The national climate of heightened concern about conflicts of interest in corporate governance has not ended a cozy relationship dating back more than three decades between Baylor Health Care System and a major hospital supplier.
Baylor President and Chief Executive Officer Joel Allison is the only hospital executive on the board of Hospira, a new spinoff of Abbott Laboratories' $2.5 billion hospital products business.
Already one of the most highly paid hospital executives in the country with total 2002 compensation of $1.2 million, Allison, 56, will make an additional $100,000 annually from Hospira in the form of a $50,000 salary and a $50,000 grant of restricted stock.
Baylor officials said Allison is on an education sabbatical until June 1 and is not responding to media calls.
Since the Sarbanes-Oxley Act of 2002 clamped down on conflicts of interest within boards of for-profit companies, some not-for-profit hospitals have tried to ban board members with connections to firms that do business with the hospital (March 22, p. 22).
Allison, who also serves on Baylor's board, is not in a position to influence the hospital system's purchasing decisions, which are made at a lower level of the organization, Baylor officials said.
While Baylor buys Abbott products, neither entity expressed concern about a conflict of interest arising from their governance overlap.
Allison also sits on the board of the Texas Hospital Association. There is disagreement among hospital leaders over the propriety of hospital executives who serve on hospital trade association boards while also serving on boards of companies that sell to hospitals. Modern Healthcare has found that several American Hospital Association chair officers have served on boards of hospital vendors, though not always simultaneously (Dec. 2, 2002, p. 8).
THA President and CEO Richard Bettis said his group's conflict-of-interest policy requires board members to disclose their participation on other boards and to abstain from discussion and voting situations in which a conflict might be present. Governance experts said there is nothing inherently wrong with a hospital CEO serving on a supplier's board, but it's incumbent upon the hospital board to make sure that such situations are approved by the hospital board and fully disclosed.
"It's very likely that this is a win-win situation," said hospital governance consultant James Orlikoff. Still, he said, hospital boards need to weigh the costs and benefits of a CEO devoting time to governance of other companies. If an outside position required substantial time, he said, a board could require a CEO to conduct that job on his or her own time or sign over any compensation to the hospital, which was not done at Baylor.
Boone Powell Jr., former president and CEO of Baylor, said he has found serving on the Abbott board to be an enriching experience, teaching him such lessons as the importance of succession planning. His father, Boone Powell Sr., also served on Abbott's board while leading Baylor. "I learned a great deal about how the corporate world operated, and I took back information and benefits that helped me as CEO understand business in a broader context," Powell said.