iProtean—Recruitment & Orientation

The requirements for governance have become more stringent and the work of being a director has become more demanding.  Clearly, boards need to be more informed about a whole variety of areas of finance, of quality, of human resources, of technology, of how they play together.  Boards need a more sophisticated and diverse understanding of the communities they serve from all ages and genders and ethnic groups.  Putting together this almost magical team of skills, talents and perspectives on a board becomes something that can’t be left to serendipity . . .” (Barry Bader, Bader & Associates)

 

A recent Special Comment from Moody’s Investors Service noted that strong oversight and strategic guidance by a hospital’s board is imperative, “yet many not-for-profit boards find it difficult to recruit experienced and expert members capable of guiding management well . . . Improving a hospital board’s understanding of the changes that the industry is facing is a fundamental characteristic of better governed organizations. Many hospitals will likely need to add new board members with expertise in investments, consolidation and compliance backgrounds.”

(Moody’s Investors Service Special Comment: Doing More with less—Credit Implications of Hospital Transition Strategies in Era of Reform. May 2012)

 

Recruiting qualified and committed people to serve on the hospital/health system board is one of several steps to ensuring an effective board.  The group of people sitting around your boardroom table should not only be knowledgeable, experienced and committed to serving the organization as volunteers, they also must be open to hearing different points of view; to gaining new information to keep abreast of industry happenings; to working collaboratively with their fellow board members and executive management, and working together as a team.  The board is a unique, elite group of individuals who are highly sophisticated and experienced and who have a broad array of knowledge in their own worlds.  Putting together the right mix of these individuals requires attention to a variety of components for the recruitment process.

 

The iProtean course Recruitment & Orientation offers a detailed look at how to recruit and orient new board members so the board as a whole functions at least as well, if not more effectively over time.  Barry Bader, Lawrence Prybil, Ph.D., and Anne McGeorge provide an overview of board recruitment, board size and composition, characteristics of good directors, board leadership, terms and term limits, and board orientation.

 

Lawrence Prybil, Ph.D.

When we think about a board and the current array of people serving on that board, one’s mind moves to, “Well, how did they get there, and how will others get there in the future?”  One facet of board development is board succession planning.  And that means thinking about the talent we have, the talent we need, and how to recruit people who will provide those competencies to complement the competencies we have.  How does all that happen?  Well, it’s not going to happen by itself.

 

In today’s world there is growing awareness among most boards that the whole board nomination process needs to be thoughtful and intentional.  In my work with boards and the boards where I serve as a board member, I have seen a ramping up of the visibility and recognition that doing that these things well—nomination, appointment, orientation—is one of the key determinants of effectiveness of the board.

 

Barry Bader, Bader & Associates

. . .  attribute-based selection of board members . . . means that a board, usually through its governance and nominating committee, says, “What, in fact, are the areas of knowledge and skills, and what are the individual traits, the personal traits and behaviors that we are looking for from directors?  Let’s identify them.  Let’s share that with all the members of the board. We will make everybody on the board, as well as our physician leaders and our management, potential board recruiters to identify people who fill these skills and talents.”

 

Governance committees can then develop a long list of potential individuals, can refine that into a short list of the most highly qualified, best prospects for the vacancies that are foreseen.  Then, they can have those people come in for an interview, vet their backgrounds and make a more informed choice for ultimate election to the board.

 

Anne McGeorge, Grant Thornton

. . . best practices include identifying a particular area of expertise among the existing board as one that the board would like to expand or fill.  For example, a CPA might be needed or an auditor might be needed to fill a spot on the audit committee or as the chairperson of the audit committee; likewise with an investment person chairing an investment committee or an attorney for general expertise for the board.

 

Barry Bader, Bader & Associates

Characteristics of a good directors: The most important characteristic that a board member needs is what I’ve heard called “governance temperament”—directors or trustees who just naturally by their personality or by their experience understand innately the difference between governance and management.  They know how to stay at a high level; they know how to be visionary.  They know how to inspire and motivate and constructively challenge management and physician leaders without becoming confrontational.  They know how to disagree without being disagreeable . . .

