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Most health care systems have implicit, unspoken agreements between and among the organization and its various leadership and caregiver groups. Most of these tacit compacts are based on economic, social and political relationships and systems that are mired in a distant past and that hinder leaders from effectively moving their organizations into the future. A new, explicit compact and the process that leads to it are necessary to create mutual and reciprocal understanding between leadership groups to push their organizations boldly into the future.

Many hospitals and systems have developed and adopted a physician compact — an explicit, written agreement and set of mutual expectations between the physicians and the organization. Virginia Mason Medical Center and Health System in Seattle was one of the first to do so. Recognizing its benefit, VM pushed the concept into uncharted governance waters by developing and using a board compact. The result has contributed to VM's overall advancement of safety, quality and value as well as continuous governance improvement. But the first and most important step was the development of the physician compact.

The Physician Compact

In 2000, VM's journey began, as many do, with a need for change stimulated by daunting financial losses coupled with low morale among physicians. Jack Silversin, a health care consultant who introduced the compact concept to health care, was enlisted to help VM develop its physician compact. The first step was to make explicit the existing implicit agreement between VM and its physicians, and to recognize that the old dynamic between the two groups was a poor platform from which to address emerging industry challenges. A new, explicit physician compact was needed to align firmly the expectations of the physicians with VM's vision of the changes necessary to thrive in the years ahead.

The process began with a retreat attended by more than 200 VM physicians and facilitated by Silversin. Following that, a committee of mostly front-line physicians was formed to develop a new compact. The committee drew input from the entire organization and went through several iterations and many discussions over more than a year before finalizing the compact. In one form or another, the compact process touched nearly every physician in the organization.

The compact reflected new goals adopted by the physicians and the organization to become a quality leader by focusing on the patient, working together and embracing change. The compact then was embedded into the culture of VM by tying its principles and the concept of team medicine into the physician hiring and performance review processes and incentive compensation system. The foundation for change had been built.

Physician and organization alignment was essential to move forward with the recently developed strategic plan, which focused on putting the patient first and a new vision to become the quality leader. From this base, the Toyota Production System and Lean were studied in detail, modified and integrated into VM to become the Virginia Mason Production System.

New Expectations

Recognizing the immense value and crucial framework for accountability provided by the physician compact, VM next developed a leadership compact that established expectations and support among all VM leaders and the organization. The leadership compact was increasingly relevant and essential as we asked physician leaders to step up and lead in new ways. Physician leaders needed to see their roles as more complex than being advocates for their departments and messengers to the "higher-ups." Going forward, our physician leaders had to embrace and fulfill a role that was a stretch from their more traditional one. It was important that physicians' expectations of VM as they carried out leadership responsibilities were explicit and helpful.

These two written compacts, and the process that led to them, created a mutual and reciprocal understanding that was crucial in driving VM forward. Everyone recognized the value of the compacts, which led a board member to ask: If physician and leadership compacts were so beneficial and transformational, would not a board compact be equally valuable?

The answer was obvious: VM needed a board compact. While the process of developing the physician compact was arduous and lengthy, the leadership compact took much less time and effort. Based upon the lessons learned and the recognition of the compact's value, developing the board compact was comparatively easy. Nevertheless, it still required significant and important discussion.

The board and senior leaders recognized that the characteristics common to implicit board compacts, like the old physician compact, were insufficient to drive the organization forward. VM's implicit board compact included such common and outdated concepts as:

  1. The primary job of the board was to hire and fire the CEO.
  2. The primary obligation of board members was to come to meetings.
  3. There was no governance accountability.
  4. Board membership was largely honorary.
  5. Quality was the job of the doctors and not the board.

In short, the old, tacit governance compact not only was of no value to the vision and journey to which VM had committed, it likely would inhibit them.

Following this recognition, the framing of the new expectations between VM and its board proceeded apace. With the foundations of the new strategic plan and vision, along with the physician and leadership compacts, the VM board compact was developed and adopted.

Compact in Action

Like the other VM compacts, the purpose of the board compact was not to create a document that gathered dust in a file or resided on a plaque on a wall. To be effective, it must be used. And, to be most effective, it should be integrated into as many governance processes as possible and drive the governance culture.

Accordingly, VM uses the board compact in many ways.

Board meetings. The board compact is included immediately after the strategic plan in the first section of every board agenda book. Further, the board occasionally will begin its meeting by reviewing a component of the compact and discussing its implications on governance as a whole and on particular issues under consideration by the board at that meeting.

Recruiting new board members. To demonstrate that VM is serious about board service and to communicate clearly the unique VM approach to governance, the compact is provided to all potential board candidates. This immediately sends the message that VM is not "just another board," but rather one that is unique and reflective of a unique health system.

Further, it shows that the organization and the board require of all board members a significant commitment of time and effort to VM governance. This, in turn, attracts serious, dedicated people to the board and drives the board toward continuous governance improvement. Potential board recruits who might be put off by the compact or disagree with the approach to governance outlined within would have been ineffective members of the board team. Thus, the compact helps VM recruit board members who are in sync with our approach to governance and selects out those who are not.

Governance evaluations. A key characteristic of all the compacts — and VM culture — is accountability. One way this accountability is expressed is through the commitment to performance objectives and performance evaluation. The compact is the foundation for a robust governance evaluation system that includes:

  • post-board meeting evaluations after every meeting;
  • annual full board self-evaluations;
  • individual board member performance evaluations pursuant to term renewal;
  • board chair performance evaluations pursuant to term renewal;
  • chair-elect evaluations prior to electing the board chair.

