Tag Archives: job

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.

Examples of what not to do – simple mistakes you have seen that others could avoid.  AKA – How many ways can you get yourself into trouble?

One of the items of constructive feedback I have received is that some of my articles are too long.  The subject of this article resulted in an article over 2,000 words long.  I have reminisced with friends in the consulting business that have suggested that we collaborate on a book on this topic based on the experiences we have had.  As a result, this article will be posted in multiple editions.

A very highly regarded friend of mine recommended that I address mistakes that might be beneficial to others.  Nasreddin said something to the effect that, ‘good judgment comes from the experience we get from exercising bad judgment.’  Given the benefit of this insight, I will address some of the things that I have seen as the cause of extreme angst in one healthcare organization after another.  An exhaustive listing is beyond the scope of any article.  However, I welcome tips and stories from my readers addressing vivid memories of things that would be beneficial for others to know, especially those that do not have the experience of some of us.

Blind trust of systems

This is one of the most basic managerial errors and it is seen over and over.  People ‘assume’ that a system will or will not do something without proving the assumption only to be surprised when their blind faith is proven wrong in a spectacular faux-pas.  Rather than assuming that people understand the meaning of the word ‘assume’, I will define it by dissection.  All to often, people engage in assumptions leading to flawed decisions that make an ASS/out of U/and ME.  I wish I could remember how many times I have witnessed flawed assumptions wreaking havoc around me.  Sometimes, these errors result in terminations of the people involved.  Mark Twain and Ronald Regan said that, “It is not what you know that will get you, it is what you are absolutely certain of that is just not right.”

Once upon a time when I had reason to doubt the controls in the hospital’s accounts payable system right after a new state of the art, super whiz-bang accounting application had been implemented, I was assured by my Controller that there were safeguards in the system that he said would guarantee that there was no scenario under which an automated check for more than $25,000 could be produced and signed with my facsimile.  I had set this limit to insure that I had the chance to personally review large disbursements and sign them manually.  About a week later, it came to my attention that instead of keying a construction draw request of less than $25K, the A/P clerk keyed the remaining balance of over $275K to a contractor that the hospital was engaged in an active dispute with.  What do you think happened when this transaction went through the system without interruption and out to the contractor?  If you ass/u/me that he brought the check back, you would be sorely mistaken.  I am sure others can provide similar nightmare stories.

There are thousands of ways to be trapped by our own systems. The more complex the systems, the greater the number of interfaces with other systems and the higher the volume of transactions, the greater the potential for error and the larger the error will have to become before it is discovered by normal control and balancing processes.

Hiring mistakes

Another HUGE area of learning in the school of hard knocks is hiring decisions.  Jack Welsh said something to the effect of, “Getting the right people into the right jobs is a lot more important than developing a strategy.”  As an interim executive I have observed that one of the more common areas that gets organizations into trouble is hiring decisions that result in people being put into roles where they cannot succeed.  Some organizations and hiring decision makers are highly motivated to put the next person in line into a role whether they are qualified or not.  I have been criticized for bringing people from outside of town into the organization to fill crucial roles.  My response is that if  properly qualified local applicants were available, I would hire locally to save travel money if for no other reason.  I have counseled Boards and written on the subject of organizational performance being nothing more complicated than the collective caliber of the team on the field.  One of my mentors taught me by example the potential and value of getting the right people into the right places in an organization and the difference they can make.

Getting the right people is as important if not more important than avoiding hiring the wrong people by making mistakes in the vetting process.

AR valuation

I have seen so many executives brought down by incorrect valuations of their accounts receivable that I have lost count.  So many in fact, that I was inspired to address one of my blog articles to CEOs that all too often become one of the first victims of this error.  The article asks the question, ‘have you been caught looking?’  One of the biggest risks on a hospital’s financial statements is the valuation of revenue and accounts receivable and for every understatement, there are multiples of over-statements of receivable and revenue value.  In fact, I have not seen an undervaluation recorded although I have been in arguments with outside auditors about under and over valuations of revenue and A/R.  It is a lot easier to convince an audit partner to not book an undervaluation than it is an over valuation.   The executive that wishes to avoid becoming a victim of this trap needs to take the advice of my article on the topic to heart.

