Tag Archives: turnover

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 experience that 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 reason.  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.

 

 

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.

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.

Welcome to my interim executive services blog

This is a new blog from Raymond A. Snead, Jr., D.Sc., FHFMA, FACHE

I am a practicing Interim Executive with a Doctorate degree in Health Services Administration.  My dissertation title is “The Contribution of Interim Executives to the Healthcare Industry.”  As far as  I know, I am the only person to have done a dissertation on interim executive services in healthcare.

The primary purpose of this blog is to advance the cause of interim executive services in healthcare by providing assistance and support to practicing interim executives and the decision makers that retain them.

I look forward to interacting with people interested in getting more from the practice and use of interim executive services in the healthcare indust