions of Hosptial CEOs About the effects of CEO turnover is that the rest of the C-Suite would be well advised to start hanging paper.

Dr. Khaliq’s research demonstrated higher rates of turnover among all of the rest of the C-Suite following CEO turnover than the CEO turnover rate itself.  The only exception was the CIO.  The rates of turnover were calculated based upon the probability that the incumbent executive would still be in the organization a year following CEO turnover.

Title of Position turning over Probability
AVP, Assistant Administrator 77%
CMO 77%
COO 52%
CFO 42%
CHRO 37%
CNO 26%
CIO 14%

From a career planning standpoint, the moral of this story is that you probably have a lot less control of your future than you believe.  In fact, the probability that you might be leaving the organization during a regime change has a lot less to do with the length and quality of your service than it does with the prerogative of a new CEO to select his own team; a situation that seems to be occurring a lot more than is publicized.  I have generally found this phenomena to be true among my friends and acquaintances.  Think back a little.  What is your observation of what has happened in organizations you are familiar with when the CEO goes?

It is a sad but clearly well proven fact that the closer you get to the front office of an organization, the more your future livelihood depends upon what happens to the CEO than your contribution(s) to the organization.  Moreover, the new CEO is going to be oblivious to your ‘value’ to the organization, perceived or otherwise.  Their self-centered objective will be to assemble what they believe will be a winning team as fast as possible.  They know their own life expectancy as a CEO is generally three years or less and the faster they move to get what they believe will be a higher performing team in place, they better.  This reinforces that old adage that no one will ever take as good care of you as you will of yourself.

Higher ranking executives in healthcare organizations should be prepared for disruption, career transition and relocation.  This is one of the ways they can actually end up advancing their career.  The learning from all of this is to not get enamored with your current organization.  All you have to do is to look around and see how the organization has treated executives forced into transition before to see how you can expect to be treated.  There is no evidence to suggest otherwise unless it is codified in an employment (severance) agreement.  Your best course of action is to never stop personal and professional development to maintain as many options as possible on an ongoing basis and to ease your transition when it occurs.

Please feel free to contact me to discuss any questions or observations you might have about these blogs or interim executive services in general.  As the only practicing Interim Executive that has done a dissertation on Interim Executive Services in healthcare in the US, I might have an idea or two you would find value in.  I can also help with career transitions or career planning.

If you would like to discuss any of this content or ask questions, I may be reached at ras2@me.com. I look forward to engaging in productive discussion with anyone that is a practicing interim executive or a decision maker with experience engaging interim executives in healthcare.