is anyone next in line?

Imagine that your CFO or another senior executive suddenly announces plans to work for another hospital,

An effective succession planning process covers all of these contingencies. Consider the recent example of McDonald's Corporation, whose CEO, Jim Cantalupo, died unexpectedly in April 2004 and was replaced in an orderly manner six hours later. A few weeks later, the replacement CEO, Charlie Bell, was diagnosed with cancer, and the board again was able to make an orderly replacement.

Unfortunately, few healthcare organizations handle succession planning so well, if they do it at all. In many healthcare organizations, succession planning is ns pleasant a topic to discuss as bad breath. Often, succession planning begins and ends with a chat between the board chair and the CEO during the CEO's evaluation. Some boards and CEOs simply do not think that they have to worry about succession planning because they have young leaders. And in some cases, succession planning is a secret ritual, performed by an inner "power group."

But the times are changing. Within the past year, succession planning has become an increasingly important strategic priority for many healthcare organizations. Like top companies such as McDonald's, they see succession planning as an ongoing process that is simply part of daily business.

The stakes are high. As more baby boomers reach retirement age, a significant shortage of executive talent is emerging. This shortage means that unplanned vacancies can result in slow transitions, something organizations cannot afford in today's highly competitive market. Momentum could slow on key initiatives. And new initiatives, for new executives, could be disruptive in the short term. Strategic planning activities could pause. A leadership vacancy could even affect your hospital's bond rating.

It Can Happen to You

The causes of executive turnover are many and change over time. GEOs or GFOs may leave because they are getting older or because a life event has caused them to re-evaluate their career. They may become more highly recruitable because of national attention given them for an outstanding achievement. Executives may become disabled or die. Perhaps the organization has a need for a different type of executive. At times, organizations want to engage in discussions of succession planning to allow an incumbent to make a graceful exit. Additionally, there could be an internal candidate whom the board or the GEO wants to groom.

National studies show that the GEO turnover rate is about 16 percent. Other executive turnover typically falls just short of this figure. A?oo3 HFMA survey indicated that a quarter of GFO respondents had been at their jobs for two years or less, suggesting significant CFO turnover. Given all these circumstances, organizations can be certain that they will experience some leadership turnover and face the need for succession activity in the relatively near future.

Succession Planning Defined

Succession planning is simply a formalized plan of activities in the event of planned or unplanned leadership vacancies. Often, it is applied only to GEOs, but it should address other leadership levels as well.

If you have seen 10 succession plans, you have seen 10 different succession plans. There is simply not a standard format. Succession plans need to be customized according to the needs and goals of the organization. However, succession plans do have common elements. Highly effective succession plans include at least three basic content elements:

* An, emergency plan. This plan is used should an executive become immediately incapacitated or die. Publicly traded companies must have this sort of plan in place.

* The "standard plan." This planning process is used when an executive leaves for another job. No particular departure is considered-the succession plan simply provides the steps to be taken in the event this occurs.

* Anticipatory planning. This type of planning occurs when an executive indicates a plan to retire or gives you a specific departure date. Note that for many healthcare GEOs and GFOs, the common retirement age is 61 or 62, not 65.

Within this general framework, succession plans also should:

* Address leadership levels beyond the CEO. Although succession plans often focus on the GEO, they should also address other senior leaders in an organization.

* Be developmental. The plan should provide for education, development, experiential activities, and exposure for key staff who could assume leadership positions.

* Include a communication process. The communication process should ensure that people affected by the plan are aware of its provisions; in particular, the process should address how the plan is communicated to key individuals in the event of a vacancy requiring that the organization enact its succession plan.

* Address compensation. Succession planning often is driven by compensation. Often, compensation drives a CEO or GFO elsewhere-or keeps the person in place. Your compensation plan should consider developing so-called golden handcuffs. It also should address upfront compensation issues such as financial retention strategies, continuing payments to a retired GEO or CFO, and/or supplemental retirement approaches.

* Address leadership competencies. The plan should specify the leadership competencies required for an executive position.

In addition to these content components, successful succession planning processes share certain characteristics. Ideally, the process is:

* Driven by the board, with the CEO's involvement. Succession planning is the board's prerogative, but it cannot leave the CEO in the dark, and the CEO can help ensure that the board addresses the issue.