AR reclassifications

A reclassification of AR is potentially more dangerous and harder to catch than a simple error in calculating realizable value.  For example, consider an organization that holds self pay balances after insurance in the same bucket as the insurance.  This is considerably more common than many managers appreciate.  Suppose a commercial receivable is valued at 70% of the underlying charges and self pay receivables are valued at 5%.  When an amount like $5 million is reclassified from insurance to self pay to clean up a backlog after the insurance balances have been satisfied, the adjustment to the value of receivables will be 65% (70% – 5%) or $3.25 million.  There are other reasons for balances to accumulate in the wrong buckets on the receivable system leading to reclassification adjustments.  The receivables are not wrong, they are just valued incorrectly.  This kind of error is enough to knock an enormous dent into or potentially wipe out the operating income of any enterprise.  There are rarely adequate cushions or reserves in realizable value calculations to absorb a shock like this.

Summary

As can be seen, a text-book could easily be written on the topic of what not to do.  There are plenty of texts that are written on what to do, they are just all too regularly ignored.  Some leaders seem to not have the ability to connect academic learning and practice. These are but a few examples of things that I have seen go wrong in healthcare organization’s business operations.  This discussion is a good example of the value of experience.  Experienced executives operating on evidence based practice have a far better potential to avoid these pitfalls and others.  Sometimes the value of an executive in an organization is more related to what they know than what they do.  Once a patient in an outage accosted a surgeon  over his fee.  The patient took the position that the fee bore no relationship to the time spent on the procedure.  The surgeon replied that 5% of his fee was for the cutting and the other 95% was for knowing where to cut and what not to cut.

My plan is to publish another article on this topic with more examples of what not to do. If you have any stories to contribute, I would love to hear them.

I would like to thank Dr. Christy Lemak, Dean of the Health Administration program at the University of Alabama at Birmingham for inspiring 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.

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.

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.

The stages of an interim executive engagement

I have come to realize in my practice that an interim engagement follows a predictable pattern.  I have seen this happen time and again.  I understand the process that a decision maker goes through during the course of an interim engagement.  A majority of decision makers dealing with transitional situations have little or no experience with interim executives.  I asked about this as a part of my dissertation research.  A small proportion of my respondents (35.7%) reported having experience engaging and managing interim executives.  Another 33.6% of my respondents said they were knowledgeable about interim executive services but had not engaged an interim executive.  Similar to Elisabeth Kübler-Ross‘ five stages of grief, I have observed one organization after another going through a similar process during an executive transition.  The primary difference between organizations and decision makers is their exit point from this process. Some never get around to making a decision or decide to avoid the use of an interim.  In order of their occurrence, here are the stages of an interim engagement that I have experienced.

We do not need an interim – When faced with a transition situation, organizations employ a variety of strategies.  Some use internal resources, some leave the position open and others resort to consultants.  In a future blog, I will address the difference between an interim executive and a consultant.  Organizations will frequently initially resist the fees associated with engaging an interim executive.  They will search for any possible alternative to engaging the interim.  They will spend weeks or months struggling with the interim decision.  I have seen the passage of over six months between the time first contact was made with a decision maker regarding an interim position and the time the engagement actually started.

Acceptance of an interim – All too often, once the decision is made to employ an interim, the client wants the interim TOMORROW!.  Generally, the client communicates their desire to accelerate the interim engagement as a means of managing the cost of the interim engagement.  Sometimes, too much time passes between the time the decision maker meets an acceptable interim and the time they make a decision.  Then they are frustrated when they call to find that the interim they wanted is now engaged.  I once had a potential client get upset with me for ‘putting pressure’ on them to hire me.  All I had done was to tell them that I was being proposed by the firm I represented on multiple jobs and if they wanted me, they needed to make a decision.  In this case, one of the reasons they wanted me was perceived cultural fit.  They wanted someone that would fit into a rural eastern North Carolina culture and I had been a hospital CFO in that area.  Two weeks later, I received a desperate call.  They wanted to know how fast I could get to their site to address what had become a big problem.  I told them that I was literally on my way to Milwaukee.  I had been engaged a few days earlier by one of the other clients that had seen me.  The potential client that had let me ‘get away’ was not happy.  Ultimately, the firm lost the gig because they did not have any other resources that this client liked and I got to spend the winter in Milwaukee instead of eastern NC.  If you are a decision maker, MAKE A DECISION.

