At the national, state, and community levels of American society, there is a growing cry for more accountability and better performance by the governing boards of business firms, institutions of higher learning, and health care organizations. A recently completed study has examined selected aspects of governance in a set of high-performing nonprofit hospitals versus hospitals that are similar in several respects but whose performance is midrange. This article discusses the findings with respect to the boards’ size, composition, and culture.
Get full access to this article
View all access options for this article.
References
1.
G. Morgenson, “10 Ex-Directors from WorldCom to Pay Millions,”New York Times, January 6, 2005, p. A1-A1; J. Lublin, T. Francis, and J. Weil, “Directors Are Getting the Jitters,” Wall Street Journal, January 13, 2005, p. B1; and G. Colvin, “The Other Victims of Bernie Ebber's Fraud,” Fortune, August 8, 2005, p. 32.
2.
A. Finder, “Senate Panel to Review American U. Board Actions on Spending,”New York Times, December 3, 2005, p. A30-A30.
3.
See, for example, A. Stuart, “Keeping Secrets: How Five CFOs Cooked the Books at HealthSouth,”CFO, March 2005, p. 62-62; and J. Reeves, “Former HealthSouth CFO Gets 5-Year Prison Sentence,” Arizona Republic, December 10, 2005, p. D8.
4.
For example, the Internal Revenue Service's Tax Exempt Enforcement Project will include a review of the compensation programs in about 2000 nonprofit organizations including hospitals.
5.
See D. Bjork, “Governance Reform Initiatives in Not-for-Profit Health Care organizations,”American Governance Leader, January, 2004, pp. 1-4; and A. Barrionuevo, “Ouster at AIG Shows Rising Assertiveness of Boards,” New York Times, March 15, 2005, p. C1.
6.
See, for example, N. Ono, “Boards of Directors Under Fire: An Examination of Nonprofit Board Duties in the Health Care Environment,”Annals of Health Law, Volume 7, 1998, pp. 107-138; M. Peregrine and J. Schwartz, “Revisiting the Duty of Care of the Nonprofit Director,” Journal of Health Law, Spring 2003, pp. 183-211; and G. Davis, “New Directions in Corporate Governance,” Annual Review of Sociology, Volume 31, 2005, pp. 143-162.
7.
See, for example, J. Green and D. Griesinger, “Board Performance and Organizational Effectiveness in Nonprofit Social Service Agencies,”Nonprofit Management and Leadership, Summer 1996, pp. 381-402; I. Millstein and P. MacAvoy, “The Active Board of Directors and Performance of the Large, Publicly Traded Corporation,” Columbia Law Review, Volume 98, 1998, pp. 1283-1322; and Governance of Not-for-Profit Healthcare Organizations, Moody's Investors Service, June 2005. There are, of course, many factors in addition to the quality of governance that affect organizational performance.
8.
The term governance can be used broadly to describe the exercise of authority over the performance of various hospital functions, eg, “medical staff governance.” In this report, the term refers only to the work of the organization's board of directors or equivalent body.
9.
For a full report on this study's methodology, findings, and conclusions, see L. Prybil, R. Peterson, J. Price, S. Levey, D. Kruempel, and P. Brezinski, Governance in High-Performing Organizations: A Comparative Study of Governing Boards in Not-for-Profit Hospitals (Chicago: Health Research and Educational Trust, 2005). Much of the information presented in this article is taken from that comprehensive report.
10.
For information regarding the “100 Top Hospitals” program and Solucient's performance evaluation system, see Solucient Top Hospitals: Benchmarks for Success, Solucient Institute, 2003, esp. pp. 6-11, or visit the Solucient website (www.solucient.com).
11.
For each of the 7 high-performing hospitals, the research team, with the assistance of the Solucient staff and database, endeavored to identify another private, nonprofit hospital which (1) is located in the same state (and thereby subject to common Medicaid reimbursement, certificate-of-need regulations, and other state-level programs) but, to avoid inadvertent interaction effects, not in the same community; (2) was not included in any of Solucient's most recent (as of summer 2004) “100 Top Hospitals” listings (1999-2003); (3) in Solucient's analyses, demonstrated “midrange” operating performance as defined by being ranked between the 30th and 70th percentile of all hospitals included in the Solucient database; and (4) is similar to its counterpart in the study population in terms of being an independent, free-standing institution, part of a community-based health care system with facilities located in 1 part of a state, or part of a regional or national health care system with facilities in multiple locations. Their CEOs and board members were informed in writing that the research team was studying governing boards in high-performing hospitals and that their institution had been selected as part of a control group. For more details about the matching criteria and process, see Prybil et al, op. cit, pp. 21-22.
12.
J. Collins and J. Porras, Built to Last: Successful Habits of Visionary Companies, Harper Business, 1994, pp. 13-15. The need for more comparative research regarding boards has been recognized by many authorities; see, for example, S. Zahara and J. Pearce, “Boards of Directors and Corporate Financial Performance,” Journal of Management, Vol. 15, 1989, pp. 291-335; and J. Kirby, “Toward a Theory of High Performance,” Harvard Business Review, July-August 2005, pp. 30-39.
