BusinessDay

Why do healthcare businesses struggle with succession planning?

Everyone seems to know one or more healthcare businesses that either have fallen from their former glory, or shut down altogether as the years went by. This crisis not only affects hospitals or clinics, but Nigerian businesses as a whole.

This is happening because a good number of private healthcare practices that were set up in the 80’s and 90’s had their founders likely in their 70’s and 80’s, with retirement just around the corner.

Businesses that have been in existence for 20 going on 30 years or more, are bound to either restructure their management systems, or shut their doors permanently. Healthcare businesses in relation to other businesses specifically are at high risk of an absent, or delayed succession plan, due to the uniqueness of the typical organisational structures in Nigeria.

The reasons why succession planning is difficult in Nigerian healthcare practices specifically may be due to one or more of the following reasons: One man business model; Migration of potential successors (family owned); Lack of trust; Lack of adequate systems of operations and management, and unwillingness to having difficult conversations about succession.

The one-man business model is the biggest culprit here, as most hospitals or clinics are set up by (usually) one clinician, on whose shoulders the structure depends largely on. This individual is usually the passionate clinician, who loves both the practice and the patients, but fails to relegate power and control early enough. This usually leads to things falling apart in the “lone soldier” clinicians’ absence. This kind of founder struggles with delegation of duties. A 2016 study by Aaron Nichols on succession in single owner practices, concluded that succession planning is regarded as critical when a practice has a single owner.

Secondly, thanks to the current economic climate, potential successors of family owned healthcare businesses have sought greener pastures in other industries, or other countries. The pandemic worsened the brain drain, as there wasn’t only a push from our economic woes, but a pull from other countries looking to bolster their healthcare systems, or fill the Brexit gaps.

Thirdly, distrust has been a huge hurdle in doing business in Nigeria; in this case, it may range from distrust in clinical competence, character, or finance. Both sides of a majority of transactions are usually in fear of the other party not being sincere with the agreement. In healthcare succession, it is exhibited as a fear of a drop in standards due to incompetence, misappropriation of hospital/clinic revenue, and diversion of clients/patients.

A hospital/clinic needs systems, and essential non-clinical staff to ensure a smooth running. A healthcare practitioner’s fortè is usually in the consulting room. Therefore, when he/she is responsible for the business structure around the consulting room i.e the hospital or clinic, they have to gain extra competencies in business administration, healthcare administration, finance, etc. to execute a profitable business model. This model would require setting up systems that ensure the sustainability of the business. These systems include but are not limited to compliance (regulators), technology, marketing, accounting, procurement, human resource management, taxes, etc.

When these systems are automated, and competent non-clinical personnel are in place to handle the necessary aspects of the business, the Clinical/Medical Director can genuinely take a managerial role. This management role can solely and easily be transferred in a succession process; a lack of systems and processes makes succession difficult, as the Clinical/Medical Director is burdened with transferring unstructured managerial, HR, procurement, marketing roles etc to his/her successor

Lastly, the elephant in the succession room is the unwillingness of the typical Nigerian to accept that all things come to an end. The Clinical/Medical Director is usually in denial about the inevitability of his/her working years. This prevents a succession plan from being put in place early enough, as they deter making such difficult decisions. The problem with this is that, when you don’t make a choice, life makes a choice for you.

According to @Tatenda Sayenda, this unwillingness to have succession conversations is even more difficult in family owned businesses, which constitute the majority of African businesses; a 2016 PWC study in South Africa concluded that only 17% of family owned businesses had succession plans in place. This factor also affects other issues like writing a will, and buying insurance, and is usually attributed to our religious inclinations as a nation.

It’s important to add that informal reports also allude that healthcare founders may delay succession planning due to the time and educational investments, and practice demands over the years of their careers, most don’t know how to adapt to a life void of their medical practices.

These factors above account for a majority of these businesses failing to execute a succession plan. However, there are methods of improving your business’ chance at continuity. The following suggestions were culled from healthcare businesses that have successfully implemented succession plans, and are sampled from within and outside Nigeria. One or more of the following solutions may be implemented to improve your chances at success.

Setting up a Hospital Board: A hospital board which should involve, but are not limited to the following; a Chairman to oversee the board, and executive meetings, a Secretary/CEO to document and implement meeting proceedings, he/she is usually an administrative or business professional, and relays and helps implement board resolutions with the Clinical/Medical Director, a Treasurer/CFO to oversee finances of the hospital, General Counsel to oversee pending or prospective legal and regulatory matters, and a Clinical/Medical Director who clinically oversees hospital/clinic, and its day-to-day operations.

The board members may, or may not own equity in the business although it is advised that they do; advisory boards may serve in a similar capacity. The board seats should always be occupied by qualified individuals in the required fields, and those seats should not be left vacant. It becomes the boards’ responsibility to plan succession of itself and of the business.

Grooming Competent Leadership:

A founder of a healthcare business may have a family member, or an experienced member of staff, who has evolved to be considered for a management position in the practice. This is attained by earned trust, diligence, professional and personal development.

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Grooming for this role is the responsibility of both the founder and the successor, and has to be intentional. The successor may be awarded, or sold equity in the business. The successor of the business may also be considered for an outright acquisition. A good example of groomed leadership is that of the 89 year old founder of the Apollo hospitals Prathap Chandra Reddy (India), who had involved his 4 daughters very early on in the 39 year old business. They all head various arms (hospitals, pharmacies, diagnostic centres, and home care) of the now publicly traded hospital group.

Sharing Equity: When other shareholders in a business exist, the stakeholders and chances of continuity also increase. Equity shared or sold, would increase trust, and distribute responsibility across the stakeholders. It’s imperative that the shareholders are directly involved in the operations of the Hospital/Clinic, so as to ensure a smooth transition of a successor. Eko hospitals’ distributed equity, clearly facilitated its exponential growth over the years, and is still the only hospital group listed on the Nigerian stock exchange in 1991 as “Ekocorp”.

Selling Off The Business Early: When a founder sees that the best way for succession is an outright sale, they must first recognize this early, and make decisions on potential acquirers. Acquirers may be new entrants to the healthcare business, or existing competitors looking to expand.

When one wants to sell a hospital/Clinic, it’s important to note that it’s a hospital is more than its building, but rather the brand, client lists, partnerships, retainerships, experienced staff, processes, health insurance partners, licenses/certifications, reputation, intellectual property etc. These are usually more valuable to the acquirer than the building (which may be on a lease), or used equipment.

It is important to note here that it is imperative that a business is built/structured like it may be sold from inception; this mentality ensures that assets that improve the valuation of the company are prioritized. The healthcare service industry needs to take a page from the financial services industry playbook, as regards intangible assets.

A Nigerian healthcare business may implement one or more of the above to ensure a seamless succession. These restructuring plans may be difficult and expensive to implement, and may require the involvement of legal, financial, and healthcare consulting professionals.

Succession planning in Nigeria clearly isn’t just a healthcare problem, but a Nigerian business problem in general, and the above ideas are applicable to most other businesses.

What are your thoughts on this phenomenon?

Okodugha, a social commentator, writes from Lagos

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