The venerable Governance Institute held its annual Chairperson & CEO Conference in Sin City last week.
Actually, to be more exact, the venue was nearby Henderson, Nev., and believe it or not there was not a slot machine or gaming table to be found anywhere near the group of not-for-profit hospital board chairs and chief executive officers, although there were more than enough whatever happens here, stays here jokes.
One of those using the line to great effect with the audience was Jeffrey Sonnenfeld, founder and president of the Chief Executive Leadership Institute at Yale University. Sonnenfeld, who discussed The Character of Board Governance: The Missing Ingredient in Diligence, remarked with some degree of admiration that the Governance Institute had somehow managed to find the only hotel in the Las Vegas area without casino activity in it.
This comment would seem to point to the moral high ground that the Governance Institute and governance experts in general are expected to occupy. In point of fact, I learned during this conference that good governance really has less to do with ethics as I had naively thought, but rather has more to do with preventing hospital administrators, physicians and board members from killing each other before someone else doesfiguratively speaking, of course. But more about that a little bit later.
Two by twolike on Noahs arkthe chairpersons and their respective CEOs flew into the 2½-day conference from hospitals all over the country. Accordingly, some observations are in order about these pairs entrusted with spawning the healthcare industry of tomorrow.
First of all, if they were all to line up To Tell the Truth-style before an audience of people who had never met them, I daresay that the even an educated observer would have a slightly difficult time separating the CEOs from the board chairs. In some cases this might be because some of the board chairs are also CEOs, such as Ellen Bale, CEO of South Central Bank of Barren County and board chair at 196-bed T.J. Samson Community Hospital, Glasgow, Ky. Independent board members like Bale, whose bank has no financial relationship with the hospital, were not always prevalent in the not-for-profit hospital world, but it is increasingly so now. Bale, who is obviously a far cry from the good old boys mentality one might naively associate with rural Kentucky hospitals, admits that the board at T.J. Samson has evolved in recent years.
That brings me to my second observation, which was actually overheard in the ladies room in the midst of the conference. One unknown speaker was commiserating to another thatunlike the situation at the vast majority of healthcare conferences that are not nearly so dominated by CEOs and board chairsthere was no waiting line and an abundance of empty stalls in the ladies room. Well leave it to you to draw your own conclusions.
Lastly, with conference attendance at approximately 250, nearly all the seats were full from morning to afternooneven late in the day as the event was drawing to a close, when Richard Chait, a research professor at the Harvard Graduate School of Education, spoke about the tri-modal types of governance and the need for many hospital boards to concentrate more on generative thinking to bring more ideas and insights into the mix. Even more astounding was the fact that despite all the CEOs and board chairs in the room, there was not one BlackBerry observed, a clear indication that the governance experts had the groups undivided attention for the duration of the conference. This was confirmed by John McGee, president and CEO of Solaris Health System in Edison, N.J. In an unsolicited statement, McGee said that the conference went a long way in providing the resources necessary to create an effective governing board that is built on a culture of trust and candor.
Speaking of culture, permit me now to digress back a little to the Noahs ark metaphor and note that if healthcare reform is on the near horizon as many presidential candidates vow, then these pairs may in all likelihood be the persons fundamentally responsible for building a new healthcare culture from the ground up.
Thats a huge if, and one which a couple speakers discredited with healthy doses of skepticism, starting with Susan Dentzer, the healthcare correspondent for PBS The NewsHour with Jim Lehrer. After laying out the sorry context and summarizing the various proposals, she offered her verdict on national healthcare reform, quoting the late Jerry Garcia: Somebody has to do something, and its just incredibly pathetic that it has to be us.
Taking Dentzer to task the next morning was Kenneth Kaufman, a founder and managing partner of consultancy Kaufman, Hall & Associates. Ranting about what he termed the black hole of healthcare reform, Kaufman complained that the first half-dozen or so slides Dentzer had shown looked like they were written by Michael Moore. You know what? To hell with that. He went on to predict that no presidential candidate out there will be providing the cure to the payment inequities and financial risks that providers and providers alone deal with on a daily basis. Lets have a debate based on truth, Kaufman begged.
All of the speakers were insightful and thought-provoking, but for me, the meatiest discussions took place at one of three executive leadership roundtables called Identifying, Addressing and Resolving Board Conflict-of-Interest Issues. Panelists were queried on the procedures they had in place for identifying and addressing conflicts, but the discussion quickly focused on two separate but related issuesphysicians on boards of directors and the concept of independent trustees.
Moderator Rulon Stacey, president and CEO of Poudre Valley Health System in Fort Collins, Colo., wondered if having the local mortician on a hospital board would pose a conflict of interest, noting that in small rural communities, it would be almost impossible to eliminate all possible conflicts. The trick is managing it, he said.
Apart from that, most hospital boards do share a prevalence of doctors on their boards and as most hospital administrators are too painfully aware, hospital and physician interests are frequently at odds. Yet, at a time when regulatory bodies like the Internal Revenue Service are growing more stringent in their requirements for independent-minded hospital boards, physicians on boards create a host of problems. It is also not a black or white issue, as every hospital will have its own definition of an independent director, some with perhaps zero tolerance for board members with any financial interest in the hospital and others with a threshold of say $50,000 worth of business perhaps, said Barry Bader, a Governance Institute adviser and president of consultancy Bader & Associates. Bader noted that there are inside directors and outside directors but just because a director is considered outside, it does not necessarily mean that the director is also independent.
Its an important distinction, because members of the audit and compensation committees that review sensitive subjects like CEO compensation should all be independent, according to good governance standards. That led to an extended discussion regarding what kind of authority the compensation committee has. Do the compensation committees decisions overrule the full board or do they simply derive authority from the full board? There was a wide ranging difference of opinion in the room, which led Ed Kazemek, chairman and CEO of consultancy Accord and a Governance Institute adviser, to step in to clear up any misunderstandings. We have a golden opportunity to create our own definition of what we mean by independence, Kazemek said. If you dont, the IRS or Senate Finance Committee will pass legislation that will be much more onerous. My recommendation is if you dont have a clear definition, now is the time.
After the session, Kazemek noted that the discussion illustrated that hospital boards are confused on a lot of issues, especially what it means to be an independent director. I then asked Kazemek what background he had that brought him to this point as referee for the not-for-profit hospital board world. He noted that he had taken a lot of courses in behavioral science and also at one point had planned to be an attorney. Nothing was mentioned about philosophy, ethics or religion. Suddenly, I realized that I had terribly misjudged this whole aspect of not-for-profit healthcare.
It was a revelation. I had always thought of the governance experts as the rabbis in the roomthe devout people you went to for spiritual sustenance, advice and guidance. The more likely truth is that governance experts like Kazemek and Bader were really the kids on the playground who always set up the ground rules before the game even started to ensure that everything did not quickly unravel into a mess of irresolvable conflicts and competing interestsunlike, of course, the healthcare system we have today.