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to take over negotiations with the medical school and the physicians; and it began to work out the details of a transition plan with Andy.

The board wasn’t ready to appoint Sue as the next CEO because it couldn’t yet announce Andy’s resignation. And it decided that it would be best to look at other candidates as well, so that if and when it chose Sue, it would be because she was clearly the best qualified candidate for the position.

Recognizing that the hospital couldn’t afford to lose Sue at the same time as Andy, it gave her a retention agreement that paid a large reward if she stayed in place for two years and a larger reward if she were not formally named the next CEO.

Over the next few months, the board worked out the details of a transitional arrangement with Andy, which would maintain a reasonable income for him until age 62, when his SERP would begin to pay retirement benefits. It agreed to allow Andy to resign “to pursue other opportunities,” without acknowledging any disability.

Once this agreement was made, Andy resigned, Sue was named interim CEO, and the board hired a search firm. The search yielded four external candidates, each of whom had already been CEO of a large health system. Much as the board liked, respected, and trusted Sue, it decided to hire one of the external candidates instead, mostly due to his substantial prior experience as CEO, but partly because Sue had had to make some changes within the system that alienated a significant number of faculty physicians. Hiring this new CEO from outside would give the system a fresh start in rebuilding relationships with the medical school, the cardiologists, and the multi-specialty group.

Retention Issues

Because Sue had already been managing all operations and was deeply involved in maintaining relationships with the medical school and the medical staff, she was ready and able to take on additional leadership responsibilities and managed to keep everything on a steady keel during the time between Andy’s departure and the new CEO’s arrival. At the same time, directors kept negotiations with the medical school and the multi-specialty group moving ahead, and Sue handled negotiations with the cardiologists.

The new CEO, David Gonzalez, finally arrived 12 months later, 18 months after this transition process began, and 24 months after the stroke that set it all in motion. Sue stayed another six months, until the retention agreement was fulfilled, when she left for another CEO position.

It took an additional 12 months to work out the deal with the medical school, and six more with the multi- specialty group, but the agreement with the cardiologists was settled more quickly. The leaders of the board had to stay involved in the negotiations with the medical school to maintain continuity, but also because the new CEO hadn’t yet had time to develop credibility with the dean and faculty.

Because Sue managed to keep the business running smoothly over the 30-month period, the crisis precipitated by Andy’s stroke did not cause any serious disruptions. Because directors were willing to devote the time needed to negotiate the details of the agreements with its most important partners, they managed to move the hospital into a stronger position. And because the board was able to offer Andy a generous settlement that allowed him to maintain much of his income without working, as well as lifetime

Boardroom Brieng: Business Continuity and Disaster Recovery

health care benefits, the transition occurred with almost no publicity for the institution or for Andy.

While the succession plan didn’t work out exactly as expected when it was developed, the existence of the plan made it significantly easier for the board to move ahead. Taking time to consider alternatives, choose the best option, and then develop a plan and timetable for the transition helped Western HealthCare proceed with business more or less on schedule. And while it took longer and was more expensive than anticipated to find and hire the new CEO, the board was satisfied that it had handled this crisis as well as it could have given the circumstances.

David Bjork is a managing director in charge of the Cash Compensation Division for Clark Consulting—Healthcare Group. Dr. Bjork leads the Healthcare Group’s team of cash compensation consultants, which helps clients develop performance-based compensation programs and advises boards on governance of executive compensation. His projects include developing reward programs, rening performance measures, and helping boards govern executive compensation. He has published a number of articles and book chapters on executive compensation in the health care industry. Dr. Bjork earned an A.B. at Harvard, an M.B.A. in nance at the University of Chicago, and a Ph.D. from the University of California at Berkeley. Before joining the Healthcare Group, he was a consultant with the Hay Group for 1 years and, before that, taught at the University of California and the University of Chicago.

Dan Fairley is a senior vice president of Clark Consulting— Healthcare Group. He specializes in leadership transition planning and executive compensation. Fairley’s distinguished career has emphasized health system development; acquisition strategy/implementation; and health care contract negotiations. Before joining Clark Consulting—Healthcare Group, he was senior vice president of the Memorial Health System and President of Healthcare Network Associates in Springeld, Illinois. Earlier in his career, Fairley was a vice president of the ServiceMaster Company LP. He also saw prior service as a vice president and assistant general counsel for VHA, Inc. and VHA Supply Company, Inc. Fairley served as legal counsel and as a business development ocer. Fairley holds a bachelors degree and a Juris Doctor degree from Indiana University.

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