Turmoil at the nations venerable Smithsonian Institution in light of allegedly unchecked transgressions by its former secretary will no doubt spill over into the governance practices of not-for-profit hospitals, two healthcare governance experts said.
I think its another note in the ongoing drumbeat of enhanced scrutiny and accountability of governance, said James Orlikoff, president of Orlikoff & Associates, a governance consulting firm. What used to go on behind closed doors is increasingly subject to the light of day.
Last week in the wake of the March resignation of Secretary Lawrence Small, the Smithsonian Board of Regents adopted a new set of practices to restructure its oversight of the institution.
Of note to healthcare executives, the regents barred board members from serving as directors on the boards of corporations. That practice is not uncommon among chief executive officers running some of the largest healthcare systems in the U.S. For example, Kenneth Hanover, president and CEO of the Health Alliance of Greater Cincinnati, has served on the board of privately held companies (Oct. 30, 2006, p. 16).
The release of the new set of practices was quickly followed by a scathing independent review report of the Smithsonians management under the former secretary. As Iowa Sen. Chuck Grassley, ranking Republican member of the Senate Finance Committee, said in a written statement, the report confirms that the Smithsonian leadership had lost its way under a spendthrift secretary who ran roughshod over the board. All nonprofit institutions should learn from this experience. The leadership crisis in the Smithsonians executive suite shows what can happen when oversight, transparency and good governance fall off the track, Grassley said.
The crisis at the institution entrusted to curate the nations cultural treasures was triggered by revelations that, unknown to the board, Small was significantly overpaid and absent from his job for substantial periods because of vacation and paid stints on corporate boards, according to the independent review.
Similarly his overly liberal use of his expense account was not reviewed for reasonableness by the board.
The fallout from the scandal also reached to the next lower echelon last week when Sheila Burke, deputy secretary and chief operating officer, resigned although she was asked to remain until the end of the fiscal year, Sept. 30, to ensure a smooth transition.
Burke was criticized in part for spending too much time on lucrative outside boards and other activities. She served on the boards of two publicly traded companies, including health insurance giant WellPoint, and more than 12 not-for-profits, including the Kaiser Family Foundation.
Grassleys response to the review committees findings was all the more significant in light of his prominent role in ongoing scrutiny of the not-for-profit sector, particularly hospitals.
Its just a continuation of the growing and accelerating trend of boards being held to higher standards than ever before, Orlikoff said. Its just evidence of the continuing trend of heightened scrutiny of boards and much lower tolerance for governance that doesnt pass the smell test.
Although the Smithsonian is a trust established by Congress, it is, like most hospitals, a 501(c)(3) charitable organization, noted Michael Peregrine, a partner at McDermott Will & Emery in Chicago specializing in governance and tax issues.
These Smithsonian developments are likely to have a broad spillover effect on
the nonprofit sector, Peregrine wrote in