 

This can be supported through board education but, frankly, people either have it or they don’t when they walk in the boardroom.  The trick is to know it before you nominate an individual to be on a board and not to learn about it only after the fact . . .

 

Lawrence Prybil, Ph.D.

The leadership of the board and board committees is part of board development and succession planning.  I like the idea of very deliberate thinking about succession planning.  That is a sign of a healthy board . . . We should be thinking about how to prepare people for leadership roles, and having dialogue with them about their level of interest or willingness to consider a leadership role.

 

Barry Bader, Bader & Associates

If I come onto the board as a new director, what do I need to know, what do I want to know?  First, I want a clear understanding of what you expect from me.  What is my role; what are my responsibilities on this board? . . .

 

Increasingly hospitals and health systems are viewing orientation as a year-long process that needs to be individualized for each board member.  A board member who comes in with a finance background just needs a little bit of knowledge about healthcare finance but probably a lot of information about clinical care and quality.  On the other hand, a physician who may have been through a number of medical staff positions probably has a pretty good understanding of quality and credentialing, but much less understanding of hospital finance.  So orientation should be individualized . . .

 

A significant part of orientation will be done within and by the organization, but one part of it also ought to come from outside the organization, where a new director participates in an educational conference or orientation provided by some national group, where they may read materials by governance and healthcare experts.

 

The job of being a director is extremely challenging, increasingly complex.  Orientation therefore needs to be equally comprehensive and come from a variety of sources.

 

Well-rounded orientation is going to produce a more well-rounded and better-equipped board member.

 

 

For a complete list of iProtean courses, click here.

 

iProtean Symposium & Workshop

Mark the Date!! October 10 – 12, 2012 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Barry Bader, Monte Dube, Esq., Lisa Goldstein, Dan Grauman, Marian Jennings and Brian Wong, M.D. For more information, click here.

 

For more information about iProtean, click here.

iProtean—Board Effectiveness

The cost of keeping hospital and health system boards informed about the issues of the day has been increasing dramatically; yet the need to provide low-cost, quality board education is more acute than ever.

 

Hospital and health system boards may take a lesson from the world of higher education—that is, exploiting new technology to provide online courses for governance education and up-to-date information on issues and events in the healthcare industry.  In a recent op-ed piece in the New York Times, Thomas Friedman wrote about new companies that “revolutionize higher education by allowing students from all over the world to not only hear lectures, but to do homework assignments, be graded, receive a certificate for completing that course . . . “ through online learning.  (Thomas Friedman, “Come the Revolution.”  New York Times, May 15, 2012.)

 

Mr. Friedman calls this the “college education revolution.” Private companies and universities such as M.I.T. and Stanford are building electronic platforms that deliver content from university professors, dramatically reducing the cost for students.

 

Online board education from iProtean functions in the same manner as Mr. Friedman’s “college education revolution”—providing expert content and optimizing efficiencies.  iProtean’s online learning features match those of the higher education programs—an electronic learning platform to enable hospital boards that lack access to high-quality board education—because of financial, geographic or time constraints—to take courses and download information from the country’s best experts on governance and health industry topics, and receive certificates for completing courses.

 

The savings and convenience are significant.

 

“When you consider how many problems around the world are attributable to the lack of education, that is very good news. Let the revolution begin.” (Thomas Friedman, “Come the Revolution.”  New York Times, May 15, 2012.)

 

In the iProtean course Board Effectiveness, Barry Bader, Lawrence Prybil, Ph.D., Elizabeth Mills, Esq., and Anne McGeorge discuss the importance of board education as well as tools for board effectiveness, board meetings, committees, setting priorities and education agendas.

 

Lawrence Prybil, Ph.D.

In today’s world, which is so dynamic and so changing and so turbulent, we all as board members need to continue to develop our knowledge and skills, particularly those who are not of the healthcare field, but those in the healthcare field as well.  Thinking about the board as a whole and about individual members, what is the best way for us to allocate time to education?  There are many ways we can develop a board member’s knowledge . . .

