Getting Your Board 'onboard' with Executive Succession

Getting Your Board ‘onboard’ with Executive Succession

Effectively preparing your organization for the unprecedented departure of leadership talent over the next 10-20 years requires a strong commitment from the board. In addition to the traditional board responsibilities concerning CEO succession planning, the most effective boards understand the importance of developing a clear talent strategy and supporting talent management and executive succession practices. However, given the often competing demands on their time and attention, board members require a clear, compelling, and evidence-based business case for developing strong executive succession practices. Drawing on my findings from industry research projects and client engagements, a consistent set of best practices for developing and engaging the board in executive succession practices has emerged.

 

1. Elevate the Strategic Priority of Talent Management

Hospital organizations with exemplary talent management systems create a sense of urgency amongst board members and senior management teams by elevating and clearly articulating the strategic priority of talent development and succession management capabilities. For many executive teams, elevating the strategic priority of talent management demands greater awareness of the impact of talent management capabilities on both clinical quality and cost containment (1). Hospital organizations with strategic initiatives aimed at enhancing clinical quality metrics, specifically those assessed as part of the Affordable Care Act and the Centers for Medicare and Medicaid Services’ (CMS) value-based purchasing program, should be integrated with the development and application of targeted talent management practices and programs. A recent national benchmarking study offers strong support for the powerful impact of talent development and succession management best practices on a range of hospital performance outcomes, including clinical quality, cost containment, nursing turnover, leadership bench strength, and executive gender and ethnic diversity. This semi-annual survey, Healthcare Talent Management Survey, assesses a set of eight talent development and succession management best practices that have been validated through longitudinal research (2). This model of talent management and succession planning best practices includes the following Succession Management Capabilities (SMCs):

  1. Talent Management Support

  2. Talent Assessment & Succession Planning Practices

  3. Performance Appraisal Practices

  4. Incentive Pay Practices

  5. Leadership Development Culture

  6. Role-based Leadership Development

  7. Selection and Onboarding Practices

  8. Talent Management ROI

Key survey findings offer strong support for the importance of developing talent management capabilities to drive strategic, system-wide initiatives. For example, hospitals utilizing talent management best practices score 11% higher overall HCAHPS results compared to organizations with low emphasis on talent management (see Figure 1). Given that HCAHPS results represent 30% of a hospital’s overall score for CMS’s value-based purchasing program, the development of talent management capabilities represents a strategic opportunity to drive higher clinical quality outcomes and subsequent reimbursement for healthcare services delivered to Medicare patients. Data from the same study show that hospital organizations with highly developed talent management capabilities are also far more effective with cost containment. Illustrated in Figure 2, healthcare organizations with strong talent management practices report an average spending of $17,493 per Medicare beneficiary compared to $20,706 for hospitals with underdeveloped talent management practices (18.4% difference). The differential impact of talent management capabilities driving the cost of care is highly significant for healthcare organizations, as the Medicare Spending per Beneficiary metric (MSPB-1) represents 20% of a hospital’s overall value-based purchasing score for FY 2015 (3). The results of these benchmarking studies and similar research should be presented to top management team members and the governing board as an evidence-based rationale for investment in talent development and succession management practices to facilitate the transition to value-based performance.

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Figure 1

Note: Hospital organizations that scored at least one standard deviation above the sample mean across each best practice are presented in orange ('High'); hospital organizations that scored at least one standard deviation below the sample mean across each best practice are presented in blue ('Low).

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Figure 2

Note: Hospital organizations that scored at least one standard deviation above the sample mean across each best practice are presented in orange ('High'); hospital organizations that scored at least one standard deviation below the sample mean across each best practice are presented in blue ('Low).

 

2. Illustrate the Looming Retirement Wave

Healthcare organizations effectively sharpen the business case for investing in talent development and succession management capabilities by conducting forecasting analyses that visually demonstrate the anticipated retirements and leadership benchstrength across executive roles and other critical leadership positions. Without the influence of a graphically illustrated, data-driven argument concerning workforce demographics, HR decision makers may fail to establish a clear business case for the significant investment of time and resources to build a best-in-class talent management system. In my work with hospital executives, particularly those in key operator roles, a common refrain concerning the business case for talent management is the clear practical need for ‘leadership stability’ in critical executive roles. Of the many benefits of talent management capabilities extolled by HR leaders, the single advantage that holds the attention of many executives is the ability to maintain stability in key leadership roles and avoid the massive disruptions associated with unexpected retirements or exits. A critical best practice for establishing a clear business case is annually assembling the necessary workforce demographic data to illustrate the coming ‘retirement wave’ across management levels and other key leadership roles.