 
Recognition of the value proposition – I start my engagements with an assessment.  The purpose of the assessment is to determine the degree to which the function I am filling is or is not meeting the needs of the organization.  During the assessment, it is common to find a number of significant opportunities for improvement.  My experience has been that when a client sees the difference between the interim and what they had before or when they see the magnitude of opportunity revealed by the assessment, the value proposition ‘clicks.’  There is no easy way that I have found to tell a prospective client before an engagement that my experience might be valuable to their organization .  It comes across as self serving.  Once they understand the potential of working with a professional interim that is capable of being transformational in their organization, they want to get as much as possible out of the the engagement as fast as they can because they understand that the potential value is multiples of the cost.  This frequently reduces the client’s focus on getting the engagement over as fast as possible.

 
Employment overtures – Somewhere along the line, usually in the six to nine month period of an engagement, the client decides that the interim is highly desirable and recruitment overtures start.  Sometimes, they come to doubt that a recruitment would result in an equal or better permanent solution. According to my dissertation research, 25% – 40% of the time, the overtures result in employment even if it was not the initial intent of either party.  Tatum called this a ‘conversion.’  The respondents to my dissertation research survey stated that they had converted their interim 35.9% of the time.  If the interim is sophisticated, they will generally resist converting as they see consulting preferable to employment.  The challenge to this part of the process is to get through it without the client becoming concerned that they or their organization are not good enough for the interim.

Diminishing returns – If the interim does not convert, they ultimately begin to experience difficulty in achieving transformational gain in the organization.  Initially, they were a novelty full of energy and fresh ideas.  They are generally very impressive compared to their predecessors.  They are humored by the bureaucracy in the organization and their harvest of low hanging fruit is impressive.  Sooner or later, the resistance of the organization to engage in increasingly difficult change and increasing resistance on the part of the bureaucracy reduces the ability of the interim to produce transformational change.  One day the leadership is evaluating their situation and they conclude that the consultants are not earning their keep and the transition(s) start.  I will discuss the topic of culture and change in organizations in a future blog entry.

Recruitment – During this stage of the process, the interim participates in the recruitment by performing a number of key tasks.  They spearhead the development of a revised job description, they develop a specification for the recruiter, they participate in the interviewing and vetting and ultimately in the selection of the permanent candidate.  I have cast the deciding vote on my replacement more than once.

 
Transition – The transition occurs when the interim is replaced by a full time employee which can be the interim.  If it is not to be the interim, the interim generally assists the organization with the recruitment and on-boarding process.  When the on-boarding process is complete, the interim moves on to their next challenge usually leaving their client organization in much better shape and thankful for their service.

I have personally experienced this progression of an interim engagement time after time. I have also seen every one of my engagements run longer than initially discussed.  Before a client appreciates the value proposition, they are very highly motivated to get the engagement over as fast as possible.  I have been told time and again to not expect more than ninety days, 120 days at the most.   My average engagement is nine months and I am currently twenty months into an engagement  was initially mutually understood to be limited to an assessment only.

The other interesting phenomena that I have seen is that the process can be exited at any stage given circumstances unforeseen initially.  This is one reason that I go the extra mile by making it very easy for my clients to exit an engagement should it become necessary.

One of the factors that lead to engagements dragging on is that the client becomes comfortable with the interim and they allow distractions to degrade their focus on moving the organization beyond the interim engagement.  The next thing they know, the engagement is approaching its first anniversary.