 

What are the key educational needs, and how are we going to address those needs?  What is the smartest way and the most efficient and effective way in today’s world with new kinds of technology and new kinds of educational offerings?  We don’t have to think only in terms of sending people away to meetings. Maybe it is smarter to bring people to the board setting, to the system or healthcare setting, or maybe to use various forms of technology that acquaint people with knowledge and content.

 

Anne McGeorge, Grant Thornton

As boards become more sophisticated, they also need additional education.  As health systems and hospitals become more sophisticated, the boards need to understand not only the regulatory environment, but also roles and responsibilities of the board.  They need to understand operational metrics that are facing hospitals.  They need to understand healthcare reform and all of the outside factors that affect the operation of a health system.

 

Many boards set forth a certain amount of time at every board meeting, or sometimes they allocate certain board meetings during the year that will be devoted specifically to education.  Those specific items and those educational topics are usually set forth in the beginning of the year.  Then, specific board meetings are identified that will include the educational topics, and speakers are procured during the year to speak on those particular topics . . .

 

It is important for board members to be able to self-assess their educational needs vis-a-vis the discussion items that come up during the board meetings that they might be less comfortable with, and communicate those educational needs to the chairman of the board so they get added to the educational agenda.

 

 

For a complete list of iProtean courses, click here.

 

iProtean Symposium & Workshop

Mark the Date!! October 10 – 12, 2012 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Barry Bader, Dan Grauman, Marian Jennings and Brian Wong, M.D. For more information, click here.

 

For more information about iProtean, click here.

iProtean—Introduction to Governance

“What a time to be involved in healthcare . . . our healthcare industry is under transformation right now and being on a board is a chance to play a role, to shape it in some small but significant way.  That’s a great opportunity for a volunteer.” (Barry Bader, Bader & Associates)

 

The myriad of challenges confronting hospital/health system boards and executives today represent an evolutionary shift in the healthcare delivery system.  The uncertainties about the viability and sustainability of the organization can either galvanize or paralyze its leaders.  Board members should feel confident that attention to their fiduciary duties, roles and responsibilities—along with relevant, up-to-date information—will serve them and their organizations well during this industry upheaval.

 

In the iProtean course Introduction to Governance, Barry Bader, Lawrence Prybil, Ph.D., Elizabeth Mills, Esq., and Anne McGeorge discuss the board’s fiduciary duties and core responsibilities, board roles, governance oversight, management versus governance, physicians on the board, the board chair and the role of the governance committee.

 

Barry Bader, Bader & Associates

A fiduciary is, in non-legal terms, someone who holds assets in trust for someone else who owns those assets.  A not-for-profit hospital board has a fiduciary responsibility to see that the organization, its management, its clinicians, everything it does is in the best interest of the community and of the mission of the organization to serve the community . . .

 

There are three fiduciary duties.  Trustees and directors first have a duty of fidelity, or obedience, to the purpose of the organization; that is, ensuring that everything the organization does is focused on its corporate or charitable purpose.

 

Second is the duty of loyalty, to ensure that the board, directors as well as officers of the organization, are acting in the best interest of the organization and are not acting for any personal or professional gain.

 

Third is the duty of care, to apply the diligence that a reasonable businessperson would apply in his/her own business to reviewing information and making decisions . . .

 

Elizabeth Mills, Esq., Proskauer

Fiduciary duties are enforced in a number of ways.  First and foremost, in most states, the attorney general is responsible for the oversight of charities such as hospitals.  The attorney general will be interested if board members are not acting in accordance with their duties.  In addition, the IRS has become very interested in governance on the theory that good governance usually means a tax-compliant organization.

 

Barry Bader, Bader & Associates

A board has responsibilities primarily in seven areas.  First, the area of mission and values—establishing, improving and periodically overseeing the mission of the organization and the values it stands for, and also overseeing how well the organization is fulfilling its mission, especially the delivery of community benefit services.

 

Second is the area of vision and strategy.  In changing times, organizations cannot stand still; they have to have a clear idea of where they are going.  It is the board that approves the vision, the strategic direction of the organization, and establishes measurable goals for knowing how well the organization is proceeding.

 

Third, the board is responsible for the financial health of the organization, both its profitability today, and also its sustainability for the long term.

