Instructions:
(300 Words)
Identify the common elements and information you would need to deal effectively with a board of directors. For each element or specific piece of information, explain why you feel these would be required elements for success.
(2 Pages)
You’ve been promoted to CEO by the board of your organization (congratulations!). What are the first two topics that you want them to address, and what type of information do you need to provide so that they can provide the best guidance for you?
Use these as references:
1. Understanding Governance in Health Care Organizations (See Below-Next Page)
2. Orlikoff, J. E. (1998). Seven practices of super boards. Associated Management.
https://www.thefreelibrary.com/7+practices+of+super+boards.-a020242656
3. Senge, P. M. (1990). The leader’s new work: Building learning organizations. Sloan Management Review.
https://sloanreview.mit.edu/article/the-leaders-new-work-building-learning-organizations/
4. Kane, N. M., Clark, J. R., & Rivenson, H. L. (2009). The internal processes and behavioral dynamics of hospital boards: an exploration of differences between high- and low- performing hospitals. Health Care Management Review, 34(1): 80–91.
https://www.ncbi.nlm.nih.gov/pubmed/19104266
Understanding Governance in Health Care Organizations
Think about the board of your organization. What is the name of the Board? How many people are on it? How are the committees structured? Is the president or organizational leader a member of the board? How often does the board meet? Is there an Executive Committee?
All boards are different: When you have seen one board, you have seen one board. They tend to be different – unique but with common legal and regulatory characteristics. However, they are comment elements. What are some of these and what information do I need to deal effectively with a board?
Governance can be considered the classic Catch 22 for “Up and Comers.” Knowledge of the governance function in health care and a comfort level in working with boards are key determinates in the selection process for upper level positions in any health care organization.
A working definition for governance is “to exercise authority, to influence, to control, to direct.
There are 4.5 million boards in US. For-profit boards are value-based on capitalistic market determinates and accountable to shareholders. Not-for-profit and government boards are value-based on policy determinates and accountable to Members or the State in which it is located.
There are two types of boards by function. An advisory board provides advice and counsel to a higher authority. They are absent legal authority and responsibility for actions. A fiduciary board has legal authority and responsibility for the well-being and success of the corporation. A fiduciary board and its directors are individually and collectively legally responsible and accountable for its/their actions.
Some of the statutory duties of directors are a Duty of Loyalty, which means placing the organizations interests above the interests of the individual; a Duty of Obedience which means acting in accordance with the law and the organization’s own charter, bylaws, and policies; and a Duty of Caring which means acting the way a prudent person would act in similar circumstances. These are areas of personal legal liability.
A director can face personal liability. However, the Principle of Indemnification may help should a director be sued. California Law, for instance, permits the corporation to step in and pay for the defense, judgments and settlements provided the Director(s) have met their fiduciary (Duty) requirements. This only works if the not-for-profit has the financial ability to do so, thus liability insurance is commonly provided by the not-for-profit. If asked to server, always read the bylaws carefully before agreeing to serve!
There are different not-for-profit and for-profit board configurations. Not-for-profit boards focus on understanding the role of members and/or sponsors. For-profit boards focus on understanding the role of shareholders.
Here is a board structure for a non-profit system with a corporate member.
Here is a board structure for a non-profit system without a corporate member.
Here is a board structure for a for-profit system.
Several items are necessary for the legal formation of a not-for-profit board. Articles of incorporation are filed with the Secretary of State. The articles spell out name, mission, location, and dedication of assets to charitable purposes, and specifies distribution of charitable assets upon dissolution.
By laws are also filed with the Secretary of State and simply speak to rules as they pertain to the operations of the corporation. This may include selections of members, committees, meeting times, officers, etc.
IRS application for tax exempt status sets forth charitable purpose and exempts the organization from state and federal tax.
The Board of Directors differs with for-profit and not-for-profit boards. For-Profit directors are elected or appointed by the owners or shareholders to govern the company. They are accountable to the owners or shareholders for the outcomes (usually financial) of the company.
