Although CEOs can't handpick their successors, they can take certain steps to ensure their preferred candidate's CV sits at the top of the pile.
Change is tough. And when you're a hospital or health system chief executive officer preparing for a change in leadership, the transition can feel personal. CEOs constantly strive to ensure steady operations, so, unsurprisingly, they often want to help pave the path for a smooth executive search and transition.
However, there is a fine line between lending a hand and overstepping authoritative boundaries.
A recent post on Harvard Business Review discussed this very issue. A CEO presented his pick for a successor, the board confirmed the appointment and the organization ran into trouble.
While there were signals along the way indicating the newly appointed CEO may not be the best candidate, the relationship between CEOs and board members is rooted in trust, which may sometimes cloud the decision-making process.
"It's only natural for board members to respect the view of the successful sitting CEO who has the most intimate knowledge of the company, its leaders and the environment," reads the Harvard Business Review report, written by Reshmi Paul, PhD, who leads the CEO Succession Practice at ghSMART. "After all, many of the board members are current or former CEOs themselves and can't help but identify with the CEO's perspective. They easily fall into agreement with the leader's strongly held perspective on the future, and they slip into assuming his or her continuing involvement in the company after a transition."
This isn't to say the incumbent CEO should sit back and hand the reins of the executive search over to the board. They key to a successful search is a balance, a tightrope walk in which toeing the line can have dire consequences for an organization.
Delegated responsibilities
Dr. Paul's article illustrates the dependent relationship between CEOs and board members as well as the ramifications of allowing a CEO's unvetted recommendation go too far. CEOs can, and in some cases should, be involved in the succession transitional plan, but only to a certain extent.
"Clearly CEOs opinions are important and they need to play an active role in identifying and developing a successor, but they have to be very mindful of whose responsibility it is [to name a successor]," says Andrew Chastain, managing partner at executive search firm Witt/Kieffer. "It's clearly the board's."
Mr. Chastain suggests the CEO's involvement should remain within the initial phases of succession planning, such as discussing necessary competencies, but beyond that, the board assumes responsibility of developing the profile of the desired CEO and making any final decisions.
This separation of powers can be difficult for all parties involved.
"It's challenging for CEOs because they want to choose their successor, and many times they want to play a broader role than is appropriate," Mr. Chastain says. "It's difficult for those boards because they are used to the CEOs really leading them through decision making."
Additionally, the nature of the CEO's departure can dictate the parameters of the successor search as well as the extent to which the incumbent is involved in the process. The reasoning and timing of the departure are critical, says Lynn Gordon, partner and chair of the healthcare department at the law firm Ungaretti & Harris.
"If it's a retirement, a true retirement where the board received an unsolicited resignation from the CEO and otherwise he would have continued, then it's not uncommon [for the CEO to be very involved]," Ms. Gordon says. "As long as the board thinks that person has done a bang-up job and is transitioning for reasons other than breach or negligence or other concern of the board, it's a natural fit to have that individual involved in the transition plan."
Shifting priorities
Transition plans are more involved and detailed than simply one leader leaving and another taking over. And with shifting priorities in the healthcare industry, organizations conduct searches for executives with a wider, more nuanced lens.
Historically, COOs have been looked to as a natural successor, but industry trends and challenges are interrupting the status quo.
"As our clients have diversified, into clinically integrated networks that include large physician groups and health plans, being a very skilled operator may not be as consistent with what the boards are looking for," Mr. Chastain says. "As they're shifting priorities, they need to make sure the profile of the CEO shifts along with it."
In some cases, shifting priorities are going to lead the board to look entirely outside the organization for a successor. For example, if boards are seeking to implement a "turnaround plan," an organization may benefit from bringing an entirely new viewpoint to lead the hospital, according to Ms. Gordon.
"If the turnaround plan is because the physician relationships are weak, you may be looking for someone who is more of a practitioner or has a stronger background in physician integration as opposed to your more typical non-physician CEO," Ms. Gordon says. "What are the weaknesses within the organization, and how does that look in terms of a job description and the experience that comes to bear? You're trying to figure out where the gaps are. That's a real introspective look within an organization."
Talent development
However, a COO lacking certain skills isn't necessarily reason enough to eliminate him or her from the candidate pool. Instead, it presents an opportunity for incumbent chief executives to hand groom a potential successor, perhaps the closest he or she can get to handpicking a replacement.
"If [the board members] are keenly interested in one of the individuals on the team who doesn't have that experience, they must work very deliberately to make sure they develop the expertise required," Mr. Chastain says. "The mistake a lot of organizations make is knowing two years in advance of a retirement and not deliberately developing the talent to be competitive with external candidates. If you've got one or two potential [internal] candidates, you need to make sure you broaden their expertise over that time to test them. If it's a COO that you believe is your successor, make sure they get involved in things like strategic development and managing the balance sheet."
On top of specific talent development, internal candidates have the distinct advantage of already having preexisting relationships with those who can help drive the strategic plan. The risk with external candidates, Mr. Chastain says, is whether or not they will fit into the culture of the organization. They have the talent and experience, but do they have the insider knowledge? Conversely, an internal candidate's main risk is the inexperience, which may be alleviated if CEOs and boards have the foresight to begin talent development early in the process.
That's not to say this type of development and investment in future talent will guarantee an internal candidate is a shoe-in for the position. A good board will thoroughly and fairly consider all candidates, both internal and external. But a CEO can take steps to ensure his or her recommended successor is competitive enough in the final ring.
"At the end of the day when you're evaluating [internal candidates] versus external candidates, boards must ensure they have given [the internal candidates] a fair shot and prepared them to be competitive," Mr. Chastain says.
More articles on CEO succession:
The strategic imperative of our time
Is your leadership vulnerable? 5 trends for succession planning
Call to action: Why CEO recruitment must change