Ensuring that an organization has consistent and effective leadership at the top is a principal board responsibility. It includes a continual planning process for meaningful leadership succession that will ensure a seamless and successful transition from one executive leader to another.
A responsible succession planning process consists of guidelines and options for the organization to use to recruit or appoint a new CEO, whether the CEO leaves abruptly or whether the departure is well-planned and organized in advance. Best-practice boards ensure that effective succession planning extends deeper into the organization as well.
Succession planning for the CEO and other top officers in a hospital or health system is a mission-critical board responsibility. While most boards have established a process to put interim leadership in place to fill the gap caused by a CEO’s sudden departure, only a third have a succession plan at any level of the organization [see “Leadership Development in Healthcare Systems: Toward an Evidence-based Approach” by Matthew M. Anderson and Andrew N. Garman, National Center for Healthcare Leadership, 2014, www.nchl.org].
The Korn Ferry Hay Group recommends that competency models be in place for every key position in the organization to ensure that its board and leaders are aware of the skills needed for each role. These models also can help to assess the future challenges the organization likely will face so it can begin to identify competencies that will be needed to address them.
In addition, Hay points out that while “successor grooming” is an important part of succession planning, the process also can include an evaluation of the external landscape for chief executive talent. If an organization’s internal talent compares favorably with potential external candidates, an outside search may not need to occur. While this evaluation is an inherent part of a comprehensive succession planning process, it may seem threatening to existing employees who might hope to succeed to the CEO’s or another senior leader’s position. It’s crucial for everyone to understand that the board undertakes comprehensive succession planning as a significant part of its leadership responsibility.
Succession planning is an intentional and deliberate process of identifying and preparing promising executives for greater future responsibilities. The process is an investment in leadership development and commitment to the organization’s future. The Hay Group defines seven tenets as a “gold standard” for CEO succession [see sidebar below]. The board also needs to consider the following as it evolves its succession plan:
CEO buy-in is essential: For a succession plan to be successful, the CEO must embrace the process. Steve Wheeler, board chair at HonorHealth in Phoenix, credits the board’s intentionality and clarity in communicating its thinking, and the CEO and executive team’s purposeful development of board relationships for its successful succession-planning process.
CEOs who become part of the succession process begin by holding candid discussions with the board chairman, defining a desired retirement or exit date. They help the board to define the CEO’s role in a current, detailed description. They work with the human resources team to identify potential senior management candidates and help those candidates to develop leadership qualities. They encourage additional training, create working scenarios that place candidates in real-world situations and continually evaluate candidates’ potential for further development.
Garren Colvin, president and CEO of northern Kentucky’s St. Elizabeth Healthcare, helped his board to understand the demographics of the organization’s “leadership pyramid,” those who are at or near the same age and all near the same targeted exit date. Recognizing the need to be more systematic in nurturing the next generation of leaders, Colvin and the board developed a written succession plan that reaches down to front-line managers to prepare the organization for a smooth transition in its executive leadership. That ensures continuity and the opportunity to tap individuals with needed skills from within the organization, he says. As St. Elizabeth board chair Jim Votruba observed, “It’s pretty hard to scramble when you’re replacing a team that has the chemistry that our team has and with the resulting successes that they’ve had.”
More than a job description — a leadership role description: In planning for CEO succession, the governing board must develop, with the CEO’s assistance, a current description of the multifaceted roles he or she plays in the hospital, externally in the community and broadly with a variety of key stakeholders. This role description must tie directly to the hospital’s strategic plan and mission and include the characteristics or qualities necessary for a new CEO to be successful.
The board must also develop a timeline for succession strategies, including a transition plan for moving a successor into his or her new position, with defined roles for the human resources team, the CEO and the board for facilitating the transition.
Developing an in-house leadership development program: The governing board, working with the CEO and the human resources team, may consider establishing an in-house leadership development program designed to meet the current and future leadership needs of the organization.
The program would focus on senior-level managers who are potential CEO successors and also reach down into middle management to extend the organization’s talent pipeline. Development of a series of leadership courses may include topics such as critical issues in health care today and in the future, and more generalized leadership topics like managing conflict or building consensus. Each candidate may be assigned a mentor to help with questions, relate experiences to the position the candidate is seeking and assist with overall leadership development.
As candidates move through the program, they might work with managers in different areas of the organization to broaden their knowledge and experience. At the end of the program, candidates are re-evaluated and career paths defined. They are considered for any open positions for which they might qualify. Each candidate is reassessed annually and considered for further experiential training.
In developing a succession plan for vice presidents and directors at Mission Health in Asheville, N.C., Ron Paulus, M.D., president and CEO, and Taylor Foss, senior vice president of organizational transformation, recognized the need to better prepare the individuals they identified as potential candidates for future leadership roles. Mentoring sessions were established, and participants were given assignments, scenarios and projects designed to broaden their exposure to issues, experiences, departments and people. Paulus and Foss noted the importance of developing a sense of community among the group's members, recognizing that these individuals must be able to work together as they assume future leadership roles within the organization. The program has also allowed Paulus and Foss to see who emerges as a leader among leaders.
