The Chief Governance Officer: To Have or Have Not?
By Monte Dube and Kerrin Slattery
AHERF. Enron. Worldcom. Hewlett-Packard. A seemingly endless cascade of governance dysfunction and management misadventures at the highest levels of corporate and nonprofit America. In response, Sarbanes-Oxley was enacted by Congress to set standards for accountable governance and to help restore transparency and public trust in American corporations. Preparing for the other shoe to drop, nonprofit hospital and health care system boards and management have been identifying and retrofitting governance “best practice” solutions tailored to their organizations. One of these “solutions” is the new executive position of chief governance officer.
The chief governance officer, or CGO, is a job category already well-accepted and broadly adopted by Fortune 500 companies, and the nonprofit health care sector has a small but growing cadre of CGO executives. While exercising good governance to further the board’s fiduciary duty remains the responsibility of every director and member of executive management, the CGO is a dedicated executive who facilitates a health care organization’s governance best practices. Creating the CGO position demonstrates the organization’s commitment to excellent governance, but no board can abdicate its oversight responsibility to any individual. Making governance excellence a priority means enabling and empowering management to help the board better exercise its non-delegable oversight responsibilities—and the CGO can help management deliver what the board needs.
The CGO’s job responsibilities are broad, diverse and politically sensitive. They include:
- Providing an ongoing assessment of the board’s structure and governance practices
- Monitoring and documenting the organization’s compliance with legislative and regulatory requirements affecting corporate governance
- Serving as a liaison between management and the board
- Developing governance policies and conflict-of-interest standards and overseeing conflicts management
- Setting board meeting agendas
- Preparing board minutes and resolutions
- Investigating complaints made by the organization’s employees or by external watchdogs
- Making ongoing board assessments and recommending changes to governance structure
- Educating the board on new legal requirements and evolving governance best practices.
These efforts require candid discussions with the board and management and a cooperative relationship with other corporate advisors to help the board take informed risks rather than letting it become risk averse. The CGO should help the board differentiate between what is “legal” and what is “right” and reconcile what stakeholders expect, what regulators expect, what the market expects and how the organization will likely be portrayed in the newspaper. Most importantly, a great CGO helps an organization fulfill its charitable mission.
Qualified CGOs may be lawyers or other professionals who know the organization’s corporate structure and culture. They have legal training in corporate formalities, including board meeting process and corporate recordkeeping, conflict-of-interest practices and policies, and the political savvy to facilitate resolution of issues and governance improvements with stakeholders and executives senior to the CGO in the organization. Like a health system’s compliance officer, the CGO should have a direct reporting relationship to the board or its governance committee, but may also report to the CEO or the in-house general counsel.
Whether or not a health care organization has a designated CGO, the position’s functions should be executed in every organization. Whether this should be a full-time or part-time executive in the organization or be part of an existing executive’s duties, usually depends on the organization’s size and complexity. In fact, these duties are likely already being done piecemeal by different people within the organization. The question is whether they are being done effectively. If not, the question becomes “Will consolidation of job functions improve effectiveness?” The more complex an organization’s structure is, and the greater the board’s oversight responsibilities are, the more likely it is that the organization could benefit from the skills of a full-time CGO.
Historically, in-house counsel have served as both the legal counsel and CGO. But health systems nationwide are creating CGO positions for many reasons. First, the in-house lawyer already has a full-time job. Second, in light of increasing regulatory oversight, governance too, now deserves full-time attention from a dedicated executive, even if it’s not embodied in a full-time job.
The board must engage in active, independent and informed oversight of the corporation’s business. To do so effectively, it needs the information and analysis necessary to discharge its oversight responsibilities, including compliance. The CGO may be the perfect person to ensure that the board receives this information in a timely and complete manner. The resulting benefits are not just enhanced board decisionmaking and attention to fiduciary duty or risk management. It is more effective corporate stewardship and a commitment to excellent governance.
Monte Dube and Kerrin Slattery are partners in the Health Law Department of McDermott Will & Emery LLP, Chicago. Dube can be reached at (312) 984-7549 or at mdube@mwe.com. Slattery can be reached at (312) 984-7585 or at kslattery@mwe.com.
This article 1st appeared in the June 2007 issue of Trustee Magazine.
To respond to this article, please click here.
