While many people are talking about "the new CEO," some organizations don't know what to do with the old ones.
In several healthcare transactions of late, the participating organizations have put more than one executive in the top box of their organizational charts.
Providers that opt for such arrangements like to describe them as cutting-edge management techniques reflective of the new healthcare delivery paradigm.
Others say the rash of job-sharing arrangements is being guided by the time-honored factors of ego and organizational politics.
The rash is spreading because big fish are merging with big fish. Picking the top dog was easier in the old days, when most deals involved big fish gobbling up little fish.
"There's just no logical reason to do it," said Thomas Atchison, president of the Atchison Consulting Group, an Oak Park, Ill.-based consulting firm that specializes in helping healthcare companies meld their corporate cultures.
Mr. Atchison said the joint- management strategy plants too many mine fields that could delay or derail the true integration of two organizations.
For example, second-tier managers will continue to be loyal to their former top executives no matter how clearly new job responsibilities are delineated in a merged organization, he said.
"You can't change human nature with a memo," Mr. Atchison said.
Another pitfall is the message it sends other managers and front-line workers who may lose their jobs as merged firms look for cost savings.
"People will look to the top and say, `They took care of themselves while we got screwed,"' Mr. Atchison said.
And it's a costly hit to the bottom line.
It could mean half a million dollars in the proposed merger of EHS Health Care and Lutheran General HealthSystem, two Chicago-area hospital systems.
System heads Richard Risk of EHS and Stephen Ummel of Lutheran General are slated to become co-presidents of the merged entity next year.
According to EHS' latest tax filing with the Internal Revenue Service, Mr. Risk earned $415,678 in compensation in 1992. Mr. Ummel earned $497,067 that year, or nearly 20% more than Mr. Risk, according to Lutheran General's return.
Will they have equivalent salaries as co-presidents? Will they keep their compensation packages? Will one get a raise to match the other's salary?
All are practical questions that must be answered by companies that opt to have two or more top executives.
EHS and Lutheran General board members declined to comment on the issues created by a co-president arrangement.
Meet the new bosses.Despite the
hazards, many healthcare organizations are pursuing dual-chief executive officer arrangements because deciding who's No. 1 often scuttles a deal before it gets off the ground. And, given today's pace of market changes, organizations believe they have to act now and decide who's in charge later.
An example of this is the proposed Houston merger of Methodist Hospital and St. Luke's Episcopal Hospital.
In late September, Methodist and St. Luke's signed a letter of intent to merge and said the two existing CEOs would serve as vice chairmen of the new system until a permanent, lone CEO is recruited (Oct. 3, p. 15).
Disagreeing with negative assessments of co-CEO structures, of course, are the companies using them.
One such organization is the Minneapolis-based Allina Health System, which was created in July through the merger of HealthSpan Health Systems Corp., a not-for-profit hospital system, and Medica, a managed-care firm.
Allina's co-presidents are Gordon Sprenger, former CEO of HealthSpan, and James Ehlen, M.D., Medica's former CEO. Mr. Sprenger is executive officer; Dr. Ehlen is president.
"If they want it to work, it'll work," said Stanley Cowles, the former chairman of HealthSpan's board, who's now vice chairman of the Allina board.
Strength in numbers.The boards of HealthSpan and Medica approved the joint-management arrangement for operational and symbolic reasons, Mr. Cowles said.
Operationally, each executive has strengths in different areas-one in healthcare delivery and the other in healthcare finance-that, if combined, would benefit Allina, Mr. Cowles said.
And, symbolically, it was important to show the employees and medical staffs that it was a merger of two equals, Mr. Cowles said.
Still, although Mr. Sprenger and Dr. Ehlen are equals, Mr. Sprenger is a
little more equal than Dr. Ehlen because he's the chief liaison to the Allina board.
How have things gone so far? OK, according to Terril Hart, M.D., chairman of the Allina board and a former member of the old Medica board.
