Succession Case Study: HCA Healthcare
SIGMA believes in ongoing learning and development. One of the most efficient ways to do this is to learn from the successes and failures of others. These cases highlight some of industry’s most powerful lessons in organizational management, drawn from the example of those who went before us.
Case Study
HCA HEALTHCARE: HOW NORTH AMERICA’S LARGEST HEALTHCARE SYSTEM NAVIGATED CEO SUCCESSION
A business case for succession planning, and how North America’s largest healthcare system navigated the process.
Download SIGMA’s case on HCA Healthcare’s CEO succession planning process to learn:
- The importance of choosing the right successor
- The value of having a robust succession planning process
- The need to communicate succession plans strategically
Sneak Peek: What’s Inside?
HCA Healthcare is the largest hospital corporation in America. The company has over 180 hospitals and 2,000 sites of care,[i] and in 2017 it ranked No. 63 on the Fortune 500 list of largest US corporations.[ii],[iii] In December of 2018, HCA Healthcare celebrated their 50th anniversary, unveiling a historical marker at the site of the original HCA Healthcare headquarters.[iv] Not one month later, their incumbent CEO retired.[v]
The Problem
After four years as CEO of HCA Healthcare, Milton Johnson announced in September of 2018 that he would be retiring at the end of the year. Johnson also planned to leave the company’s board of directors in spring 2019.4 Thomas F. Frist III, son and grandson of HCA’s founders, would take Johnson’s place as chairman of the board,[vi] but the more important question was, who would become the new CEO?
What Happened
When Johnson announced his retirement, he also announced that his successor would be Sam Hazen, HCA Healthcare’s president and COO. Hazen had worked with HCA nearly 36 years and analysts commented that he was highly respected on Wall Street. He was a natural successor to Johnson. Still, HCA Healthcare Inc. shares declined in early trading after the announcement of Johnson’s retirement. While it is not unusual for market shares to decline when corporate leadership transitions are made public,4 the industry watched and waited to see how HCA Healthcare would navigate CEO succession.
After Hazen assumed the role of CEO, HCA increased their growth rate and share of national hospital expenditures (2018-2019). The company maintained its strong history of profit growth (7% compounded annually over the past five years) and stayed above industry average in terms of margin, capital efficiency, and return on invested capital.[vii] Two years later, HCA Healthcare is the largest healthcare system in North America, with over 15% more sites than their top competitor.2
How could a company of this scale navigate CEO succession so smoothly? The answer is that it takes more than a strong successor, it takes a strong succession plan.
How They Got There
A common misconception about succession planning is that the goal is for leaders to simply choose their successors. In reality, a strong succession candidate must be developed, and this can take years of preparation. Having worked at HCA Healthcare for over 36 years, Sam Hazen had the opportunity to glean insight and experience across a range of operations. Over the course of his career, Hazen worked as CFO for two different divisions, oversaw operations in North Texas, and became president and COO for HCA’s Western Group (which represents approximately 50% of the company’s revenue). Then, in 2015, Hazen was promoted to COO of the entre corporation.[viii]
When promoting internally, it is not uncommon for a CEO succession candidate to be developed via the role of a president and/or COO. Hazen himself commented this role, saying, “As head of the company’s operations for over seven years, I… worked with all our stakeholders – including patients, physicians, employees, shareholders and the board.”1 In this way Hazen’s role not only gave him a deep understanding of HCA’s operations, it also provided an opportunity to build relationships and open lines of communication with important stakeholders in the company.