Best practice organizations conduct annual retirement forecasts that plot employees in leadership positions (supervisor, manager, director, executive) across key age groups (< 30, 30-34, 35-39, 40-44, 45-49, etc.). For each leadership position, the following metrics are consistently reported and discussed with top management teams and board members: (a) the overall percentage of leaders who are greater than 55, and (b) the percentage of leadership positions that have at least one ‘ready now’ candidate (leadership benchstrength). The presentation and spirited discussion that result from these forecasting figures at leadership team and/or board meetings will inevitably lead to an increased appetite for talent management best practices.

 

3. Conduct Annual Talent Reviews that Assess Strategic Talent Pools

As a powerful supplement to a comprehensive visual retirement forecast across management levels, best practice organizations conduct annual talent reviews of strategic talent pools that include the creation of ‘talent profiles’ identifying the potential risks and costs of vacancies in critical leadership roles. For many hospitals, these positions include facility C-suite roles—CEO, COO, CFO, and CNO, while an increasing number of healthcare organizations seeking greater alignment with clinical quality initiatives and physicians are assessing Chief Medical Officer, Clinical Integration, and other key clinical leadership positions as strategic talent pools. This practice is consistent with leading companies across industries and sectors for aligning human capital practices with business strategy (4). In short, the resources devoted to talent management activities are strongly aligned with talent pools that have the greatest strategic impact. For best practice hospital organizations, annual talent review sessions are executed with the same rigor and discipline as the annual performance review process. At Sutter Health, a 24-hospital health system based in Northern California, the annual talent review is a standardized, data-driven process across its affiliates (hospitals) and management levels. Sutter Health’s leadership talent is reviewed sequentially, beginning at the affiliate level and proceeding through the organization’s regions and concluding at the health system’s headquarters. Importantly, the goal of the talent review process is not replacement planning—the identification of the most likely direct report to replace an incumbent leader—but to cultivate strong succession plans for strategically critical positions and create a central, searchable repository of leadership talent. Highly effective talent reviews are full-day sessions facilitated by HR professionals in which management teams assess their direct reports, calibrate ratings across team members, and discuss personalized development plans for employees rated as high potentials and high performers.

 

4. Benchmark Your Organization’s Talent Management System

While leading hospital organizations consistently monitor and assess their competitors’ services, products, expansion efforts, and other business activities, they also compare their talent development and succession management capabilities to industry peers in an effort toward continuous improvement and establishing an ‘employer of choice’ distinction in key labor markets (5). The most effective driver of greater investment in talent management capabilities often derives from external forces, namely the status and reputation of key competitors concerning talent development and succession management practices. As part of participating in annual benchmarking surveys, best practice hospitals and health systems create talent management scorecards that include key performance metrics for measuring the impact of talent management practices. The results of participation in benchmarking studies are utilized as part of balanced scorecards or dashboards that are communicated to key stakeholders across the system. The selection of metrics for talent management scorecards is an invaluable activity for HR leaders and their senior management team colleagues. Participating in annual benchmarking surveys, such as the Healthcare Talent Management Survey (6), allows for direct comparison of a hospital’s talent management practices and performance outcomes to organizations that most resemble their own in size and type of healthcare delivery model (academic, specialty, for-profit/investor-owned, community, governmental, etc.). To further establish an organization-wide appreciation for the value of highly-developed talent management strategies, leading hospitals and health systems annually report their scorecard results to multiple internal stakeholders, including the governing board and management teams across the organization.

 

5. Communicate the ROI of Talent Management Capabilities

For many hospital executive teams, the most important driver of their support for talent development and succession management activities is clear evidence of the ROI of such practices. In short, what is the evidence that talent assessment and succession management best practices drive superior performance outcomes in hospital organizations? The Healthcare Talent Management Survey offers revealing evidence of the strong impact of highly effective talent management practices (7). For example, hospitals that demonstrate talent assessment and succession planning best practices report a 45.7% leadership bench strength metric, which is the percentage of critical leadership positions with at least one ‘ready now’ successor, compared to 7.7% for organizations with little or no focus on talent assessment (see Figure 3). Similarly, Figure 4 illustrates a 67.7% internal/external executive placement rate for best practice organizations, indicating that two of every three open executive position (VP or higher) is sourced by internal candidates. By comparison, hospitals with minimal emphasis on talent assessment practices reported an internal/external executive replacement ratio of only 21%. Given the high costs of executive search activities, as well as the corrosive impact of excessive external hires on morale and productivity, the benefits of highly developed talent assessment activities easily exceed the investment. At Sutter Health, the investment in a best-in-class talent assessment process has realized clear performance outcomes. For 2014, the health system achieved a 79% internal/external executive placement ratio while six of seven hospital CEO positions were filled with internal talent. As a strong indicator of sustained excellence in talent assessment and succession management, Sutter Health has achieved a mean internal/external executive placement ratio of 68% from 2011 through 2014.