* Driven by strategy and goals. Succession planning should be driven by the organization's strategy and goals-in particular, the human resource strategy necessary to fulfill your strategy and goals.

* Part of regular board activities. Succession planning should be addressed as part of the annual GEO evaluation process and as part of strategic planning. It must be more than an informal chat with the GEO.

*An ongoing and continuous process. Succession planning should not be something put into a book to gather dust. It should be revisited annually.

* Documented. Putting the succession plan in writing formalizes it, memorializes it, and protects the organization even if, for example, both the CEO and the board chair were to leave.

Who Does It?

Succession planning is the board's fiduciary responsibility and one of its most important duties. Although some may argue that succession planning for positions other than the CEO is the responsibility of the GEO, there is increasing consensus that the board should be involved in succession planning for all senior executives. Obviously, the GEO's role is to lead these discussions and make recommendations, but the board has the global oversight of ensuring continuity in senior leadership. CEOs review the compensation and performance of all the senior executive team members, and succession planning is closely related to these discussions.

Tips (or Successful Plan Development

An effective plan begins with a clear statement of goals. Why are you putting together a succession plan? What do you want to achieve? Different goals will drive different plans. The more time you spend on the front end sorting through the goals, the better your plan will be in the long run. Once the plan is developed, make sure that it focuses on those goals.

If you have never developed a succession plan, keep it simple. Develop a written document to memorialize the decision points and the action steps. Address compensation matters.

Do not limit the planning process to the board chair. The board's compensation committee might be an excellent forum for succession planning discussions, given its additional importance today due to 1RS review of compensation.

Develop a list of questions that need to be addressed. Ensure that there is a champion of the process. Usually, the champion is the board chair. Consider using an outside party whose job will primarily be coordinating and facilitating the succession planning process, as well as serving as a neutral commentator. Having an outsider broker the plan can help with the touchy situations inherent in succession planning. This person's role is to ensure that all significant issues have been adequately addressed so that unspoken issues do not sabotage the plan later.

Succession Planning Benefits

Succession planning is a sign of good governance and good management. It creates confidence within the environment. It demystifies the succession process. Engaging in succession planning discussions can actually help the executive evaluation process, whether at the GEO level or at another executive level. Engaging openly in succession planning at the board level can actually make a CEO search easier down the road. The same applies for engaging in succession planning for other senior executive positions. It provides for appropriate discussions of leadership competencies and can provide a developmental roadmap for executives under the GEO. A welldeveloped succession plan can eliminate, or at least minimize, the posturing of other executives as a planned departure draws near. Succession planning can also enhance the quality of conversations between the board and the CEO.

Succession Planning Pitfalls

A thoughtful approach to succession planning will help avoid a number of significant potential pitfalls.

Ineffective communication. Who is in the know? Who needs to know? How are the plan and its annual updates going to be communicated? Depending on the board, everyone may need to know. For others, only the executive committee needs to know. Widespread knowledge of the succession plan could create a lame-duck scenario for the CEO, CFO, or other executive. On the other hand, lack of knowledge could hamstring the board chair-elect or other leaders who are not in the know. It can also create an awkward situation when a new board chair takes office. And if the plan addresses the succession of executives under the CEO, a new CEO may not be supportive of the plan's outlined approach.

Feelings of entitlement or alienation. Work hard within your planning process to avoid feelings of entitlement by the COO, CFO, or other executives who may feel that they are "in line" for progression. In fact, your plan does not have to address the progression of staff within the organization. Conversely, the board should work hard to reassure the COO, CFO, and other executives that they do not have to go elsewhere to progress in their careers or worry about job loss under a new CEO.

The Importance of Preparation

In the words of speaker, author, and motivator PaulShearstone:

Succession planning is an integral part of what binds and brings balance to business, politics, and our personal lives. Like most disciplines, it's not as easy as it sounds. Nevertheless, like death and taxes, it is unavoidable and will occur in many organizations.

Organizations that are prepared often are the ones that distinguish themselves as truly great. Strategic planning is an important component of such preparation.