Hospital Board Dynamics: The Five Questions
By Nancy M. Kane, Howard L. Rivenson, and Jonathan Clark
Nonprofit boards are under increasing public scrutiny for how they discharge their responsibilities, including adequacy of public financial disclosure and oversight, excessive executive compensation, hospital policies affecting the provision of charity care and collection of bad debts, pricing of services to the uninsured, and quality of hospital care. While some hospital boards have made a successful transition from their previous philanthropic role to one focused on strategic, clinical, charitable and financial oversight, many are still struggling.
The goal of this study was to explore governance differences between high- and low-performing hospitals as a way to identify best practices in hospital governance and, conversely, to identify specific governance problems of poorly performing hospitals. To do this, we focused on the behavioral dynamics of boards. Our findings are based on 73 trustee interviews we conducted in nine hospitals, adapted from questions developed by the Center for Healthcare Governance of the American Hospital Association. Our measure of performance was the hospital’s most recent operating margin coupled with its five-year trend in operating margin. The “five questions” for outside directors, derived from our findings, offer guidance on how trustees can assess whether their board’s behavior is moving toward more effective governance processes.
Selecting the Hospitals
We chose our nine hospitals by sorting all community, non-teaching hospitals in four states (chosen because of the electronic availability of audited financial statement data) into their respective hospital service areas (HSAs) or counties (when HSAs were not available) calculating operating margins for years 2000 to 2004. We then ranked the hospitals from top to bottom within their HSA/county by operating margin and trend. From those rankings we identified 71 “target hospitals”—36 that were outperforming and 35 that were underperforming within their HSA or county in terms of their operating margins and their five-year trend in operating margins. For the 36 high-performing hospitals, the median operating margin in year five was 4.7 percent, compared with a median of -9.8 percent for the 35 low-performing hospitals. The median of the annual trend in operating margin averaged over five years was 1.2 percent for high-performing target hospitals, compared with a median of -2.3 percent for the low-performing target hospitals.
We wrote letters to the CEOs of the 71 target hospitals asking if they would be willing to participate in our study. CEOs from eight hospitals in the high-performance group responded to our initial contact, and eventually six of those hospitals were able to participate (two were unable to schedule their boards for interviews within our study timeframe). None of the hospitals in the low-performance group responded to our initial contact, so we contacted their CEOs directly to recruit participants, and three ultimately agreed to participate.
The 73 interviews with hospital trustees (44 in high-performing hospitals; 29 in low-performing hospitals) were conducted in person using a semistructured interview guide allowing trustees to elaborate on their responses. These interviews provided a rich qualitative database that was then sorted into the major topics that emerged, including motivation for joining the board, type and quantity of education on the hospital industry, hospital operations and finance, interactions with senior management and other board members, information sharing, and performance evaluations.
Trustee and CEO Responses
We changed the way we administered this questionnaire after the interviews with the first two hospitals were completed, so only four of the six high performers’ responses are included in this summary (including the responses of the omitted hospitals does not change the findings on any of the questions by more than a couple of percentage points). We also omitted from these summaries the responses of trustees who were not on the board during the time covered by our financial results. So the final tally of interviewees responding to the structured questionnaire was 20 in the low-performing hospitals and 27 in the high-performing hospitals. The following percentages represent the results of our interviews grouped by performance category—low-performing hospitals (n=20); high-performing hospitals (n=27). We asked respondents the following questions (percentages represent affirmative answers):
1. The decision-making process is open and clear to all board members.
30 percent (low) 93 percent (high)
2. All points of view are weighed equally and carefully considered in arriving at the best solution to the problem.
35 percent (low) 93 percent (high)
3. Everyone contributes from his or her knowledge and experience to produce a solution.
60 percent (low) 85 percent (high)
4. Board members feel comfortable raising concerns, even when general agreement exists among the rest of the board.
45 percent (low) 85 percent (high)
5. Important decisions are made privately prior to meetings.
75 percent (low) 0 percent (high)
6. There are frequent differences of opinion among management, board members and medical staff.
67 percent (low) 19 percent (high)
7. Governing board members often have strong opinions on problematic issues and stick to their positions even in the face of opposition.