 

Fourth—and this is not in priority order because some would say this is job one—the board is responsible for the quality of care that’s delivered by its physician and other clinical staff.

 

Fifth, the board is responsible for organizational integrity, corporate compliance, ensuring the organization is following laws and regulations and is following its own codes of conduct with regard to conflict of interest, confidentiality, equal employment opportunity and similar aspects.

 

Sixth, the board is responsible for selecting an outstanding chief executive officer and then supporting, evaluating and providing appropriate compensation to him or to her . . . Peter Drucker said this is a board’s number one responsibility and it’s very hard to argue with that.

 

Finally, there is the responsibility for governance itself, a board taking responsibility for how it operates, how it is structured, for its bylaws and, most importantly, for its members.

 

Anne McGeorge, Grant Thornton

One of the core responsibilities of the board is governance oversight . . . The board acts as a separate independent body that oversees management.   This is extremely important to the performance of the organization itself, whether the board is challenging decisions that are made by management, or challenging particular strategic directions management is taking the organization, or whether it’s making a decision to actually change out the leadership of the organization.  Those are the high-level governance oversight responsibilities of a board . . .

 

Barry Bader, Bader & Associates

The medical staff in a hospital is, for board members who come from other business enterprises in society, a very unusual relationship . . . The medical staff traditionally has a high degree of independence.  Its physicians have an individual accountability; in fact, they take an oath to work on behalf of the individual patient.  We say in our society that the physician-patient relationship is sacrosanct.  Even when physicians are employed by the organization, they maintain that responsibility, that accountability to their patients, and I don’t think anyone would want to change that.  So how can a board productively build a collaborative relationship with the medical staff—one that advances patient care?

 

. . . One of the things a board can do to build an effective relationship with the medical staff is to first acknowledge  that it needs to have a relationship with the medical staff.  A relationship means that they communicate, they talk to each other.  So a board should be saying, “What opportunities do we have to engage physicians as members of our board, on committees, in our retreats, and how well is management engaging physicians in the planning and conduct of quality activities?”

 

Second, the board should ask how and to what extent are physicians engaged in leadership and decision making activities throughout the organization . . . how are physicians involved in this organization?  Are they treated as partners, are they given a significant role?

 

For a complete list of iProtean courses, click here.

 

iProtean Symposium & Workshop

Mark the Date!! October 10 – 12, 2012 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Barry Bader, Dan Grauman, Marian Jennings and Brian Wong, M.D. For more information, click here.

 

For more information about iProtean, click here.

iProtean—CEO Selection & Compensation

Executive compensation has made the news over the last several weeks, both in the U.S. and in the U.K.  As positive economic news continues to elude the corporate and political world, the spotlight sweeps across many corporate practices—and executive compensation has received full focus.  In the not-for-profit arena, scrutiny of hospital and health system executive compensation practices has not been spared; in fact, it is increasingly front-page news.

 

Deloitte Center for Corporate Governance recently released a publication from  Pearl Meyer & Partners that lists the 10 compensation committee agenda items for 2012.  Several on the list apply to not-for-profit healthcare boards including:

 

–       Understanding “total executive compensation”

–       Reassessing executive compensation benchmarking

–       Continuously assessing your succession planning strategy

–       Testing your compensation philosophy against its stated objectives

 

(Pearl Meyer & Partners.  Top 10 Compensation Committee Agenda Items for 2012. Deloitte Corporate Governance Monthly, May 2012.)

 

In the iProtean course CEO Selection & Compensation, Barry Bader, Monte Dube, Esq., Anne McGeorge and Elizabeth Mills, Esq., discuss executive compensation as well as CEO selection, succession planning and evaluation.

 

Monte Dube, Esq., Proskauer

People care a lot about how senior management of tax-exempt organizations are compensated.  Often times that compensation, for very good reason, is considered by your community to be high.  High, though, doesn’t mean unreasonable.  The key standard for executive compensation for tax-exempt organizations is fair market value, reasonable compensation.  The process for determining reasonable compensation for your executive management is extraordinarily important, almost as important as the substantive conclusions your board reaches.

