Unconventional Leadership

by Nancy M Schlichting

  When you’re in Detroit, you have to lead with a lot of heart. It is not always an easy place to be, but there is no place I believe could be more rewarding. We have been able to grow despite Detroit’s shrinking population, and I credit that to our strong connection to the community. We have been able to innovate and drive social and economic revitalization in the region through community partnerships and initiatives because other people care about the success of Detroit as much as we do. We have been able to attract high-caliber staff and physicians because they share a passion for Detroit and a mission for innovative care. I always tell people: if you’re looking for easy, this isn’t it. If you’re looking to make a difference in the community, to reap incredible rewards, to innovate and continue to grow, and to work with a phenomenal team of people, then this is the place you want to be.

  CHAPTER EIGHT

  Face the Future

  I can’t walk away from difficult situations—it’s simply not in my nature. Throughout my career, I have always observed trying times through a problem-solving lens and asked: “What’s broken and how can I fix it?” That focus on anticipating problems and fixing faults is part of the reason we have been able to sustain our financial performance through thick and thin at Henry Ford. It’s the reason we’ve grown over a thirteen-year period in which Michigan lost a million jobs and Detroit lost population, grappled with a major economic collapse and fiscal bankruptcy.

  Despite our success, we’ve done a lot of very hard things during my tenure. We closed three hospitals and orchestrated a turnaround of the entire system. We cut costs radically and made difficult choices about jobs and programs. We even “lost” most of the health system’s short-term cash. I’ll never forget the day in September 2008, when our CFO, Jim Connelly, walked into my office with all of the color drained from his face. He said, “Nancy, I think we have a problem.” Jim was a guy who never came to me with problems—he always just solved them—so I knew something was very wrong. At the time, nearly all of the health system’s short-term cash was held in the AAA-rated Reserve Primary Fund. It was the oldest money market account in the country and was considered to be an extremely safe place to invest working cash. Then the financial world turned on its head. Lehman Brothers collapsed as part of the credit default debacle of 2008. There was a run on the fund, and the bank froze it. We couldn’t access the short-term cash we needed to pay employees and vendors. Jim told me this, and the next thing he said was, “But we’re working the problem. We’re talking with the banks. We’re going to figure out some short-term fixes.” We got most of our money back eventually, but it took years of legal wrangling and jumping a lot of hurdles.

  Nobody likes being confronted with such difficult situations. Yet these are the challenges that keep me coming back: I want to see things through and be part of the solution. So even I was surprised when a critical situation prompted me to realize it was time to retire from the health system. The crisis came during our near-miss merger with Beaumont Health System in 2013. We had completed a tremendous amount of due diligence on the deal and were partway through the integration work. The public announcements had been made, and we were gearing up to see the deal through. And yet, I had come to the conclusion that the merger was a mistake for Henry Ford. Our cultures were too different, and I could see no way that we could merge with Beaumont Health without losing the critical attributes that made us so unique and successful. It also had become personal for me, and the stress was affecting my health. I was willing to step aside promptly, however, if our board believed that the merger was a good strategic move for the organization.

  At that point, on a sunny Sunday morning in May 2013, I called Sandy Pierce, chair of the Henry Ford board, and board member Bill Ford, great-grandson of Henry Ford and the executive chairman of Ford Motor Company, and told them that I was ready to retire. These are both people I trust, admire, and with whom I have had an exceptional working relationship. I said to them, “If there needs to be someone else leading this company, someone who can get behind this merger, I’m ready to start the process now. I don’t want to be the problem.”

  This was a turning point in the deal. Sandy and Bill, as well as Chief Operating Officer Bob Riney and a number of others, were similarly convinced that the merger was a cultural misfit that could destroy Henry Ford. That, of course, was the last thing any of us wanted. On that same Sunday, Sandy and Bill called a meeting with me, and others including Bob Riney and board member David Hempstead. They told me they wanted me to be the CEO more than they wanted the merger to be completed. At that time they asked me, “Can you stay with us long enough to put a solid succession in place?” I said, “I will do that. I will not leave Henry Ford in the lurch.”

  At that point, I started thinking in earnest about how to lead the succession process. It was an important moment in my life as I considered my future and what I was going to do next. That’s when it really sunk in for me. It was time to retire from Henry Ford, and I would leave with the company strong rather than in a position where it could possibly backslide financially. In order to do that, I needed to see us through some difficult situations. The first was shutting down HFHS’s merger with Beaumont Health System.

  The Beaumont Merger

  The Henry Ford–Beaumont merger was part of a broader trend of health-care consolidation occurring nationwide. In general, the recent surge in hospital mergers is due to new financial incentives, federal reimbursement cuts, and cost containments that are part of the Affordable Care Act.1 This means that scale matters more than ever in health care. It’s one of the reasons we focused so heavily on growth since I became chief executive and why I am so pleased that we were able to double in size from $2.2 billion to nearly $5 billion in annual revenue. Scale creates cost efficiencies and the ability to achieve better reach. Building a new hospital and acquiring two others, combined with the additional growth in our health system, allowed us to fill our geographic footprint and spread fixed costs across a larger base. Scale is considered an important element of strategy in health care, and if the merger had gone through, the resulting hospital system would have been one of the largest in the Unites States.