Succession planning takes time and patience: Creating unique leadership experiences and nurturing the next generation of top talent takes time, patience and care, and requires a firm and durable commitment from the governing board. Trustees must have opportunities to become familiar with the organization’s pool of future CEO and executive candidates. For a succession plan to be successful, the board must work to know each candidate personally and get a sense of each individual’s leadership abilities. As HonorHealth’s Wheeler observed, it’s important that board members care not only about understanding the business but also about knowing the people in various leadership positions. When HonorHealth’s chief financial officer was identified as a potential successor for its CEO, no one had to ask, “What’s he like?” They already knew.
Experts suggest a three- to four-year CEO succession process, advising that too much change can occur to meaningfully plan further out. A best practice is for the CEO, board and, if identified, the successor, to set a clear and firm retirement date — advice that HonorHealth noted. The lead time built into HonorHealth’s planning process allowed it to promote its internal candidate to chief administrative officer, giving him a wider span of administrative control and experience before becoming CEO. As Wheeler observed, “We had time to do this because we had reached an arrangement with our prior CEO as to when he would retire, had an extension agreement with him for that time and dealt in the contract with his availability as an adviser for his successor.”
The need for lead time is also a critical success factor at St. Elizabeth Healthcare. Its board is intentional about how it brings people along, routinely asking whether there is the inside talent to replace a leader or if it needs to seek outside assistance. If the board determines it is necessary to look broadly outside the organization, it builds in adequate time to do that.
Feedback and evaluation: The final board task for succession planning is to set in motion an annual process for reassessing the plan’s evolution. The board should review the human resources team’s progress in identifying and fostering leadership candidates. Annual assessments can include re-evaluation of skills and knowledge and reviews of positions for which candidates might be qualified.
As employees begin to move into higher management positions, the board can see its succession planning effort come to fruition, knowing that the organization will be able to ensure the availability of future executives who are well-qualified to assume administrative leadership responsibilities.
When the unexpected happens: What happens if a CEO leaves suddenly for whatever reason? Speaking from experience, St. Elizabeth’s Votruba emphasizes the importance of having a succession plan already in place. Organizations don’t want to have to start their succession planning process after an unforeseen departure occurs, he advises.
Beyond CEO succession
Leading organizations extend the ethic of succession planning beyond the CEO’s position to continually nurture and develop talent at multiple levels throughout the organization. According to the Hay Group, as boards oversee development planning for key executive positions, effective strategic succession management can be accomplished in seven steps:
- Understand how changes in the business will impact the organization’s need for top talent. The best organizations proactively identify how current and future changes in their strategies and business models will affect the type of people they need. They define the skills future leaders should possess and ensure that they have senior leaders who are most likely to be effective, given the changing parameters of roles and work.
- Identify critical leadership positions. Forward-thinking organizations identify specific mission-critical roles — those that have the greatest value to their organization. Some of these positions may not yet appear on the organizational chart. Once they are identified and defined, it is important to specify the unique contributions these jobs make to the organization and the key accountabilities and required competencies necessary to perform them effectively.
- Accurately chart the depth and breadth of the talent pool. Many organizations stretch their top talent by placing people into roles for which they lack critical experience and know-how to determine which individuals have the flexibility to develop new competencies to assume key roles.
- Assess the talent pool against likely future roles. Key individuals’ capabilities should be assessed to ensure which individuals among the organization’s top talent are the best fit for critical roles. This assessment should be conducted for current positions and for new roles likely to exist in the future so that critical development needs can be identified.
- Identify the specific risks to the organization in making any immediate move in a specific role. Top candidates for imminent job moves should be evaluated against the requirements of the job and the potential risks of making the move for both the organization and the candidate. This requires a highly focused definition of a candidate’s suitability for a specific set of job accountabilities, including functional requirements as well as interrelationships and interdependencies with other key leaders.
- Create an onboarding/development plan specific to the individual and role. After the best candidate for a position has been identified, potential risks and capability gaps should be addressed through a comprehensive and tailored onboarding process. This process should include a development plan for the individual and a plan for his or her manager to provide assistance and support.
- Measure succession ROI. A system should be put in place to track the return on investment of an organization’s succession management efforts. ROI measurement should consider the costs of recruitment, assessment, development, onboarding and turnover, comparing those expenditures with how well individuals are performing in their new positions.
More recommendations for talent management and development planning are included in a sidebar below.
Setting a sound leadership course
Boards that tackle the succession process are setting the organization on a course that supports a seamless change of leadership and continuity of programs and processes.
When highly focused and consistently maintained, CEO and executive/managerial succession programs allow internal talent to deepen organizational loyalty, provide an opportunity for leaders to advance along defined career paths and assist organizations in retaining crucial organizational knowledge and skills. A proven retention enhancer, succession planning can ensure younger executives a place in the organization over time and the chance to work toward a valued seat in the C-suite.