13.
A. Pettigrew and T. McNulty, “Sources and Uses of Power in the Boardroom,”European Journal of Work and Organizational Psychology, Volume 7, 1998, p. 197-197.
14.
The governing bodies of the 14 hospitals in this study included a total of 203 voting board members including 9 CEOs; the other 5 CEOs are board members without vote. Interviews were conducted with 65 of the 203 voting board members (32.0%) plus the 5 CEOs who are nonvoting board members.
15.
The 2005 biennial survey of hospital boards in the United States by The Governance Institute found that the mean number of board members was 13.8. Raising the Bar: Increased Accountability, Transparency, and Board Performance, The Governance Institute, 2005, p. 6-6.
16.
The Governance Institute defines “inside board members” as “persons who hold full-time administrative positions in the organization.” This includes physician board members who hold full-time administrative positions within the hospital. “Medical staff board members” are defined as “those who have active clinical privileges in the organization but do not hold full-time administrative positions [in it.]” “Outside board members” are defined as “those who do not hold full-time positions or clinical privileges in the organization.” Outside board members include physician board members who do not have clinical privileges in the organization and do not hold full-time administrative positions in it.
17.
Hospital Governing Boards and the Quality of Care: A Call to Responsibility (National Quality Forum: 2005). Also see S. Kaput, “Expanding the Scope of Fiduciary Duties to Fill a Gap in the Law: The Role of Nonprofit Hospital Directors to Ensure Patient Safety,” Journal of Health Law, Winter, 2005, pp. 95-119; and K. Gautam, “A Call for Board Leadership on Quality in Hospitals,” Quality Management in Health Care, January-March, 2005, pp. 18-31.
18.
See, for example, J. Meyer, S. Silow-Carroll, T. Kutyla, et al, Hospital Quality: Ingredients for Success—Overview and Lessons Learned, The Commonwealth Fund, July, 2004; “Taking a Strong Stance on Quality Oversight,” Boardroom Press, October, 2005; and D. Nash and N. Goldfarb, Editors, The Quality Solution: The Stakeholder's Guide to Improving Health Care (Sudbury, Mass: Jones & Bartlett, 2006).
19.
K. McDonagh, “Good Governance Includes Clinician Participation,”Trustee, November-December, 2005, p. 32-32.
20.
D. Berwick as quoted in “Great Boards Ask Tough Questions: What to Expect from Management on Quality,”Boardroom Press, April 2005, p. 7-7.
21.
Corporate Responsibility Handbook, Coalition for Nonprofit Health Care, November 2002, p. 9-9.
22.
“Report of the ABA Task Force on Corporate Responsibility,”The Business Lawyer, November 2003, pp. 159-160.
23.
J. S. Reed, “Ethics and the Not-for-Profit Board,”Boardroom Press, December 2003, p. 7-7.
24.
Of course hospital leaders must be mindful of regulatory constraints. Current Internal Revenue Service rules permit nonprofit, tax-exempt hospital boards to have no more than 49% of its membership be “interested persons.” In IRS terminology, “interested persons” include any employee of the organization as well as physicians who treat patients in the organization or who “conduct business with or derive any financial benefit from the organization.”
25.
See, for example, L. LeGraw and D. Roble, “Physicians on the Board: Competitive Conflicts of Interest,”Trustee, January 2005, pp. 27-28; and “The Increasing Importance of the Sarbanes-Oxley Act of 2002,” Health Governance Report, October, 2005, esp. p. 3.
26.
See, for example, C. Molinari, L. Morlock, J. Alexander, and C. Lyles, “Hospital Board Effectiveness: Relationships Between Governing Board Composition and Hospital Financial Viability,”Health Services Research, August, 1993, pp. 357-377; J. Sonnenfeld, “What Makes Boards Great,” Harvard Business Review, September, 2002, pp. 106-114; B. Bader, “Enron's Real Lesson: Strengthen Board Culture,” Great Boards: The Online Newsletter for Healthcare Boards, November, 2002; S. Finkelstein and A. Mooney, “Not the Usual Suspects: How to Make Boards Better,” Academy of Managerial Executive, Vol. 17, 2003, pp. 101-113; L. Van den Derghe and L. Levrau, “Measuring the Quality of Corporate Governance: In Search of a Tailormade Approach?” Journal of General Management, Vol. 28, 2003, pp. 71-86; C. Dailey and A. Carnella, “Corporate Governance: Decades of Dialogue and Data,” Academy of Management Review, Vol. 28, 2003, pp. 371-383; and “Report of the ABA Task Force on Corporate Responsibility,” The Business Lawyer, November, 2003, pp. 145-199.
27.
Some recent research suggests the highest performing companies have boards that “regard dissent as an obligation and that treat no subject as undiscussable,” J. Sonnenfeld, “What Makes Board Great,”Harvard Business Review, September 2002, p. 111-111.