Hazen’s range of experience was likely the reason why analysts believed him to be a natural successor for Johnson.4 However, when it comes to the role of CEO, succession candidates require more than business acumen, they must be able to uphold the company’s mission and vision. HCA Healthcare may be a Fortune 500 company, but they have also been named among the World’s Most Ethical Companies for 10 consecutive years.2 Johnson cared deeply about putting patients first, maintaining the spirit with which Dr. Thomas Frist Jr. and his father, Dr. Thomas First Sr., founded the business. Hazen had a similar reputation. Nashville Health Care Council President, Haley Hovious, said Hazen was an advocate for the city, working with their team to advance Nashville’s healthcare space, bring more IT talent to the city, and plan strategically for the group. Hovious described Hazen as a results-oriented leader, interested in measuring and analyzing outcomes. “I’ve always found him to be really thoughtful,” she said, “(He was) concerned about what’s best for HCA and what’s best for the industry.” Looking back, Ed Cantwell, CEO of the Center for Medical Interoperability, called Hazen one of the best CEOs in the industry.8
In this way, Hazen not only maintained HCA’s growth and profitability, he upheld the company’s commitment to care and improvement of human life. This allowed him to model Dr. Thomas Frist Sr.’s belief that “character is important. That good people draw more good people to them. That any job worth doing is worth doing well.”[ix]
Key Takeaways
- Choose well – Sam Hazen was highly regarded on Wall Street and recognized both in the company and the industry for his business acumen. Not only that, he was described as sharing the previous CEO’s vision, values, and spirit. These two factors made him an ideal succession candidate for the role of CEO and all the responsibilities that go along with this leadership position.
- Plan well – Beyond choosing a good candidate, it’s important to establish a robust succession planning process. Hazen was given years of training in different areas of HCA’s operations, as well as the opportunity to work with each of the company’s key stakeholders. Take time to identify talent and allow candidates to develop the skills they’ll need. Succession planning isn’t about finding a good replacement that already exists, it’s about intentionally growing a successor through targeted coaching and skill development.
- Communicate strategically – Johnson’s retirement was announced nearly a fiscal quarter in advance. Along with his retirement, he announced his succession plan, both for the company and its board of directors. Clear, confident communication gives stakeholders a sense of security, which not only benefits long-term market performance, but smooths the leadership transition internally.
Contact Us
Like HCA Healthcare, you can get succession planning right. We’re here to help. Over the last 50 years SIGMA has worked with more than 8,500 private and public organizations to develop people potential and increase organizational effectiveness. We provide full-service succession planning, custom consulting, and a range of templates and resources. We also offer a number of succession planning workshops. To learn more about our solutions, contact us directly for more information.
[i] HCA Healthcare. (2020). Our History. HCA Healthcare. Retrieved from https://hcahealthcare.com/about/our-history.dot.
[ii] Dyrda, L. (September 12, 2019). 100 of the largest hospitals and health systems in America. Becker’s Hospital Review. Retrieved from https://www.beckershospitalreview.com/largest-hospitals-and-health-systems-in-america-2019.html.
[iii] Bryant, M. (June 9, 2017). 2017 Fortune list includes 8 healthcare providers. HEALTHCAREDIVE. Retrieved from https://www.healthcaredive.com/news/2017-fortune-500-list-includes-8-healthcare-providers/444610/#:~:text=Eight%20healthcare%20providers%20landed%20on,HCA%20Healthcare%2C%20in%2063rd%20place.
[iv] HCA Healthcare. (December 11, 2018). Historical marker unveiled for HCA Healthcare’s 50th anniversary. HCA Today. Retrieved from https://hcatodayblog.com/2018/12/11/historical-marker-unveiled-for-hca-healthcares-50th-anniversary/.
[v] The Associated Press. (September 10, 2018). HCA CEO Johnson to retire, company lays our succession plan. The Seattle Times. Retrieved from https://www.seattletimes.com/business/hca-ceo-johnson-to-retire-company-lays-out-succession-plan/.
[vi] HCA Healthcare. (September 10, 2018). HCA CEO Milton Johnson will retire at the end of the year. HCA Healthcare. Retrieved from https://hcahealthcare.com/about/newsroom/hca-ceo-milton-johnson-will-retire-at-the-end-of-the-year.
[vii] Trainer, D. (July 9, 2020). HCA Healthcare Is Ready For The Future. Forbes. Retrieved from https://www.forbes.com/sites/greatspeculations/2020/07/09/hca-healthcare-is-ready-for-the-future/#518f36683280
[viii] Stinnett, J. (Sept 11, 2018). Meet HCA Healthcare’s new CEO. Nashville Business Journal. Retrieved from https://www.bizjournals.com/nashville/news/2018/09/11/meet-hca-healthcares-new-ceo.html.
[ix] HCA Healthcare. (2020). Our Mission and Vision. HCA Healthcare. Retrieved from https://hcahealthcare.com/about/our-mission-and-values.dot.