  Beaumont approached us in the spring of 2012. We received a letter from a third-party financial firm, Kaufman Hall, soliciting our bid to partner with Beaumont and potentially bring it into our system. At that time, Beaumont was about half our size in terms of total revenue and two-thirds our size based on the delivery system. Although we were larger and had a construct that included a six-hundred-thousand-member Health Alliance Plan, Beaumont was the dominant player in the affluent northern suburban markets of Detroit. Both systems were financially sound overall and, despite some facility overlap, were fairly complementary in terms of geographic coverage. The merger would have been one of equals rather than an acquisition of one system by the other. I told Sandy Pierce about the letter at the Baldrige awards ceremony in Washington, DC. While the proposal came as a surprise to her, just as it did to many of us, it was something we decided we had to explore.

  We kept the idea under wraps that summer in order to undertake the initial due diligence and start our internal vetting process. The potential merger was a closely held secret, known only to a very small group of senior leaders at Henry Ford and Beaumont. We went on to make a series of presentations to Beaumont’s board and were successful in moving through consecutive levels of scrutiny. On October 31, 2012, we announced that we signed a letter of intent with Beaumont to combine our operations into a new $6.4 billion organization. We shared the news with Henry Ford employees and physicians, and then we went public in the media with a joint press conference.

  I think most people were excited by the merger prospect. I know that I was—the strategic aspect of the plan was clear and compelling. It would give us incredible strength in every part of the metro Detroit market. But I was nervous, as well, because the cultures of the two organizations were so different. We anticipated potential conflicts, in part because we would
have two hospitals within a few miles of each other in the northern Macomb and northern Oakland County areas of Detroit. And, we suspected, there was resistance to our commitment to service in the city of Detroit, as Beaumont was not accustomed to managing the high levels of uncompensated care that come with a large impoverished urban environment. Finally, we had two significantly different physician organizations: Beaumont doctors were in private practice, whereas a large number of our physicians were salaried as part of the Henry Ford Medical Group.

  After seven months of planning and exploration, many of the troubling issues that emerged early on became major concerns. The first issue was Beaumont’s governance model. The CEO was relatively new and the board chairman worked sixty hours a week, overseeing business operations from an office in the C-suite. That was not a model to which I was accustomed. I had been Henry Ford’s CEO for almost ten years by then, and our board had full confidence in me. I managed operations independently and board members oversaw higher-level strategy and policy decisions. When I met Beaumont’s board chair I was frank with him, saying that it was not my desire to operate that way, and I think that made him very uncomfortable. Second, it became apparent to us that members of the Beaumont medical staff did not support the merger. They, along with some of Beaumont’s senior leadership, seemed to be testing or judging our organization, criticizing our model as well as our mission and values, rather than objectively evaluating us based on the original premise of our plans to merge. They had approached us, after all, so their apparent lack of enthusiasm was troubling. Finally, it became clear, based on some of their frank remarks, that our focus on Detroit, and on diversity in general, was an issue. We were not an organization that would waver in terms of our commitment to the city, and ultimately that was an important imperative they did not share.

  Two radically different perspectives emerged for the would-be organization. I think Beaumont realized this around the same time we did. Many of the foundational elements in the letter of intent, including the preservation of two academic medical centers in Detroit and Royal Oak, were no longer supported by some of Beaumont’s leaders. Ultimately, we did not share the same values, vision of where health care was going, or desire to drive change and create new models. A couple of months following that pivotal Sunday meeting, when I had offered to retire, we pulled the plug. We announced that we were walking away from the deal.

  Seeing Things Through

  Pulling away from the Beaumont merger was a defining moment for us. It was a difficult experience and it took a while for us to recover, yet it was clear that we emerged stronger. We understood our strengths, reaffirmed our values, and recognized that our vision of health care was different from that of other organizations. That different vision is a strength for us, and we value it highly. Interestingly, we heard sighs of relief from many physicians, employees, and even a few patients—people seemed afraid that we would lose what is special about HFHS if the deal went through. Whether that would have occurred is debatable, but we walked away with a certainty about the special aspects of our organization that we are committed to. And the process also helped us gain a better understanding of Beaumont and its competitive strengths. When you get that far inside a competing organization you’re afforded a glimpse of the way its leaders think and act, and have an opportunity to learn from their strengths as they learned about us. That’s a pretty unique opportunity, and it broadened our scope. We often factor that knowledge into our strategic decisions.