Larry Walker (email@example.com) is president of governWell, based in Wilsonville, Ore. Cindy Fineran (firstname.lastname@example.org) is an independent consultant based in Salem, Ore. Thomas Giella (Thomas.Giella@kornferry.com) is chairman of Korn Ferry’s health care services practice.
Tenets for CEO succession
- Align the board on future CEO profiles that are driven by business strategy.
- Assess candidates against industry benchmarks, valid indicators of executive potential and the CEO profiles developed.
- Think two to three CEO moves ahead; don’t just seek to replace the incumbent.
- Cross-train generations of CEO successors with a mix of on-the-job training, intensive coaching, mentoring and education.
- Become intimately familiar with the leaders on your succession bench and their potential. There are many potential CEOs and other senior leaders in your organization spanning several generations. Do you know them?
- Keep CEO succession as a standing board agenda item because it ensures a multilayered, multigenerational process.
- Ensure that your talent management and development planning is linked to your long-term business strategy.
— Korn Ferry Hay Group
Best practices in succession planning
In its “NCHL White Paper on Best Practices in Health Leadership Succession Planning,” the National Center for Healthcare Leadership identified three evidence-based best practices:
- Board review of organizationwide succession planning: According to noted organizational governance author and lecturer Ram Charan, many boards are unprepared to play either a fiduciary or a catalytic role in succession planning at the senior executive level. Boards, however, are increasingly asserting their fiduciary role and expanding their involvement in succession decisions by ensuring that they know who key internal candidates are and what qualifications for future service they possess and by looking more broadly at succession planning beyond the CEO. Best-practice boards organize themselves for increased involvement in succession planning, even when no imminent executive transition is forecasted. These best-practice boards evaluate gaps and vulnerabilities in succession for targeted positions and create contingency plans for responding to unanticipated vacancies. They also expect to receive periodic updates on broader succession planning and talent development efforts underway throughout the organization.
- Profiling of future position requirements: NCHL found that best-practice organizations identify the skills, experience and personal attributes critical to success for positions that will be necessary to execute future-oriented strategies and priorities. These position profiles include both skills and experience.
- Rigorous candidate assessment: Best-practice boards consider the efforts of executive search firms and the opinions of their CEOs and look further to learn more about the experience, accomplishments and personal attributes of internal candidates.
In its paper, the NCHL also identified a variety of best practices for organizationwide management succession planning utilized by leading organizations across the U.S. These include:
- A link to organizational strategy and business priorities, where elements of the succession planning process are re-evaluated and updated to align with major shifts in strategies or priorities.
- Multilayer succession planning and talent development, ensuring that over time an organization’s senior leadership capability will be strengthened by a pipeline of potential future leaders at lower organizational levels who are consciously developed to maximize their career and leadership potential.
- Streamlined succession planning reviews and follow-up processes, focused on accelerating the growth of future leaders, dealing with retention issues and addressing succession-planning gaps.
- Rigorous, repeated assessments of potential, which obtain multiple points of view on candidates from others who have observed them in work-related situations and understand the requirements of senior-level positions in the organization.
- Integrated use of a leadership competency model, enabling managers to have a common language for discussing an individual’s strengths, development needs and career potential; drawing distinctions between an individual’s current performance and his or her capabilities in other positions with increased responsibility; and integrating activities to support leadership development and organizational performance.
- Emphasis on on-the-job experience and highly customized employee development, where “stretch assignments” are given, individuals’ current jobs are expanded and individuals are involved in other significant on-the-job leadership activities.
- Talent-pool management, which includes developing talent pools throughout the organization to provide greater flexibility in developing future leaders, guarding against the loss of key talent and allowing organizations to match openings with the needs of high-potential candidates.
- Active involvement of senior management, who participate in succession-planning reviews, examine lists of future leaders at lower levels of the organization, meet with high-potential individuals and mentor future leaders.
- Dialogue with potential future leaders, ensuring that frequent dialogue occurs with candidates for future leadership positions, focusing on their perceived potential, career goals and interests, and career-planning constraints.
- Tight link between succession planning and external recruiting, where external searches are undertaken in response to talent gaps or vulnerabilities, or new skill sets are required by emerging strategies.
- Executive onboarding, which deploys resources to help assimilate executives into new roles.
- Tight link between succession planning and compensation, where the compensation of high-potential individuals is carefully monitored to ensure that their performance and potential are rewarded.
- Establishment and tracking of metrics, such as: (a) the percentage of positions filled internally versus those filled through external recruiting to measure the strength of the succession bench, (b) the retention rate of high-potential individuals and future leaders to measure the effectiveness of career planning and retention efforts and (c) the extent to which diversity in promotions reflects the achievement of pre-established leadership diversity goals.
Source: “NCHL White Paper on Best Practices in Health Leadership Succession Planning” (www.nchl.org), used with permission of the National Center for Healthcare Leadership