Over the past 30 years, Kenneth Washburn has sat on two hospital boards, one that's endured frequent turnover at the top and the other led by the same man for 39 years.
"To find the right person is tough," said Washburn, a Memorial Hospital of Rhode Island trustee and past chairman of its governing board. He was citing his experience replacing CEOs at Bradley Hospital in East Providence, R.I. "It's difficult, but when it works, it's great." The CEO at nearby Memorial Hospital, Frank Dietz, is an example of what works, Washburn said.
Dietz has been chief executive of the 184-bed Pawtucket, R.I., hospital for nearly four decades.
"The fact remains he's been there so long," Washburn said. "When he retires, he'll be hard to replace. I hope I retire before him."
Finding and keeping a successful chief executive frustrates countless hospital directors and trustees, and judging from a yearly survey released last week by the American College of Healthcare Executives, hospitals found it slightly harder to prevent turnover at the top in 2004 than in previous years. The percentage of retirements, resignations, firings and deaths among hospital CEOs rose to 16% from 14% in 2003. The 2004 figure is the highest it's been since 2000, when 17% of hospitals reported turnover at the top. The figure, based on American Hospital Association reports from 4,928 hospitals, is adjusted for interim and acting CEOs.
Turnover is generally disruptive, but losing a CEO can leave hospitals with wobbly leadership and an expensive, possibly lengthy search for replacements.
Thomas Dolan, president and CEO of the Chicago-based ACHE, said the slight increase in turnover in 2004 isn't troubling. "I think that kind of variation is expected from year to year," he said. In the past decade, turnover has fluctuated between 14%, reported in 2002 and 2003, and 18%, reported in 1999. "In general, we think it's too high," Dolan said. The percentage ideally should be less than 10%, he said. On a state-by-state basis, Nevada hospitals reported the highest turnover in 2004, at 33%, followed by Washington, D.C., and New Mexico, where hospitals reported 30% CEO turnover. New Hampshire reported the least turnover at 3%, followed by Maine, 5%, and Vermont at 6%. However, Dolan cautioned that the small number of hospitals in each state makes the state-by-state data for one year an incomplete picture of turnover.
Turnover often stems from poor communication among the CEO, the hospital's directors or trustees, and the medical staff, Dolan said. Or governing boards may harbor unrealistic expectations of a newly appointed CEO's ability to address hospitals' festering problems or strategic goals, he said. CEOs need time to make changes stick, he argued, and chief executives cannot control powerful forces, such as Medicare spending, that can substantially affect finances.
Relationships with doctors and directors are central to a CEO's survival, said Jack Schlosser, healthcare practice leader for executive search firm Spencer Stuart. "A person can survive reversals of finances or skirmishes, in terms of issues of differences of opinion, if they've built up relationships over time," Schlosser said.
Washburn credits Dietz's nearly 40-year tenure to the CEO's knowledge of numbers and people. "Everything's people," Washburn said. "That's where his skill is."
Financial downturns-particularly abrupt changes that catch leadership flatfooted-can be the "most deadly" for chief executives, Schlosser said. For example, losing a valued contract with a payer can create stress that will only be magnified by poor working relationships between the board and executive. An executive's track record is an excellent indication of future success at building consensus, taking a stand when necessary and owning up to responsibility, Schlosser said.
Contracts give CEOs confidence that they can weather rough patches without fear of being called into the boardroom, Dolan said, but not all leaders have contracts. Sixty-seven percent had contracts in 1999, the most recent year for which the ACHE had data.
The professional association has launched a more extensive study of turnovers to update research last done in 1989 through 1990, but results won't be available until the fall. The last study found 20% of hospitals experienced CEO turnover every two years. It also found the greatest predictor of whether or not a CEO would be fired was whether or not the board dismissed the previous chief executive, Dolan said.
Not all boards want a contract to bind a CEO or color the relationship between the incoming executive and directors, said Jim Freundt, a principal with Sullivan, Cotter and Associates, a compensation and human resources management firm in Chicago.
Boards may also use compensation incentives, known as "golden handcuffs," to keep a CEO from leaving. "There are a lot of ways to handcuff somebody," Freundt said, such as a long-term retention plan, nonqualified deferred compensation plan or a retention bonus.
Elaina Genser, executive vice president of operations for executive search firm Witt/Kieffer, said she sees more golden handcuffs than she used to, but it's not the only emerging trend. "We are seeing people asking a whole lot more questions about the lifestyle and the balance of life," she said. CEOs face long hours and significant stress, she said. "There's only so many hours in a day."