55 percent (low) 70 percent (high)
The Five Questions
Based on both the quantitative findings in the previous questions, and review of the qualitative interview data, we developed the following five questions as important for board members to ask themselves to assess the health of their board’s dynamics. Quotes selected from the qualitative database are those of individuals interviewed and were chosen to illustrate trustees’ responses within their respective high- or low-performing groups.
1. How would you define the relationship between the board and hospital management? What role does each play?
Board members and CEOs at high-performing hospitals viewed the board’s role as one of supporting the CEO and acting as a sounding board for CEO initiatives, while also challenging the CEO’s assumptions and strategic proposals, and holding him or her accountable for performance. Responses included:
- This is a unique community hospital; the directors stay on message, ask probing questions in their areas of expertise, but are very supportive of the senior management team. The board lets senior management do its job, with adequate reporting.
- It is the CEO’s role to create the context for the board to participate and to have the board play a strategic role and not [be involved in] day-to-day management. There is a lot of CEO leadership required—spending time behind the scenes with people who are involved with [board processes].
- Low-performing hospital boards and their CEOs viewed their roles quite differently. Some members were encouraged by the CEO to intervene in operating decisions rather than strategic ones, while others failed to ask the CEO tough questions.
- Board meetings ran anywhere from three to four hours; every operational detail was discussed. It went on and on with lots of socializing and stories among the 25 or so people in attendance. Governance was a social event.
- It is my responsibility to just listen to management. Managers are the experts.
- There were a lot of people who were not serious about showing up and participating and being informed.
Not surprisingly, the board’s role in strategic planning was quite different between the two performance groups. The major difference was the degree to which the board had meaningful input and approval powers within the strategic planning process. High-performing hospital boards used various mechanisms to invite meaningful board input—from full board retreats to small committees that refined the strategic plan recommended by management. The full board in high-performing hospitals discussed and voted on the strategic plan, as one respondent explained:
- Board members vote on strategic issues. Everyone agrees on the vision, but they will debate [about how to get there]. The board responds to the CEO’s vision; they do not invent the strategy. Management presents; the board discusses and then approves or disapproves.
In contrast, low-performing boards did not play a meaningful role in strategic planning because senior management did not encourage it and/or board members did not understand their role.
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The process begins with management deciding what is needed. Usually, by the time management brings something to the board, [they] feel very strongly about what should be done … In my view, as a board member, either you trust management or you don’t.
2. Is the board’s decision-making process inclusive, or do a few board members dominate key decisions?
In high-performing hospitals, all board members are expected to be a part of key decisions. A typical quote from one director:
- Things are very transparent on the board. Things don’t happen in secret; they go through a process. The full board will discuss issues that come out of that, and then make a final decision.
In low-performing hospitals, board members repeatedly expressed dismay that decisions were made without full board input. As one disgruntled board member explained:
- The board does not know what goes on all the time … There is a very small inner circle that really knows what’s going on, but it bothers me because the full board is not included in the decisions.
3. Is the board getting the educational guidance it needs to understand the hospital, its market area and the health care industry? Does the board receive information from management that is organized, relevant and correct?
To participate effectively in the decision-making process, board members need both education and appropriate information. In high-performing hospitals, the educational process is carefully structured—from orientation to educational updates. Committee meetings are also designed to be learning experiences. One CEO from a high-performing hospital described the hospital’s education process this way:
- New board members get exposure to the long-term strategic plan, budgeting, presentations by the six vice presidents, then a lunch and a tour of the hospital ... [They] talk about board member roles and responsibilities, committees, and the board’s involvement with certain issues.
A new director described learning a lot from the finance committee, calling it a “great training ground for future board members.” In addition to a comprehensive orientation, the high-performing hospitals either set aside part of each board meeting for “educational moments,” or devoted at least two entire meetings to education.
In contrast, board members of low-performing hospitals recalled their orientation as “not very thorough … nothing other than getting a copy of the bylaws.” Another cited a 90-minute meeting that “left me with more questions than answers.” A third stated, “If you want to know what’s going on, you have to do your own research and reading.” Finance committee meetings were presented in a way that was “over our heads,” where trustees felt “stupid” asking questions. None of the low-performing hospital boards set aside regular board meeting time for educational purposes.
Interviewees at high-performing hospitals expressed confidence in the information sharing processes of their boards. While uniformly recognizing room for improvement, they described their information packets as “very organized,” “easy to follow,” and “succinct.” Most boards from high-performing hospitals were confident they were receiving complete information.