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Figure 3

Note: Hospital organizations that scored at least one standard deviation above the sample mean across each best practice are presented in orange ('High'); hospital organizations that scored at least one standard deviation below the sample mean across each best practice are presented in blue ('Low).

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Figure 4

Note: Hospital organizations that scored at least one standard deviation above the sample mean across each best practice are presented in orange ('High'); hospital organizations that scored at least one standard deviation below the sample mean across each best practice are presented in blue ('Low).

 

One of the most pressing challenges associated with talent management in healthcare is the high cost of nursing turnover, which is exacerbated given the current retirement trajectories of nursing leadership teams in many hospitals and health systems. Research indicates that the total cost of nursing turnover, including hiring costs, training costs, lost productivity, and impact on team morale, is conservatively $31,486 per nurse (8). According to findings from the Healthcare Talent Management Survey, hospitals with highly developed talent management systems reported an annual nursing turnover rate of 8.74% compared to 13.61% for organizations with low emphasis on talent management practices (see Figure 5). Extrapolating the average cost of annual nursing turnover to the sample of hospitals that participated in the survey, investment in talent management practices was associated with 36% lower annual turnover and $5.31M annual savings. Across all talent management capabilities, selection and onboarding practices represent the most powerful driver of low nursing turnover at high-performance hospital organizations. Overall, HR leaders at best practice health systems engage their senior leadership team colleagues in an evidence-based discussion of the ROI of talent management capabilities, particularly those that directly impact the organization’s ‘pain points’, key development areas, or strategic initiatives.

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Figure 5

Note: Hospital organizations that scored at least one standard deviation above the sample mean across each best practice are presented in orange ('High'); hospital organizations that scored at least one standard deviation below the sample mean across each best practice are presented in blue ('Low).

6. Align Talent Management Practices with Diversity Initiatives

Many hospitals and health systems have adopted workforce diversity initiatives that represent system-wide efforts to enhance the gender and ethnic diversity of management teams at all levels. Indeed, the American Hospital Association has adopted the elimination of racial and ethnic disparities in the governance and management of hospital organizations as a core advocacy issue (9). Practically, hospital executive teams have been wrestling with strategies for ensuring that their workforce and management teams reflect the gender, ethnic, and cultural backgrounds of their patients and local communities. Hospital organizations that adopt talent management best practices accelerate workforce diversity initiatives by seeking consistency and transparency with talent review practices, specifically the high potential leadership assessment process. Ensuring that employees are assessed using a validated, standardized assessment of high potential leadership is critical for enhancing diversity metrics across management and executive positions. Best practice organizations avoid assessing leadership potential with simple categories (e.g., ‘high potential’, ‘solid performer’, etc.) and the rater errors and biases that accompany such approaches. Highly effective talent review practices utilize validated leadership potential assessments that measure the traits and leadership competencies associated with performance in future leadership roles. These assessment tools measure core traits or personal characteristics, such as the aspiration to be in a leadership role and energy or drive, as well as behavioral competencies including change agility and learning agility (10). When consistently applied over time, these practices cultivate a more diverse pipeline of leadership talent that can effectively accelerate an organization’s diversity initiative. As evidence of these best practices, findings from the Healthcare Talent Management Survey demonstrate that hospital organizations with highly-developed talent management practices reported 52.4% and 42.5% of C-Suite positions were occupied by women and ethnic minorities, respectively (see Figure 6). By comparison, organizations with underdeveloped talent management capabilities reported that women (23.7%) and ethnic minorities (11.6%) occupied far fewer C-Suite positions. Not surprisingly, the strongest driver of leadership diversity metrics across all talent management capabilities was the level and consistency of top management team support for talent development and succession management practices.

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Figure 6

Note: Hospital organizations that scored at least one standard deviation above the sample mean across each best practice are presented in orange ('High'); hospital organizations that scored at least one standard deviation below the sample mean across each best practice are presented in blue ('Low).