 

Elizabeth Mills, Esq., Proskauer

It is important that you pay your executives market value so that you can have qualified people. At the same time, you can’t pay them more than reasonable compensation, for all sorts of reasons:  you are wasting your charitable money, the IRS won’t like it and so forth.  Executives don’t have to work for less just because they are working for a tax-exempt organization, but they shouldn’t be excessively paid either.  The board has the ultimate responsibility for making sure that compensation is reasonable for your top executives.

 

Barry Bader, Bader & Associates

Boards should avail themselves of an expert third party compensation firm that is right at the leading edge of the field in terms of compensation policies, practices, comparative payment levels and what the law requires.  It’s a complex and evolving area of regulatory law and Internal Revenue Service regulations, and it is very important that the board and its executive evaluation and compensation committee ensure that they are getting the best advice.

 

It is also important not to under compensate and, particularly, to not appropriately fund an executive’s retirement.  I’ve seen situations where CEOs remain in their positions and take an additional contract from a grateful board, but frankly they stay in their roles longer than ideally they should or ought to or want to because the board has not provided them sufficient economic security.  So it is important that a board not only avoid excessive compensation and benefits for its executives, which can run afoul of legal problems, but that it also not under compensate a high performing executive.

 

Anne McGeorge, Grant Thornton

. . .  tax-exempt organizations are highly regulated by the Internal Revenue Service and by the OIG with regard to executive compensation. The overarching rule in all of the regulations has to do with paying fair market value for compensation.  So how do you determine fair market value, and what is the role of the board member in determining that the executive’s pay is actually fair market value?

 

Generally, the IRS has set forth three guidelines, and if the organization meets these three guidelines, then the compensation will be determined to be reasonable, which in essence means fair market value, unless the IRS proves otherwise.  That is important because it shifts the burden of proof to the IRS in proving that the compensation is not reasonable.

 

Those three criteria are: 1) the salary is benchmarked to other executives’ salaries and the benchmarks actually used are published benchmarks; 2) the board has approved the salaries based on these comparables;  3) the approval decision is documented in the board minutes.  Those three criteria are called the “rebuttable presumption of reasonableness.”  If boards comply with the rebuttable presumption of reasonableness criteria, in 95 percent of the cases they will never have an issue with executive compensation.

 

Barry Bader, Bader & Associates

There are a number of best practices for a board in the area of oversight of executive compensation.  The board should approve a compensation philosophy that clearly connects compensation and incentives to the organization’s mission and quality, and that expresses why, for example, we pay our CEOs at 75th percentile of comparable executives.  Why we have both financial and quality goals—because both are important to the mission.  Why we have both annual and long term goals—because we want our executive team to have a strategic focus.  Why we have both quantitative, measurable goals like operating margin, and qualitative goals such as developing a positive culture with our physicians—because we believe that our executive needs to nurture a positive culture but also a metrically driven culture in a challenging, complex industry.

 

Next best practice is that the executive compensation committee should carefully review objective information including board input about the executive’s performance.  It should review the quantitative measures and then it should determine “What percentage of the incentive award do we want to give to the CEO?”  In addition, generally that committee doesn’t make the decision on the incentive awards for the rest of the senior management team. But all of those incentive bonuses for the rest of the team are a reflection and should be consistent with the overall compensation philosophy.

 

Increasingly, a part of that philosophy is that incentives for individual members of the senior team are based not only on their individual performance, but also on how the team performs as a whole.  In health systems, the executives of subsidiary organizations increasingly have goals that not only relate to their subsidiaries, their hospitals, but also system-wide goals because ultimately our compensation plan, our philosophy is saying we need to work together as an organization to achieve our goals.  We don’t want to incentivize silo behavior if what we want is high-level, system-wide performance.

 

For a complete list of iProtean courses, click here.

 

iProtean Symposium & Workshop

Mark the Date!! October 10 – 12, 2012 at The Lodge at Torrey Pines, La Jolla, CA. Faculty: Barry Bader, Dan Grauman, Marian Jennings and Brian Wong, M.D. For more information, click here.

 

For more information about iProtean, click here.