This Health Law News article is Part V in a series discussing the new governance study, “Governance in Large Nonprofit Health Systems: Current Profile and Emerging Patterns.” The full Report is available here. Part I – Executive Summary was published in Hall Render’s Health Law News on August 8, 2012, Part II – Public and Private Scrutiny of Hospital and Health System Governance was published on August 28, 2012, Part III – Benchmarks of Effective Governance was published on September 4, 2012 and Part IV – Key Findings – Board Structure and Composition was published on September 11, 2012. The remaining articles in this series will cover key findings and their potential significance for hospital and health system boards, exceptional governance features of the participating systems and key recommendations.
In Hall Render’s September 4 Health Law News article, Rex Killian, President of Killian & Associates (“K&A”) and Of Counsel to Hall Render, explained how the benchmarks of effective governance were organized around three key measures of board performance: board structure, board processes and board culture. In Part IV, K&A addressed the key findings of the study with respect to board structure and composition. In this Part V, we will discuss some of the key findings on the benchmarks related to board processes (how the board does its work) and in Part VI, we will address the key findings relating to board culture.
Five benchmarks and related indicators on board processes addressed board accountability, board responsibilities, board and CEO evaluations, board and CEO relationships, board succession planning and board meetings. While there were key findings with respect to all of these indicators of effective governance, this article will focus on three important board processes that apply equally to all hospital, health system and health organization boards: (1) board evaluation, (2) board succession planning and (3) board meetings. The following is a summary of the key findings relating to these three important board processes.
Board Evaluation – Governance Benchmark #5 in the study states: “[E]ffective boards continuously improve board and CEO performance by setting clear expectations, conducting objective evaluation, and taking follow-up actions.” In addition to the benchmark, the two basic indicators of an effective board evaluation are (a) serious, ongoing assessment of the board and its performance on a regular basis and (b) demonstrated commitment to make actual changes based on the findings from the board evaluation process. While 12 of the 14 system boards in the study (86%) conduct an evaluation annually or every other year, less than half of the trustees believed that the evaluation resulted in specific actions that changed their governance practices, and only one-third of the trustees believed that the board evaluation was thorough and had substantially improved the board’s performance.
As noted in the Report (p. 23), other governance studies “have found that objective evaluation together with follow-up board development steps can improve board performance.” A board must ask itself why it takes the time and energy to go through the process of a board evaluation and obtain the insights of its CEO and board members if it is not going to use the results to try to improve the effectiveness and efficiency of the board.
Based on K&A’s experience, many board evaluations are conducted using a “check-the-box” tool that is not designed to assess the board’s structure, processes and culture in a purposeful and meaningful way and does not allow the board to measure its practices against benchmarks of effective governance. The benchmarks and tools developed in this study should be instructive to hospital and health system boards desiring to improve their board evaluation processes. First, an effective board evaluation process should be designed to drive a desired governance behavior (culture) and processes (how the board conducts its work). Second, it became clear from the study that interviews with the CEO and board members were a far more effective way to obtain meaningful data and insights. Third, the results and findings should lead the board to a set of action steps designed to improve the board’s performance or board culture. Depending on the areas in need of improvement, K&A recommends that the action steps be memorialized in a short list of board goals and that a mechanism be put in place to monitor the board’s improvement. If an effective evaluation is implemented, areas identified for board improvement in a current board evaluation should become areas of strength in a future board evaluation.
Board Succession Planning – Governance Benchmark #6 in the study states: “[E]ffective boards are committed to establishing and continually updating succession plans for the board, board leadership positions, and, in concert with the CEO, senior management positions.” As the study notes, only six of the fourteen systems (43%) have some form of succession plans in place, both for board leadership and senior management positions. Another four systems (29%) have succession plans in place for the CEO and other senior management positions but not for board leadership. Virtually all of the board members and CEOs who have instituted plans expressed the view that their current programs are in “early stages of development” and will require much more work. These findings were consistent with a 2011 Governance Institute study that showed that only 41% of the participating hospitals and health systems employ “an explicit process of board leadership succession planning to recruit, develop, and choose future board officers and committee chairs.”
In K&A’s opinion, board and board leadership succession planning is a necessary step and process in making sure that the board is comprised of the right people with the competencies needed to perform the work of the board and to ensure continuity of board leadership. An effective board succession plan will (a) link the composition and structure of the board with the board’s roles and responsibilities, its annual goals and the diverse set of competencies and skill sets needed on the board; (b) apply a systematic and disciplined approach to board recruitment that is targeted to persons with the specific competencies that are missing on the board; and (c) set forth a process and timeline for board succession planning and recruitment that permits a board to look ahead as many as five to six years in its planning process depending on how many members are terming off the board.