If you are a decision maker considering an interim, my hope is that this material will enable you to better manage the engagement and get the most from it for you and your organization.  If you are considering interim services, and if you are any good, you should expect that your engagements will nearly always run longer than initially discussed with the clients.  Therefore, as an interim, you need to be careful making forward commitments that assume the engagement will be over by a time certain.

This is original work.  I have not seen content of this nature in my extensive dissertation research.  This material is copywrited by me with reproduction prohibited without prior permission.  I always note and  provide links to supporting documentation for non-original material.

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.

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.

Types of interim executives and types of clients

I have run into too many people in healthcare administration that believe that executives are interchangeable.   To them, getting a CFO or other executive is like going to the store and buying a tool.  One is as good as another.  Sadly, many of these folks look at interim executives the same way.  Nothing could be farther from the truth.  A frequent cause of executive ‘failure’ is not that the executive did not have appropriate skills and experience.  The problem was that either the skill and experience match was not correct or the cultural fit was not right .

People have different reasons for going into the interim business and some of them have nothing to do with getting the best result for the firms they serve.  Similarly, decision makers and the organizations they represent often do not consider their own state of sophistication and have no idea how to get the best from an interim executive.  All too often, they are looking to get a warm body into a role ASAP.

When I was doing my dissertation research (RAS Dissertation 130530), I came across an article written by Goss and Bridson titled Understanding Interim Management.  Among other things, this article lays out the varying levels of interims and organizations.  When there is a mismatch between the interim and organization, the engagement is likely to fail to reach its potential to provide maximum value.   I have not seen an organization put this kind of thought into the selection of an interim executive.

Supply Side characteristics of the individual     Demand side organizational requirements  
Type of Interim Motive Capability   Need Role
Simple Route to a permanent job Operational and supervisory competencies Instrumental stopgap Managerial temp
Formal Best present option High level functional specialism Functional stopgap Applied consultant
Sophisticated Commitment to interim management career Strategic, entrepreneurial competencies and executive experience Transitional stopgap Transformational leader

One of the first questions this table raises from the perspective of an organization is what kind of interim are you looking for?  The sophistication of the interim and organization increases as they move down the table.  Two of the three types of interims are not really interim executives.  They are people that are looking for something to do or extra money as they seek a ‘permanent’ job.  Some of them are motivated to use the interim engagement as a means of bypassing the typical retained search processes that accompany executive transitions.  This is one reason why some recruiters do not like interim executives.  It is not because they do not appreciate the potential of an interim to add value to their mutual client but some of them have seen their searches disrupted by an interim that was angling for the job instead of properly supporting the transition.

The phenomena of an interim becoming an employee is more common than many people think.  This occurs in spite of the fact that there may not be intention on either side of getting into an employment relationship at the beginning of the interim engagement.  In the business, an interim that becomes an employee is typically described as a conversion (to employment).  When I worked with Tatum, we were told that the firm experienced a 25% – 30% conversion rate.  I looked into this issue as a part of my dissertation research.  Of my respondent decision makers, 35.9% have hired an interim executive.  Of this group, 45.5% have considered hiring their last interim executive and 34.7% of them were successful.  In other words, when a decision maker decided to try to hire their interim, they were successful in getting the interim to convert 76.3% of the time.  Had I known this in advance, I would have asked some questions designed to assess the sophistication of the decision maker to see if it made a difference in their tendency to try to convert their interim.

I understand the tendency of an interim to be solicited for employment.  It has happened to me on nearly every one of my engagements.  I selected interim executive services as a career for a number of reasons that in my mind make it preferable in my personal situation to employment.  This and other characteristics of how I approach an interim engagement meet the criteria of a sophisticated interim executive and my services to the organizations I serve are typically strategic and transformational.  In a future blog, I will address the topic of evolution of an interim executive engagement.

