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Healthcare sees highest CEO turnover rates

Aging population and rapid M&A activity mostly to blame

CHICAGO – The New Year brought a surge in turnover among the nation’s CEOs, with 123 leaving their posts in January, according to a recent report from global outplacement and executive coaching firm Challenger, Gray & Christmas (CGC). Healthcare led the pack with 25 departures, up from nine a year ago.

The 123 January CEO departures represented a 48 percent increase from the 83 exits recorded in December 2011. The total was 28 percent higher than January 2011, when 96 chief executive departures were announced.

Healthcare organizations saw the heaviest CEO turnover among all sectors in 2011, as 187 CEOs left their posts, an average of nearly 16 per month.

“It’s hard to pinpoint the reason for the high number of CEO departures in healthcare,” said James Pedderson, director of public relations at CGC. “It could be sheer numbers. According to the Bureau of Labor Statistics, there were more than 811,000 private-sector healthcare and social assistance establishments in the U.S. as of Q2 2011. Employment in the healthcare and social services (nearly 17 million) is second only to government in terms of size. There are nearly 6,000 hospitals in the U.S., thousands of medical device makers, etc.”

“There doesn’t seem to be any overriding trend in healthcare CEO departures,” added Pedderson. “They were dominated by retirements and resignations. Among all healthcare CEOs, the average age of those departing (at least among those where age information was available) was 62 and the average tenure was nearly 11 years (the average for all industries in 2011 was eight years). For retiring CEOs, the average age was 63 and average tenure was 17 years. These stats indicate that healthcare is not seeing a lot of short-term CEOs, which might suggest increased turmoil.”

Of the 123 departures announced in January, 39 were resignations, according to CGC tracking. This relatively vague reason for departure is typically the most commonly cited. It was followed by retirement, which was cited by 32 exiting CEOs. Another 25 stepped down into other roles within the leadership structure, usually as the chairman.

According to Pedderson, CEOs citing “taking a new position” as a reason for stepping down happens more frequently in healthcare than in other fields.

“This is probably a little more common in healthcare,” he said. “Despite the large number of establishments, it’s a small community. While consumer goods manufacturing, retail and financial, might be more open to hiring CEOs from other backgrounds, hospitals, medical device manufacturers and others in healthcare appear to be more inclined to seek leaders from within the industry and from within their own industry niche. This impacts the numbers since healthcare firms and providers are seeking CEOs from other similar organizations."

Mark Madden, senior vice president of executive search at Lenexa, Kan.-based healthcare leadership recruiting firm B. E. Smith reports that hospital CEO turnover rates increased from 2008 to 2010 for multiple reasons, including the aging population placing additional demands on the industry and many CEOs reaching retirement age themselves.

“Members of this generation, including CEOs, are retiring and leaving organizations looking to fill a void in important leadership positions,” said Madden.

Another key reason for CEO departures is the spike in the healthcare mergers and acquisitions market.

“The healthcare industry has seen a record number of mergers and acquisitions over the past few years,” said Madden. “These health systems are developing a new approach to adjust to the increased financial pressures of the industry. They are centralizing positions and responsibilities resulting in a reduction in positions.”

While a CEO departure is disruptive to any organization, Madden says it is particularly difficult on healthcare organizations in small communities.

“These organizations do not have the broad bench to absorb the loss of an experienced leader,” he said.

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