7. Engage Senior Leadership Teams in Assessing and Developing Talent

Hospitals with highly effective talent management systems ensure that senior leaders are fully engaged in the design and execution of cornerstone practices, particularly talent assessment practices and leadership development programs. As part of the ongoing talent review process, senior leadership teams across the health system (hospital, region, and system) are intimately involved in the rigorous assessments of their team members that are utilized to drive discussions in talent review meetings. HR leaders work diligently to demonstrate the value of requiring leadership teams to assess the leadership potential of their direct reports, and then utilize such data to populate 9-box tools that plot employees according to job performance and leadership potential. To fully engage executives in the process, HR leaders work collaboratively with management teams to identify a range of developmental experiences for high-potential leaders that are aligned with the hospital’s strategic initiatives. Management teams must be fully engaged in identifying the leadership development opportunities, such as organization-wide strategic projects, job rotations, participation in ‘leadership academy’ programs, and LEAN projects, that will be offered to employees who are assessed as both high potential and high performer.

In addition to full participation in talent assessment and succession management practices, leading hospital organizations engage senior leadership teams through formal and informal mentoring programs, sponsorship of action learning projects, and teaching modules as part of internal leadership development programs or courses. The signature, capstone learning experience of many healthcare ‘leadership academies’ is the completion of a team project that addresses a challenge or issue that is strategically aligned with the health system. High-potential leaders from across facilities, regions, and clinical/non-clinical roles participate in intensive, team-based projects that require executive sponsorship, utilization of operational, market, and financial data, and presentation of findings and recommendations to senior leadership teams for implementation consideration.

For many best practice health systems, including Henry Ford Health System, Cleveland Clinic Health System, Sutter Health, Kaiser Permanente, and Trinity Health, participation in an internally developed leadership “academy” represents an ideal development opportunity for high potential leaders. Sutter Health’s Leadership Academy, Hospital Corporation of America’s (HCA) Executive Development Program (EDP), and Kaiser Permanente’s Strategic Leadership Program (SLP) are examples of exemplary internal leadership development programs that demand strong engagement from senior leadership teams.


Conclusion

Overall, the depth and consistency of senior management team engagement in talent development and succession management practices clearly distinguishes hospital organizations with best-in-class talent management systems. As illustrated via findings from benchmarking surveys, case studies, and client engagements, a hallmark of high-performance talent management systems is the cultivation of a compelling, evidence-based business case for sustained investment in talent management capabilities.

  1. Kevin S. Groves (2015). “Impact of Talent Management Practices on Financial, Workforce, and Value-Based Purchasing Metrics”. Pepperdine University & Groves Consulting Group. Accessed on August 1, 2015 at http://www.grovesconsultinggroup.com/index.php/research/.

  2. Kevin S. Groves (2015). “Impact of Talent Management Practices on Financial, Workforce, and Value-Based Purchasing Metrics”. Pepperdine University & Groves Consulting Group. Accessed on August 1, 2015 at http://www.grovesconsultinggroup.com/index.php/research/.

  3. Centers for Medicare and Medicaid Services (CMS) website. Accessed February 1, 2015 at https://data.medicare.gov/data/hospital-compare.

  4. Mark A. Huselid, Brian E. Becker, & Richard W. Beatty. “The Workforce Scorecard: Managing Human Capital to Executive Strategy”. Boston, MA: Harvard Business Press.

  5. National Center for Healthcare Leadership (2015). Best Organizations for Leadership Development (BOLD) Award. Accessed August 5, 2015 at www.nchl.org/index.asp.

  6. Pepperdine University’s Graziadio School of Business and Groves Consulting Group. Accessed July 29, 2015 at www.grovesconsultinggroup.com.

  7. Kevin S. Groves (2015). “Impact of Talent Management Practices on Financial, Workforce, and Value-Based Purchasing Metrics”. Pepperdine University & Groves Consulting Group. Accessed on August 1, 2015 at www.grovesconsultinggroup.com/index.php/research/.

  8. J. Deane Waldman & Sanjeev Arora (2004). Measuring Retention Rather than Turnover: A Different and Complementary HR Calculus. Human Resource Planning, 27 (3): p. 6-9. Susanlee Wisotzkey (2011). Recruitment and Retention Report: Will They Stay or Will They Go? Nursing Management, 42 (2): p. 15-17.

  9. American Hospital Association (2015). Accessed on August 5, 2015 at www.aha.org/advocacy-issues/disparities/index.shtml.

  10. Michael M. Lombardo and Robert W. Eichinger (2000). “High Potentials as High Learners”. Human Resource Management, Volume 39, No 4, pp. 321-329.

  11. National Center for Healthcare Leadership (2010). “Best Practices in Healthcare Leadership Academies”. National Center for Healthcare Leadership (White Paper). Accessed on July 9, 2015 at http://www.nchl.org/static.asp?path=2853,2996.

Kevin Groves