The table above shows that it is more likely than not that the interim you are considering is in a transition is either either using the interim engagement as a route to a permanent job or having nothing better to do at the moment.  This is a big problem for the engaging organization from my perspective.  If the interim is looking for the permanent job in your organization, they will not be objective and independent.  Every decision they make will be weighted on the scale of the degree to which engaging in a potentially difficult situation will affect their candidacy as a permanent employee.  If this is not the case, they could be using you as a safe harbor while they continue their search for a ‘real’ job.  Most of these types of interims are too dim to realize that no job is ‘permanent.’  The primary difference between an interim and and an employee is how they are paid.  Not only that, I consider it theft to be working on anything other Thant the engagement when I am on my client’s clock.  It is the mindset that goes along with the interim service that determines how much value an organization gets from the interim’s service.

To get the best from an interim, they should fall into the sophisticated category.  I uniformly recommend that organizations do not put their interims into their searches.  If an interim is interested in the job, they should compete for the job on the same basis and with the same handicaps as all other applicants.  They should not be trying to leverage their role to gain an advantage in a search.   I advise my clients that putting an employee into an interim role then ‘running’ them for the permanent job also results in sub-optimization of the role and its potential to benefit the organization.  In my opinion, an interim executive that is also a candidate for the position they are filling is conflicted by definition.  I would not take advantage of interim service as a means to get a job and I will not tolerate it if I am a decision maker on an interim assignment.  I do not think that is fair or honorable to the client, especially if the client is unsophisticated and not likely to recognize the conflict.

It is not hard to assess the level of sophistication of an interim.  Look at their track record and ask questions that are designed to gain insight into their personal plans and aspirations.  It should be easy to figure out how sophisticated your interim prospect is.  Similarly, if you are a true interim executive, make sure your client is sophisticated enough to use your services effectively.  If all they are looking for is a warm body to keep a chair occupied, you run a risk of being frustrated with your inability to address obvious problems in an organization.

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.

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.

If the executive is going to get fired anyway, why do they need a contract or severance?

In my last blog, I said I would address the topic of severance packages.   From the perspective of a lay person, a severance deal can be seen as an undeserved reward for failing in an organization.  The severed employee goes on an extended company paid vacation while the minions are left to slave away for months or years cleaning up the mess.

I should clarify my terminology.  I am making a lot of references to CEOs in these commentaries but the principles I am describing apply equally to all of the ‘O’s.  In fact, either the CEO is setting the tone for the organization or what happens to him has a collateral effect on the other executives in organizations.  While I am on this subject, I should also acknowledge my  use of the male gender.  This is not intended to offend anyone or indicate bias.  I am tired of the political correctness that is killing our society.  If you see me use male gender, you can feel free to read him/her in its place.

I covered a number of reasons why an executive might leave an organization in my last article.  The overwhelming majority of causes of executive turnover are not controllable by the executive and sometimes are symptomatic of issues beyond the control of the executive or possibly even the Board.  This is the fundamental reason for a severance package.  In an earlier blog, I covered the risk that other executives are exposed to in the event of CEO turnover.  You can become eligible for turnover by just being in the wrong place at the wrong time.

A severance package has two basic goals.  The first is to ease recruitment by reducing the risk associated with turnover.  An executive is more likely to join an organization if they believe they are putting themselves or their family at less risk.  The second primary reason for a severance package is similar to the first.  The only way an executive is going to put the needs of the organization ahead of his own is if he does not care whether a course of action results in him losing his job.  An administrative assistant in a hospital once told me that the best CEO the organization had ever had was independently wealthy and did not need the job.  As a result, his focus was always on what was best for the hospital without regard to whether it put his job in jeopardy.   I not have seen other situations where an executive was sufficiently independent that his only goal in every situation was the best outcome for the hospital, especially in the absence of a severance agreement.

Even with a severance package, the executive still has fear of loss of his job.  Without severance, a Board is delusional to believe that their executives are going to engage in material personal risk on behalf of the organization.  They can be expected to pursue the more pressing objective of job preservation.  This type of paralysis will always lead to sub-optimizaton in the organization.   This phenoma explains one reason that interim executives can be transformational in an organization.  They are generally not running for the job and they have nothing to lose by focusing on the best for the organization.  If an organization wants the best from their executives, they must be willing to insulate them from as much risk of repercussion of the politics of their activities as possible.

