While Chris Van Gorder doesn't have any immediate plans to retire from his current role as president and chief executive officer of Scripps Health, he knows that when the time comes, the San Diego-based system will be ready. That is because of a succession plan in place at Scripps that reaches all the way down to the manager level, he said.
Van Gorder, 52, isn't the only health system CEO who thinks succession planning is important. A recent survey of 202 health system and hospital CEOs found that 85% of system CEOs indicated their organizations have formal succession plans. The results of the survey were released exclusively to Modern Healthcare by recruiter DHR International, Chicago.
According to the survey results, the number of stand-alone hospitals with a succession plan is much lower and is related to size. Only 50% of CEOs for stand-alone hospitals with 500 or more beds indicated a succession plan was in place, while 42% of hospitals with 300 to 500 beds did, and 38% of hospitals with less than 300 beds did.
Fred Halstead, managing director and executive vice president at DHR, thinks the correlation between size and succession planning is natural. "The larger organizations have more resources available to develop and work with a succession plan. They also have a larger pool of talent to choose from. It's a matter of bench strength."
But the prevalence of succession planning at health systems, Halstead said, may have had something to do with another of the survey's surprising results. Fifty-three percent of all respondents said they believe there is a sufficient number of talented healthcare executives available to replace retiring CEOs, jumping 18 percentage points from 45% of respondents in 2002. Among system CEOs, the number jumped to 50% in 2005 from 41% in 2002.
"A succession plan that goes reasonably deep in the organization will promote development of executives," Halstead said. "That may be why there is greater optimism among larger organizations-they are doing a better job of developing younger executives."
But Halstead said he also believes growing confidence in younger executives may be the result simply of additional experience and training garnered since the 2002 DHR survey. "Some of those same younger executives have had three more years to prove themselves and as they get a little more experience, it's clear they do have the capabilities to become excellent CEOs in the future."
It may also, however, be an issue of timing. Halstead said favorable stock market conditions and other financial considerations might have allowed more CEOs to retire over the past three years. That set off a chain reaction, he said, in which younger healthcare executives have had the opportunity to shift into more senior roles, demonstrating to current CEOs that they've got what it takes to become leaders.
Dominic Dominguez, now chief executive officer of St. Luke's Baptist Hospital in San Antonio, first became a hospital CEO at age 33, about 10 years earlier than most respondents, according to the survey. He said he was prepared for the position largely through a relationship he developed with a mentor in the industry.
Being given a position of accountability and responsibility at such a young age, Dominguez said, presented itself with challenges in establishing credibility. His solution was to spend "an enormous amount of time with the hospital's various stakeholders and very little time in my office." Dominguez said he learned early on that you earn credibility by delivering results and that is what matters most for a CEO-not age.
Dominguez said St. Luke's has a plan and he agrees with Halstead that the ability to develop and work with a succession plan depends on bench strength. But Dominguez said that regardless of whether a formal succession plan is in place, "there does need to be emphasis placed on who could fill that role-developing that bench is vitally important."
"I think every board should hold its CEO accountable for developing and nurturing the organization's human capital," said Jon Foster, president and CEO of St. David's HealthCare Partnership in Austin, Texas, an affiliation between not-for-profit St. David's HealthCare System and HCA. "A strategic plan without a human capital plan is a little bit risky."
Foster said the 47% of CEO respondents who did not believe there is a sufficient number of talented healthcare executives available to replace retiring CEOs probably are concerned about the increasing complexity of healthcare systems and of the industry itself. "It may be more reflective of a general level of uncertainty about the complexity of the future," Foster said.
Fifty-eight percent of system CEOs in the survey said they plan to retire in five to 10 years. Foster thinks this number stands in con- trast with the finding that only 50% of those same CEOs believe there is sufficient talent to replace them.
Foster said one way the industry may accommodate this gap is by tapping historically nontraditional pools of talent such as physicians. Indeed, the number of CEOs at health systems who also are physicians rose to 9% in 2005, from 7% in 2002, according to DHR's database of about 900 CEOs.
And the number of women holding CEO positions at health systems has grown substantially as well, according to the database. In 2005, women held 22% of CEO positions in hospitals with 300 to 500 beds, growing from just 13% in 2002. At health systems, women also are filling the CEO ranks at a quicker pace, from just 3% in 2002 to 6% in 2005.