How would a sudden departure impact a health system?
On Monday morning, United Technologies announced their CEO of six years, Louis Chenevert, would immediately step down and be replaced by CFO Gregory Hayes, according to Reuters.
No reason was provided for Mr. Chenevert's retirement, though a spokesman confirmed it was not related to the financial performance of the Hartford, Conn.-based technology conglomerate. The move, completely uncharacteristic of United Technologies, left Wall Street stunned.
A change at the top is not unfamiliar to those in healthcare: The turnover rate for hospital CEOs was 20 percent in 2013, marking the highest turnover rate since 1981, according to the American College of Healthcare Executives. In light of Mr. Chenevert's retirement, here are four thoughts on how a sudden departure could impact a health system or hospital.
- If an organization has a deep bench, it lessens the impact of an abrupt departure. In the case of United Technologies, Mr. Hayes had six years of experience as CFO and had been with the company for 25 years. "The board has a succession plan for just these reasons. The succession plan has been in place for several years so this should be a seamless transition," said UTC spokesman John Moran in the Hartford Courant. Hospitals and health systems that develop experienced leaders horizontally and vertically within their organization are better able to absorb the shock of an abrupt retirement.
- Leaders who leave line positions have a greater impact. Any leader in the chain of command with responsibility to make decisions that directly affect the revenue and profit of an organization will make bigger waves when they leave the pool. If an executive leaves abruptly, or even others in line positions like physicians, it could seriously impact the bottom line of a hospital or health system. Mr. Chenevert, however, was well known as an optimistic goal-setter, or a "strategic visionary," as William Blair analyst Nicholas Heymann told USA Today. While losing a lead strategist could have long-term effects, the organization may not see an immediate impact given an adequate successor.
- The repercussions depend on the length of tenure and effectiveness of the CEO. A CEO who defines years of effective leadership will greatly impact the organization when he or she decides to leave. Mr. Chenevert was young to retire at 57 years old and he was CEO of United Technologies for six years. In this time Mr. Chenevert cinched a few landmark deals, including the $18.4 billion acquisition of Goodrich, which closed in 2012. Nonetheless, the company faltered this year. The S&P 500 increased about 15 percent and aerospace and defense portion of the S&P 500 increased almost 12 percent, but company shares are down this year just over 1 percent, according to the Hartford Courant. United Technologies said Mr. Chenevert did not step down for financial reasons though.
- The effects are also contingent on the CEO's strengths. Mr. Chenevert was a strategy man and optimistically pushed his company to excel. This year he set a goal for the buildings systems unit to increase revenues to $50 billion from $29 billion by 2020, requiring an 8 percent increase in sales each year, according to Fortune. However, Mr. Hayes also has six years of United Technologies C-suite experience and a financial background. "Greg is highly regarded by the board and by UTC employees, customers and shareowners. We are confident Greg will lead UTC to increasing profitability and shareowner returns," said Edward A. Kangas in the Hartford Courant. Mr. Kangas is the former chairman and chief executive of Deloitte, Touche, Tohmatsu and a member of the United Technologies board since 2008. He will replace Mr. Chenevert as chairman. Different CEOs bring different strengths to the table, which are reflected both in and outside an organization. In health systems, where consistency of patient care is critical, executive transitions should be considered carefully.