On the other hand, severance packages can add sting to a bad outcome that results from a bad hiring decision in the first place.  If an organization makes a mistake in recruitment and the executive has a short tenure as a result, the severance package adds insult to injury and makes the turnover even more expensive than it would be otherwise.  Unfortunately, it is difficult if not impossible these days to recuruit a CEO without a severance package and I believe it is becoming increasingly difficult to recuit other well qualified executives without severance packages.  An organization unwilling to offer a severance package may be excluding itself from some of the best qualified candidates in a search.

Michael Rindler writing for Trustee Magazine produced an excellent article on Use and abuse of golden parachutes.  In this article, Mr. Rindler makes a number of observations about how severance packages have been abused and argues for performance based severance.

While I generally agree with Mr. Rindler, I have a somewhat different view.  If an organization wants the best from a CEO or any other ‘O’ for that matter, it must insulate them from the risks that their actions will result in their termination.  If an executive is indifferent regarding whether or not they maintain a job in an organization as long as they are doing the right thing(s), they will get superior results.  It is when they have fear of the repercussions of their activities that they start to sub-optimize or prioritize their self preservation interests above the intents of the organization.

Another reason for severance is that it enhances the recruitment process.  Being an ‘O’ in healthcare these days is among the most unstable, high risk jobs among similar executive positions in any industry.  This risk makes it difficult for an otherwise highly desirable executive to leave a comfortable situation to go into an unknown situation that might offer greater opportunity at unknown risk.  If the executive already has a severance package, they generally will not even consider another situation that does not offer the same ‘safety net’ regardless of the appeal of the new situation.  Therefore, severance packages are often necessary from a competitive perspective if the intent is to recruit the best talent available under the circumstances.

Where does this leave us?  Are severance packages a good idea?  I would say yes on balance.  Is is proper to reward executives for taking risks in an organization that may result in them leaving.  It is also justifiable to use severance packages to ease transitions when the fit is no longer right.  I do agree with Mr. Rindler’s argument that severance packages should be performance based.  I have not seen this done and I expect that many organizations would have difficulty with these arrangements because it is so hard to quantify the performance being measured and the effect of an executive or lack there of in influencing that performance.   The severance packages I have seen for the most part do the exact opposite of what Rindler is suggesting.  In order for them to not be honored, the executive would have to be CONVICTED of a felony related to the performance on their job.  This is also know as the Clinton defense where undisputed perjury does not constitute a crime as long as it is not related directly to the job.

Most of this has been written from the perspective of the Board of an organization.  I would advise a prospective executive to always seek a severance agreement. You have no way of knowing what you are really getting  yourself into and it is a reasonably safe bet that you will learn things that might have changed your mind had you known them before signing on.  Whether you are the CEO or not, you are exposed to a great deal of risk you cannot control and may end up on the street as collateral damage related to the failure of some other executive.  The time to get the severance deal is during the job negotiation.  It will become infinitely more difficult if not impossible after the fact.  I know executives that felt they were promised severance packages that never materialized.  The operative principle here is the same one applied by practitioners of the world’s oldest profession.  They know the perceived value of a service is always higher before it is delivered than after the fact.

In conclusion, severance packages are tricky and frequently they do not work as intended for either party.  Excellent executive talent is in very short supply and severance agreements are minimum requirements in most executive recruitments.  The best an organization can hope for is a package that encourages longevity and enhances the probability of desired outcomes.  Getting this for an organization is the trick.   As is the case in most complicated situations, an astute organization will seek the guidance and counsel of experts in negotiation, employment law and recruitment to obtain the best talent possible at the best cost with mutually beneficial employment arrangements.  Failure to do this can result in the spectacularly bad outcomes Rindler and others complain about.  Whether the complaints are justified or not, the organization can still end up in the media defending their actions handicapped by the fact that the complainants have the benefit of perfect hindsight.

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.