"We might change our mind at a later date, but so far everything has been working out," Dr. Hart said.
MODERN HEALTHCARE interviewed board members from HealthSpan and Medica separately.
Different story.That's not the reception the magazine received when it requested interviews last year with the co-presidents of the newly formed HealthSystem Minnesota in St. Louis Park, Minn.
HealthSystem Minnesota is the result of the August 1993 merger of 426-bed Methodist Hospital and the 360-physician Park Nicollet Medical Center.
At the time, Robert Galloway, Methodist's CEO, and James Reinertsen, M.D., Park Nicollet's CEO, were named co-presidents. They insisted on being interviewed simultaneously.
And at that time, the executives gushed about the benefits of the co-president arrangement and other governance changes to accommodate the concerns of the hospital and clinic.
In addition to keeping the old governing boards of Methodist and Park Nicollet, the combined organizations created a superboard and a 10-member management council to coordinate and coalesce issues before they went to the joint board (July 5, 1993, p. 22).
No one mentioned that Mr. Galloway would retire less than a year later.
On June 23, HealthSystem Minnesota announced that Dr. Reinertsen was taking over as the organization's sole president (July 11, p. 34). In making the announcement, HealthSystem Minnesota didn't waste any prose on Mr. Galloway or the elaborate management structure they had set up.
"(Mr.) Galloway's decision to retire from the organization this summer gave the parent company board the opportunity to simplify its current structure under a single CEO position and expedite the integration of hospital and clinic services," HealthSystem Minnesota said in a prepared statement.
"At least three boards had to approve everything," Mr. Galloway said in an interview. "That became cumbersome."
Because Dr. Reinertsen and Mr. Galloway had defined roles as co-presidents, they had to develop a set of "operating instructions" for junior executives to help them determine who to go to with which problems, Mr. Galloway said.
The co-president system and new governance structure resulted in too many meetings, he said.
Mr. Galloway, 68, said he wasn't pressured into retiring and that he planned to leave his post at some point after the merger. He said he was never a candidate for the sole CEO job.
"We could have gone on another year or two as co-presidents, but I'm not getting any younger," Mr. Galloway said.
Other fans.Also supporting the
multiple-CEO concept are the Burlington, Mass.-based Lahey Clinic and the Lebanon, N.H.-based Hitchcock Clinic. The two prestigious multispecialty group practices merged last month to form the Lahey Hitchcock Clinic (Sept. 12, p. 8).
But in the clinic's case, the top box on the organizational chart, called Office of the CEO, is shared by four people.
They're Bruce Steinhauer, M.D., CEO; Stephen Plume, M.D., president; John Collins, executive vice president; and Douglas Harding, senior vice president.
Dr. Steinhauer and Mr. Harding were the CEO and senior vice president, respectively, of the Lahey Clinic. Dr. Plume and Mr. Collins were president and CEO, respectively, of Hitchcock.
A 36-member board of trustees sits over the Office of the CEO; under it are seven boards of governors of various sizes that oversee the clinic's regional and local practice sites.
The two clinics borrowed the board governance structure from Lahey and the co-CEO, or "partner" concept, from Hitchcock, said Mr. Collins, who's third on the clinic's executive depth chart.
"Historically, Hitchcock has had an office of the president led by a physician and a lay executive," Mr. Collins said. "The lead person is the doctor, and a half-step down is the lay executive. But they function as a team."
The structure combines the medical leadership of the physician with the management skills of the nonphysician to best serve the clinic, Mr. Collins said.
Within the four-person CEO box, the pecking order is set, Mr. Harding said.
"It's clear who will make the final decision, and that's (Dr. Steinhauer)," Mr. Harding said.
Although the four may disagree over an issue, once a management decision is made, all of them will support the decision to the outside world, he stressed.
"Obviously, if I'm disagreeing with a number of those decisions, I may be in the wrong box," Mr. Harding said.
Messrs. Collins and Harding, who agreed to separate interviews, predicted a long and successful future for their arrangement.