Not-for-profit directors are similar to for-profit with two distinctions: First, not-for-profit owners are those with a stake in the existence or outcome of the business, i.e., communities served, physicians, employees, donors, volunteers, etc. Second, determination of the purpose is important: Why does the company exist? See the articles of incorporation, vision statement, and mission statement.
Board Responsibility is deciding the right thing to do. Management responsibility is deciding the right way to do the right thing.
A board responsibility is visions and strategies. These set the direction for the organization. These are an inductive process wherein broad ranges of data are reviewed to identify patterns, relationships, trends. They ask where the organization should be going.
A management responsibility is tactics and plans. A deductive process is designed to produce plans, timetables, and measurements. They say how the organization is going to get “there.”
Who is responsible for what in a strategic planning process? The board determines areas of strategic focus. The board and management together analyze trends in each areas of strategic focus. Management determines implications of major trends, proposes initiatives, and is in charge of implementation and accountability.
Other duties of the board include determining the organization’s mission and purpose, recruiting and hiring the CEO, providing ongoing support and guidance and reviewing the CEO’s performance, and ensuring effective organizational planning.
The board also provides oversight for the organization’s programs and services, enhances the organization’s public image, serves as a court of appeal, and assesses its own performance. The board has an important role is assuring quality care. Quality assurance is a key responsibility for four reasons: moral and ethical obligation, legal accountability, legislative and regulatory requirements, and fiduciary responsibility.
Let’s take a closer look at these four reasons. Moral and legal obligations are required when the hospital or health system’s mission statement references quality care.
Legal accountability is required because historic and recent court rulings confirm this (such as the “Darling Case”) and underscore the need for D&O liability coverage.
Legislative and regulatory requirements such as JCAHO, DHS, CMS, and compliance standards require board authority and accountability for quality care. Fiduciary responsibility includes both direct and indirect implications. For example, Medicare requires board oversight and poor quality outcomes can cause the organization to suffer financially.
Let’s explore a current issue impacting for-profit boards: the Sarbanes-Oxley Act of 2002. SOX passed the Senate by a 99-0 vote and the House by a 423-3 margin…that’s a mandate! The SOX directly impacts CPAs and CPA firms, and publicly traded companies their employees, officers and owners. It places major disclosure and reporting responsibilities on CEOs and CFOs. It provides for criminal penalties of up to $5M and 20 years.
How does “SOX” impact not-for-profits? SOX only pertains to publicly traded companies…at this time! However, most not-for-profits are adopting SOX standards, including audit committee independence and expertise, certification of financials, forfeiture of incentive or merit pay for mis-statement, disclosing off-balance sheet loans, and whistleblower protections.
Some further SOX standards they are adopting include no non-audit work by audit firm, audit service must be pre-approved, rotate audit partner every five years, comprehensive audit report required, and no conflicts and conflict of interest statements.
Here are some lessons learned in working with boards: Know who you work for. It is always important to remember that the board is the highest level of authority in an organization. As a CEO, they hire you, they evaluate you, they set your compensation and they will fire you if you fail to meet their expectations. They also have the authority to reach down in an organization on performance issues.
The board is only a board when it is convened: One or more individuals or even a committee is not the board and they cannot act as the board no matter how influential or persuasive they may be. When sharing information, share it with the entire board. Information is power and needs to be shared with all. Failure to be open makes people feel they are being left out of the information (power) loop and you can expect negative reactions.
Don’t dump problems on the board. Boards are generally unpaid volunteers. Your job will, on occasion, require you to bring major issues and challenges to their attention. The trick is to be totally open, but to also bring the board options for consideration and recommendations. If they have to do your job, then they don’t really need you!
Be totally prepared. Know every aspect of every item on the agenda. Anticipate where a discussion may go and be prepared with information, charts, graphs, etc. It is unforgivable for a CEO to “wing it.” Also, always check the small stuff: dates, times, attendance, etc. Mistakes here will undermine your credibility in broader discussions.
Admit mistakes and problems early. The board will respect you for this so long as you also tell them what corrective action you intend to take and that you will keep them informed on the resolution of the issue.
Last but not least, full disclosure, full disclosure and full disclosure. An open, “no secrets” style of management is critical to your success. Always take credit for your full disclosure style as it allows the board to build confidence in you.