In contrast, board members of low-performing hospitals described their information packets as unorganized. One board member called the premeeting packet “just a bunch of stuff not linked together.” Another described it as “thick, but containing only six or seven pages of useful information.” Some even described part of the information they received as incorrect. Board members at low-performing hospitals consistently expressed concern about the totality and timeliness of the information they received. Others complained of receiving important supplemental information without sufficient time to consider it—for example, receiving information at a board meeting and being asked to vote on a related decision at the same meeting.
4. Are you comfortable speaking up when you disagree with management proposals or the direction the board is going with a particular decision?
Another key distinction between high- and low-performing hospital groups was the degree to which the board maintained a culture of healthy debate and respectful disagreement. In high-performing hospitals, CEOs and trustees described the interpersonal climate as:
- It is healthy to have disagreement, to have a couple of people who are really vocal and willing to be critical and challenge. They must have the respect of the board. We need people who push us and question us … help us test our assumptions.
- Board members have strong opinions, but when the board votes, it’s the end of it. It’s not necessarily unanimous, but people go along with the vote. There are no grudges, but there are different points of view.
- People do hold on to their opinions, but it never paralyzes the board. There is a civility and mutual respect among board members who disagree.
- In contrast, trustees of low-performing hospital boards made statements such as:
- Some board members may not be in complete agreement, but when the majority is, [those] board members might just keep it to themselves.
- At board meetings, we’re given information, but management really doesn’t want to hear any discussion. It’s almost like there’s a blanket over everyone on the board, and so no one does anything. Constructive discussion is considered disloyal.
- I feel that the contribution I have to make is not valued. I was told by another board member, “Don’t bother reading the [meeting] minutes because what you have to say is not going to matter anyway.”
5. What is the board chair’s role? How does the chair relate to the CEO and other board members?
The board chair and CEO played central roles in determining the dynamics that emerged within the board. In high-performing hospitals, chairs spent many hours working with the CEO as well as with the other trustees outside of regular board meetings to make sure everyone felt included and informed. One board chair said:
- I meet with the CEO three to four times per month—just the two of us, for a couple hours each time. We discuss initiatives he is contemplating, or needs advice on. We do not socialize, as it is not a good idea to get too chummy.
In low-performing hospitals, on the other hand, board chairs reported spending very little time outside board meetings with either the CEO or other board members, and some reported having an uncomfortable relationship with their CEOs:
- As chair, I don’t have much of a relationship with management, except for dinners and award ceremonies.
- My relationship with the CEO is kind of like a chess game … it has been difficult. Senior management has a different mind-set than I do, primarily because the CEO doesn’t want anyone to come in and change things.
Trustees need to understand what a good chair’s role is and be active participants in selecting a chair who has the time to commit to the role, can manage board dynamics, and can maintain a constructive, yet arms-length relationship with the CEO.
This work with both high-performing and low-performing hospitals suggests that board dynamics represent a key variable. The five questions are intended to help board members examine the processes of their boards to determine if improvements are necessary. Key board dynamics to look at include:
- The roles played by management and the board
- The inclusiveness of all board members, not just a small subset, in the decision-making processes
- The usefulness and transparency of educational guidance and information
- The level of respectful disagreement among trustees
- The board chair’s role and his or her dedication to performing it.
If the answers to these questions suggest that your board’s dynamics need improvement, it might be time to talk with the chair or to form a coalition of board members who will seek outside, independent help—such as a governance consultant.
Although our defining benchmark for determining high- and low-performing hospitals was financial performance—a metric we chose because it is widely used, readily available, and generally accepted as a measure of performance—it is likely that other performance measures would also be affected by these same dynamics. As hospitals venture into a future of increased external scrutiny, effective boards will need to focus on their dynamics and processes in order to truly improve their performance and ensure that they are performing the functions that they are both legally and ethically obligated to do.
Nancy M. Kane, D.B.A., and Howard L. Rivenson, PH.D., are faculty, and Jonathan Clark, M.S., is a research associate at the Harvard School of Public Health, Boston. Dr. Kane can be contacted at nkane@hsph.harvard.edu.
This article 1st appeared in the October 2007 issue of Trustee Magazine.
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