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Healthcare Trustee Institute > Trustee Monthly: January 2003
THE
MOVEMENT FOR GOVERNANCE REFORM:
IMPLICATIONS FOR HEALTH CARE
Eric D. Lister,
M.D.
Co-Director
Healthcare Trustee Institute
Enron, WorldCom,
Tyco, Marconi…the list goes on. In each case, billions of
dollars in market capitalization have disappeared. Beyond the
immediate effects on stockholders and employees, the entire U.S.
economy has been dealt a blow. Suddenly, the predictable and dependable
is no longer so. The capitalist enterprise seems fundamentally
flawed – even to diehard capitalists themselves! The finger
of accountability points, in significant measure, to the Board
of Directors in each and every case.
Business leaders
and prominent journals have reacted with calls for structural
reform within Boards (such as a larger percentage of independent
Directors), more responsible Directors, and regulatory safeguards.
Both the Securities and Exchange Commission and the New York Stock
Exchange are currently promulgating just such standards. Are we
out of the woods? Hardly. Talking about governance reform will
always be easier than effecting reform. Successful C.E.O.’s
will always command latitude from their Boards. And performing
the work of oversight, without slipping into crippling micromanagement,
will forever remain a challenge, requiring finesse, confidence,
and knowledge.
Health care
trustees in the not-for-profit sector describe mixed emotions
in response to this predicament – relief that they are at
least free of the responsibility to drive “stockholder value”
and, at the same time, concern that they too are obliged to significantly
increase the sophistication of the oversight process. Although
rarely attracting Enron-level attention, stories about failed
health care mergers, bankrupt care delivery systems, and legal
entanglements among health care organizations only serve to underline
the increasing responsibility of the not for profit, almost always
volunteer health care Trustee.
It is true
beyond question that health care Boards confront a daunting task.
However, by focusing on a small set of fundamental governance
duties, and redefining one of those duties significantly, we can
at least provide a roadmap for success.
Arguably, the long list of governance responsibilities can be
simplified to just four:
? Learning + setting direction ( learning enough about health
care issues and breakthrough ideas to articulate mission and vision,
promulgate policy, set strategy)
? Supporting organizational mission (fund raising, internal and
external liaison [Medical Staff, community agencies…], ambassadorship)
? Hiring, supervising, developing, and evaluating the Chief Executive
? Auditing the core activities of the enterprise (Not just the
finances of the enterprise!) This is the area of functioning that
we suggest redefining.
Most health
care Boards – through an executive, audit, or finance committee
– are rigorous and methodical in overseeing the institution’s
operating budget and investment portfolio. Increasingly, this
auditing function is being bolstered by activities in the area
of Corporate Compliance, providing education to the Board and
critical assurance that the arcane rules of health care finance
are not inadvertently violated.
Rarely, however,
do we see the Board taking the same model of oversight-by-audit
to issues at the core of every health care enterprise –
issues of quality, risk management, physician relations, community
liaison, workforce retention, and community wellness – not
to mention unique, institution-specific strategic initiatives.
In these areas, most Boards operate by receiving reports either
from the C.E.O., anecdotal information, or no information at all,
unless there is a problem. Once problems surface to the level
of the Board, Trustees, feeling uncomfortably “in the dark,”
often plunge into the matter at hand, oscillating rapidly from
under-involvement to micromanagement.
Our advice
to Trustees is to extend the model of the financial audit to every
crucial domain of organizational activity, and every major strategic
initiative. This is not at all to suggest that the Board needs
to replicate multiple audit committees. It is to propose a move
from passively receiving reports to actively soliciting and tracking
key measures relevant to every enterprise-critical initiative.
By agreeing
up front upon metrics for each critical area, assuring that objective
data-gathering mechanisms are in place for each, and tracking
this information at regular, set intervals, Boards assure themselves
a three dimensional picture of the organizations they are bound
to oversee. The concept of a dashboard, referenced in many prescriptions
for good governance, takes on more robust meaning when we assure
that dashboard indicators reflect data that is meaningful, quantifiable,
and objective. This data facilitates rich and vital dialogue with
the C.E.O. that is driven by the data, not simply by the C.E.O.’s
report.
If, for instance,
physician satisfaction surveys are reviewed, as a matter of course
every six months, if a one-page risk analysis presented by the
organization’s malpractice carrier comes to the Board every
year, and if progress along each major strategic initiative is
quantified and discussed every six months, the Board can begin
to have an ever-more confident sense that it has not only set
direction, but is actively involved in overseeing the work of
the enterprise – without micromanaging.
Although there
can be no categorical guarantee of protection from unwanted surprises,
this transition from passively receiving reports to actively orchestrating
a flow of critical information, and from oversight by anecdote
to oversight by data, can offer a significantly increased level
of comfort to health care Trustees. The lessons of Enron can indeed
be translated, applied, and put to work.
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