Too often in the health care and public sectors when an opening exists on the board, board members are asked informally during a board meeting if they know of anyone who they think would be a good board member. An effective board succession plan will require the Governance Committee and Board to periodically assess the collective competencies needed on the board, perform a gap analysis to identify the competencies that are either currently missing or will become missing when a member terms off the board, prioritize the needed competencies and plan far enough ahead for a timely recruitment of board members to fulfill the needed competencies. As boards are confronted with new challenges and compliance requirements, they need to continue to assess whether or not they have the right people around the boardroom to deal with the new challenges. K&A recently experienced a situation where a board identified the need for a board goal around the new IRS requirements on community health needs and population health and determined that they needed to recruit an individual to the board who had experience and expertise in this area. This occurred in the process of reviewing and updating an existing board succession plan.
Board Meetings – Governance Benchmark #7 in the study states: “[E]ffective boards insist on meetings that are well-organized, focus principally on system-wide strategy and key priorities such as patient care quality and community health and employ board members’ time and energy wisely.” In addition to the benchmark, seven indicators of effective board meetings address the board’s adoption and monitoring of patient care quality measures, goals and guidelines for the community benefit program and strategies and priorities for the community benefit activities, and emphasize the need for boards to be engaged in strategic deliberations rather than “receiving information.” This benchmark is intended to address both the principal focus topics of a board meeting and how time is allocated to each topic (i.e., strategy, quality and community benefit/community health needs) and how the topic is addressed (i.e., active deliberations or receiving reports). Additionally, one of the indicators of a healthy board culture (Benchmark #8) is that “[B]oard meetings are well-organized and focus principally on strategic deliberations, rather than receiving information.”
With respect to the allocation of time devoted to patient care quality and safety, the estimates of the CEOs and board members ranged from a low of 10% to a high of 35% with a median of 23%. With respect to strategic thinking and planning, the estimates ranged from a low of 15% to a high of 53% with a median of 32%. As the Report notes at p. 36, “perhaps the most striking insight from these discussions with board members and CEOs was the consistent expressions of interest and commitment … to increase their boards’ focus on strategic thinking and deliberations.” Less than one-third of the trustees interviewed believed that board meetings were “well-organized and are focused principally on strategic deliberations, rather than receiving reports.” In that regard, virtually all of these boards and their CEOs are making intentional efforts to provide more time for engagement in active deliberations with less time devoted to routine reports and presentations.
Previous studies have highlighted this last point. In the Report of the Blue Ribbon Panel on Healthcare Governance in 2007, the Panel noted that “meetings that focus the board’s time on critical organizational issues and facilitate thoughtful deliberation and effective decision-making are far more valuable than meetings filled with reviews of committee minutes and long reports ….” Professor Chait in “Governance as Leadership – Reframing the Work of Nonprofit Boards,” BoardSource (2005) notes that “many board members ask – Why am I here? What difference do I make? and, What is my purpose?” These questions routinely arise when the vast majority of time spent in a board meeting is devoted to listening to committee and management reports, rather than engaging in active deliberations and strategic thinking. When a board restructures its board meeting to make better use of the consent agenda, instills a discipline in management to provide executive summaries of management reports that tee up questions for board dialogue as opposed to “reporting” and allocates a substantial amount of the meeting time for active dialogue and deliberation on a key focus item (i.e., strategy, quality, community health, etc.), board members feel engaged and believe they are serving a valuable purpose. Based on K&A’s experience, the keys to implementing board meeting changes require strong leadership of the CEO and Board Chair and the support of board members. There must be a willingness to challenge the status quo, which is typically voiced as “we have been doing it like this forever.” Given the important work of the board and the public and private scrutiny of hospital and health system governance (the topic of Part II in this series), the status quo is no longer acceptable. The time for change is now.
If you have questions regarding the study, please contact:
- Rex Killian, K&A, at 314-504-2213 or rkillian@killianadvisory.com;
- Lawrence Prybil, PhD, LFACHE, Professor and Associate Dean of Public Health, University of Kentucky, at 859-218-2239 or Lpr224@uky.edu;
- Jeffrey Carmichael, Hall Render, at 317-977-1443 or jcarmichael@hallrender.com; or
- Your regular Hall Render attorney.