Further, a committee chair evaluation process is under development. The board member responsibility outlined in the compact to "provide and accept feedback" is a cornerstone of the governance culture of performance and accountability.

Governance culture. The Virginia Mason Production System embraces the view that standard work is the platform for continuous improvement and creativity, and this view is integrated into governance culture. The board compact is the baseline for evaluating and changing existing governance processes, or for developing new ones. VM governance attempts to adopt the organization's "Fail, Forward, Fast" approach, which means that if we are not failing, we are not trying enough new things. The compact gives the board fortitude for change as it constantly pursues best governance practices. Thus, the board will experiment with new approaches, techniques and structures based upon the results of the evaluations and other feedback. Recent improvements have included: increasing the length of board meetings by one hour; changing the board chair election process; establishing the position and job description for chair-elect; modifying the post-board meeting evaluation instrument; and adopting board policies relating to conflicts of interest that are more aggressive than required by the IRS and other regulators.

The compact also forms the basis for a key cultural component of VM and its governance: the commitment to Lean and the Virginia Mason Production System. To ensure that this commitment is "baked into" the board and will survive the departure of any individual executive or board member, the board requires that every member take a two-week, team-learning trip to Japan during his or her first term or he or she is not eligible for reappointment to another term. The Japan trip is an arduous immersion into the philosophy, tools and techniques of Lean and the Virginia Mason Production System. The fact that the majority of board members have participated in this transformational event both cements the board commitment to the Virginia Mason Production System and emphasizes the accountability of the compact.

Over time, several of the points under the "Organization's Responsibilities" heading in the compact have migrated to the "Board Member's Responsibilities" side, or are shared with the board. For example, the responsibility for "facilitating the recruitment and retention of superior board members" and "providing a process for regular, written evaluation and feedback" largely have been assumed by the board through its governance committee. The board also is exercising greater oversight of "providing a thorough orientation process for new board members." This reflects both the ongoing evolution of the board and the fact that any compact must be regarded as a living document. Thus, the board compact itself likely will be subject to review and possible revision in the near future.

All hospitals and systems have compacts between the organization and the board. The problem is that they are implicit, limited and limiting in that they further a vestigial approach to governance that may have been appropriate in the past. Such unspoken compacts perpetuate dysfunctional governance cultures and practices and make it difficult to recognize the need for meaningful change in boards.

As with its physicians, VM recognized that the old, implicit compact between the organization and the board was no longer valid, and was, in fact, detrimental. The process and practice of the written board compact has helped to unlock the beneficial potential of governance and enables the board to continuously improve, which in turn contributes to the success of VM and keeps it moving forward in its pursuit of perfection.

James E. Orlikoff (j.orlikoff@att.net) is president of Orlikoff & Associates Inc. and national adviser on governance and leadership to the American Hospital Association and Health Forum, Chicago. He is a member of the Virginia Mason board and is the chair of its governance committee. Gary S. Kaplan, M.D., is chairman and CEO of Virginia Mason Health System, Seattle.

Sidebar - More on Health Care Compacts

Organization's Responsibilities

Board Member's Responsibilities


Foster Excellence

  • Facilitate the recruitment and retention of superior board members.
  • Provide a process for regular, written evaluation and feedback through annual board self-evaluation.
  • Provide a thorough orientation process for new board members.
  • Support governance excellence with adequate board resources.

Listen and Communicate

  • Share information regarding strategic intent, organizational priorities and business decisions.
  • Offer opportunities for constructive dialogue.
  • Report regularly on implementation of strategic plan and achievement of specific board objectives.
  • Disclose to and inform board on risks and opportunities facing the organization.
  • Provide materials to members necessary for informed decision-making sufficiently in advance of board meetings.

Educate

  • Provide information and tools necessary to keep members informed and educated on local and national health care issues.
  • Provide educational and training opportunities to maintain a high level of board member effectiveness and knowledge.
  • Educate board members about the organization, its structures and its guiding documents.

Lead

  • Manage and lead the organization with integrity and accountability.
  • Create clear goals and strategies.
  • Continuously measure and improve patient care, service and efficiency.
  • Resolve conflict with openness and empathy.
  • Ensure a safe and healthy environment and systems for patients and staff.

Know the Organization

  • Know the organization's mission, purpose, goals, policies, programs, services, strengths and needs.
  • Keep informed on developments in the health system's areas of expertise, and on health care policy and future trends and best governance practices.

Focus on the Future

  • Spend three-fourths of every meeting focused on the future.
  • Consistently maintain a current and vital strategic plan.

Listen and Communicate

  • Actively participate in board discussions.
  • Participate in educational opportunities and request information and resources needed to provide responsible oversight.
  • Provide and accept feedback.
  • Represent the board to the organization and be an advocate for the organization in the community.

Take Ownership

  • Attend meetings.
  • Ask timely and substantive questions at board and committee meetings consistent with your conscience and convictions.
  • Prepare for, participate in and support group decisions.
  • Understand and participate in approving annual and longer-range financial plans and quality and safety oversight.
  • Make an annual, personal financial contribution to the organization, according to personal means.
  • Serve on board committees or task forces.

Promote Effective Change

  • Foster innovation and continuous improvement.
  • Pursue necessary organizational change.