  The pre-merger process also showed us how strong we really are. We need to be—not only because of the complexities of our industry, and of Detroit, but also because speed bumps occur with regularity. Not every challenge will be quite like the Beaumont deal, but difficulties will continue to confront us nonetheless. Since the failed merger, we weathered a challenging eighteen months installing an advanced electronic medical record (EMR) and billing system across all of Henry Ford. Nearly twenty-five years ago, Henry Ford was one of the first hospital systems to use electronic patient records in an ambulatory setting to ensure quality and patient safety. The new EMR builds upon that early information system to transform the way we provide care for patients. The initiative required a $350-million financial investment (including between $50 and $75 million dollars a year in additional operating costs) and thousands of IT and training hours, entailing considerable cost cutting and a level of disruption and distraction for physicians and employees that was truly profound. That financial commitment came at a time of reduced patient volume—associated with the lower readmission rate brought about by health-care reform—creating a lot of economic stress on the system.

  All of these challenges tested our mettle, but we made it through better than ever. In fact, 2015 is turning out to be the system’s best financial year on record. That is gratifying for all of us as Henry Ford Hospital celebrates one hundred years, and as I celebrate my final year as chief executive at Henry Ford Health System. One of the rewards of never walking away from a difficult situation is being able to retire when the health system is at the top of its game and the best it has ever been.

  Naming a Successor

  I was forty-eight when I was appointed chief executive at Henry Ford. Fourteen years later, I am retiring at age sixty-two. Personally, I think a forty-eight-year-old CEO who retires at sixty-two represents a fairly youthful paradigm. And I believe that’s the way it should be.

  Being a CEO requires an intense focus on strategic thinking and operational performance. Although I remain as committed as ever to our vision, I know that I have a little less wherewithal than I did five years ago. It’s not about losing your way—you simply lose some of your steam because it’s hard to sustain focus for a prolonged period of time. In my career, I’ve always felt that eight to ten years was the right span of time to remain in a position. At Henry Ford, I had a chance to do multiple jobs, and I believe that allowed me to remain longer. The challenges, as well, have been motivating and constant.

  Clearly, any CEO searching for a successor hopes to find someone who can continue what she started and take the organization to the next level. Yet, succession is hard to get right, and even the best-laid plans can go awry. I’m living proof of that. Before coming to HFHS, I returned to Akron, Ohio, to succeed my old boss and mentor, Al Gilbert, and run a health system I knew very well. It was a tremendous opportunity. Then I received the call from Gail Warden, and very quickly, with Al’s encouragement, I was relocating to Detroit instead of staying in Akron. Al, unfortunately, was left to rethink his succession plan. This happens frequently: candidates get other opportunities; the pool of individuals qualified to lead large, complex organizations is extremely small; and companies often have multiple internal candidates vying for the top slot, which can be immensely disruptive.

  When Kathy Oswald joined the organization as chief human resource officer, in 2007, she brought a skill set around succession planning and leadership development that we had previously not had. Internally, she put systems into place that allowed us to identify high-potential individuals interested in leadership who were ready, following developmental opportunities, for more senior roles. She also created an advanced leadership academy to offer senior leaders a broader view of the industry, including the financing and delivery aspects of health systems and the realities of running a big system. While I am a huge proponent of internal promotion, I was relatively certain that an external candidate was needed at HFHS when I retired.

  After I spoke to the board about staying on for a few years, they asked me to identify external candidates. I asked for Kathy’s help and we began looking around the country. She had built a solid executive search capability within her division, and understood that certain qualities were essential for the next CEO of Henry Ford. I’ve been around this field long enough to know most of the top leaders in health care. I also recognize, as well as anyone, the unique challenges of leading an organization like ours. We weren’t looking for someone who was accustomed to a suburban orga
nization in a growing market with three hundred days of cash on hand. It is a much greater challenge to grow in a market that is flat or in decline. Added to that is the fact that few organizations in the country have a very large group practice, a health plan, an academic medical center, a safety net responsibility to the population, and an anchor position in a vulnerable community. I wanted someone who had a track record of success. I also wanted someone who was committed to an urban, diverse patient population, and who was dedicated to taking our quality journey with Baldrige to the next level.

  After a few misses, I found that person through happenstance and good fortune. Wright Lassiter III was CEO of Alameda Health System in Oakland, California. We met briefly in Washington, DC, when we were both on a panel of four individuals at the inaugural “U.S. News Hospital of Tomorrow” leadership forum in October of 2013. We were talking about creativity and innovation in the urban environment and the impact of the Medicaid expansion and the Affordable Care Act. He got up to talk, and I was blown away. I have heard a lot of people in health care speak, but I have not heard many people speak with as much passion and creativity around these issues.

  I went back to my hotel room after the talk and did a search to find out more about him. What I found supported my hunch. He had taken a troubled organization and turned it around, essentially rebuilding a hospital through acquisitions and improvements, and remade it into Alameda Health System. Wright had distinctive ideas that were deeply insightful, and he was recognized around the country as a talented leader, having been named one of the “Top 25 Minority Executives in Healthcare” by Modern Healthcare. He also understood complexity and was committed to providing top-notch health care for people in a vulnerable community. Essentially, he took on a very tough assignment in Oakland, when he could’ve gone a different way, and he made it work.