Abstract
The board of directors
Many physicians have been “leaders” since childhood. The excellent performances that helped many of us earn medical school acceptances include positions as student council members, yearbook editors, sports team captains, and other positions in which our tendencies to excel led us into positions of influence. Hence, it is not surprising that many physicians achieve positions of leadership not only in medical settings but also in community, philanthropic, and political venues.
Despite our busy professional schedules, physicians are appropriately honored when asked to assume leadership roles, and especially to join the board of directors of a prestigious organization. Although these positions are time consuming and often pro bono, we routinely accept such invitations because we enjoy contributing as leaders, and because we feel some obligation to share our wisdom and insights. Physicians should be encouraged to accept invitations to boards of directors to which they can make substantive contributions, but we should also be aware of the commitments and liabilities associated with such positions.
Having served on the boards of numerous organizations, including medical societies, hospitals, nonprofit philanthropic foundations, and other organizations, and including positions as board chairman, I have come to believe that the time, effort, and risks are well worth accepting; but I have also come to believe that most of us do not understand fully what we are getting into, at least when we join our first board. This editorial is written to review some of the relevant considerations, and it draws not only on my own experience but also on a well-organized expose on this topic written by Dr. Michael McArthur. 1
Before accepting an invitation to join a board of directors, it is important for the physician to understand the nature and purpose of the board, what he/she might be able to contribute, and what the expectations of membership are. It is also important to find out who his/her fellow board members will be and to read the mission statement of the organization in order to be certain that he/she is comfortable with (ideally enthusiastic about) what the organization does. It is also useful to understand the structure of the organization.
Most boards of directors, or trustees, are involved in oversight of an organizations management, activities, and governing. Ordinarily, a board does not manage directly. Nevertheless, it is responsible ultimately for the organization under its purview. Potentially, individual board members can be held liable for adverse or illegal activities. Therefore, it is also important for the physician to be certain that the organization maintains “directors’ and officers’ insurance” (D&O) that will protect board members in the event of a legal action.
Legally, members of a board of directors have a duty of impartiality, a duty to make the entity productive, a duty of care, and a duty of loyalty.
The duties of impartiality and loyalty are related somewhat. A rather oversimplified explanation of these duties is that they require that all decisions and actions be based solely on the best interest of the organization, and that no consequences to individuals and entities outside the organization should bias the board member's input to the board. This is not always as easy as it sounds.
Members of most boards are required to declare potential conflicts of interest and to recuse themselves when a conflict or the potential perception of a conflict arises, but it is not always easy for physicians to be impartial. For example, sometimes, as members of a hospital board, physicians participate in debates establishing policies that are good for the hospital but may be financially undesirable for selected members of the medical staff, potentially including the board members and their associates.
A conflict can also arise if physician leaders serve on boards of more than one organization and they come to possess confidential, proprietary information from a board meeting of one organization that might impact another organization in which they hold a leadership role. However, while acting as a board member for an organization, the physicians sole concern and dedication must be to that organization, and it is legally and ethically incumbent upon the physician to recuse himself/herself or resign from a board if such impartial loyalty becomes impossible.
The duty to the make the entity productive is exercised through the board's oversight of all aspects of the organizations activities, and its governance of the organization. The nature and definition of “productivity” varies somewhat from organization to organization. It may include educational productivity, research accomplishments, global expansion, and other outcome measures; but it almost always includes financial solvency. This is every bit as true for nonprofit organizations as for for-profit organizations, as anyone knows who has sat on a nonprofit hospital board or an insurance company board.
Maintaining financial viability of the organization is a key board responsibility. Moreover, failure to do so, and the resulting dissolution or bankruptcy of an organization, often has severe consequences—not only for the organizations employees, but also for the community. Such failures routinely trigger government scrutiny and legal inquiry. It is essential for each member of the board of directors to exercise and document due diligence with regard to the organizations affairs, to have the competence to exercise such diligence, and to require that the organization share with the board the information needed in order for the board to govern.
The duty of care requires that the board member monitor the affairs of the organization, and that he/she exercise good judgment and care in all decisions and actions affecting the organization. This duty requires the board member to (1) attend meetings of the board and committees to which he/she is assigned; (2) understand all topics presented to the board; (3) understand the organization itself; (4) have access to and read the financial statements (particularly the annual audit, but also ongoing profit and loss statements, cash flow and budget statements, statements of loans to the organization, and statements about the financial condition of the organization that are distributed to persons outside the board room such as the general public); (5) participate in being certain that the organization is acting legally and ethically; and (6) participate in ensuring that the organization complies with all internal revenue obligations.
Nearly all boards on which physicians are likely to serve are subject to external scrutiny. The primary responsibility of each member of the board is to make certain that the board and organization behave in a matter such that the organization can withstand such scrutiny. Board members will be held accountable (sometimes individually) for the organizations failures (and sometimes for successes). Board members are obligated to be certain that an organization complies with all local, state, and federal regulations and laws.
While it is common for attorneys to be members of boards, or at least available as consultants to boards, it is wise for physicians to develop some familiarity with pertinent laws and regulations if they intend to serve as board members. For example, board members of nonprofit organizations should be aware of some of the more common, seemingly benign, activities that may be in violation and may jeopardize an organizations nonprofit status. These include certain kinds of fund-raising activities that the Internal Revenue Service may define as for profit.
Another activity that can be problematic for nonprofit organizations is allowing the organization to accept charitable contributions on behalf of a staff member (who may be responsible for having secured the contributions but does not have nonprofit status), if those contributions are not being used directly by the organization. This is called “acting as a conduit,” and while it seems reasonable and appropriate to the mission of an organization, such proposals require legal consultation by the board to determine whether they are legal in each individual case.
Each board member also must help ensure that the actions of the board are transparent. This means that all board actions, activities, and decisions must be documented clearly and accurately so that any appropriate party can understand exactly what the board has done, why, who receives compensation (in any form), and how much. The board itself and each individual board member are deemed accountable for the proper exercise of all of these obligations and duties.
To facilitate and document accountability, most boards not only seek out and document conflicts of interest, but also establish various policies to define expectations and activities. These include expectations and documentation of time commitments, development of a policy for ethics and conduct, personnel policies, and financial audit policies and responsibilities.
Serving on boards of directors, trustees, or governors is gratifying and certainly justifies the time and risk. It is important for physicians to share their perspective and insights with medical organizations, and with community, artistic, political, and other entities. However, physicians should recognize the nature and importance of the responsibilities of board membership and having a commitment to the organization and its cause. It is also important to ascertain in advance that the board members function in a cooperative, collaborative environment, or to recognize any dominant conflicts and controversies and understand them before the physician accepts board membership.
Physicians should be encouraged to accept board membership and enhance their leadership influence, but they also need to understand that serving as a board member is complex and requires thought, education, and commitment. Just saying, “Yes, I will do it” is not sufficient.