The Changing Face of Healthcare Boards

Abstract

HEALTHCARE GOVERNING BOARDS are undergoing transformation in response to the rapidly changing environment of the business of healthcare delivery. The days when local community leaders were appointed to the hospital board as a sign of status, when they were not expected to have in-depth healthcare knowledge or expertise, are fading quickly. Now when an individual is nominated to serve on a healthcare board, serious consideration has to be given to his or her ability to learn an extraordinarily complex field and commit the time and energy necessary to fulfill the fiduciary duties and obligations required of a trustee. In the feature articles, Orlikoff and Middleton each appropriately describes the challenges facing healthcare boards in today's changing business milieu and in a period of increased scrutiny because of corporate failures and an erosion of public trust. It is time for chief executive officers (CEOs) and board leaders to revitalize their boards for successful governance. This renewal of purpose is imperative because, as Kovner (1990) and Sofaer, Lammers, and Pourat (1991) have found, underperforming hospital governing boards may result in poor organizational performance of the hospital. Healthcare organizations must perform effectively, provide quality care, and maintain a good reputation in the community that it serves because their performance is vital to the health of their community. Thus, because the governing board is ultimately accountable for that performance, it is important for healthcare executives to understand the role that the board plays. CEO-BOARD RELATIONSHIP A critical aspect of governance is the relationship of the CEO with the board. Middleton emphasizes that the two cannot be at war and still be effective. Orlikoff astutely describes the multifaceted paradox of the CEO-board relationship. This paradox is a key factor that makes boards challenging, distinctive, and mysterious all at the same time. Who is really in charge? Who makes the decisions and leads the organization into the future? Who is ultimately accountable? Achieving a Healthy Balance of Power The CEO plays a unique role as both a member of management and a representative of governance, which ideally makes for a healthy balance of power. A healthy balance of power is often characterized by how decisions are made. The CEO should be making decisions related to managing the organization, and the board should share in decision making when it is related to setting the policy and strategic direction of the organization. A healthy balance between the CEO and the board is crucial to success; those governing boards that achieve this balance are found to be high performing. An imbalance of power in either direction, on the other hand, results in less-than-optimal organizational performance, affecting financial outcomes as well as the level of stability in the CEO position (Molinari, Hendryx, and Goodstein 1997; Alexander, Fennell, and Halpern 1993). Therefore, the CEO and board chair should analyze, or assess, how their board operates and should put strategies into place that ensure effective governance. A board self-assessment process is essential to identify areas for improvement and increased accountability (Totten and Orlikoff 2002). An excellent way to embark on this process is to conduct a board strategic audit, as recommended by Orlikoff, as a regular, formal review of the organization's performance (Donaldson 1995). Board members either assess the performance themselves or engage a firm to conduct an independent assessment. Based on the results, the board can develop an action plan for improved governance processes. Although not a frequent practice yet, conducting formal appraisals of the board as a whole and of individual board members and the CEO ensures a healthy balance of power between the board and the chief executive (Conger, Finegold, and Lawler 1998). Empowering Your Board Many CEOs in Healthcare are reluctant to have open scrutiny of their boards. …