by David C. Hoffman, Ph.D.

Editor’s note: This is the third installment in our series of articles about hospital and health system governance. The first two, “Welcome to the Board: A Primer for New Hospital Trustees” and “A New Model for Hospital Board Governance,” are both available on Wipfli.com.

Hospital organizations seldom reach their full potential without strong leadership at both the board and executive level. In our experience, high-performing organizations not only have strong leadership in these key areas, but there is significant synergy (i.e., 1+1 = 3 or 4) between the board and senior leadership in virtually all aspects of their areas of their responsibilities. In essence, they function as well-practiced teams when it comes to competency and overall outcomes.

Creating synergy isn’t something that just happens. It’s the result of constant honing, development, and hardwiring of board and management of skills and experience.

This article provides boards and their CEOs with some approaches for building high-level board and management teams to lead their organizations more effectively.

Understanding the exclusive domains of governance and management

Trustee educational programs stress that boards and CEOs must understand and respect the separate realms in which they operate. The board operates in the arena of policy-making, asset allocation (e.g., budget approval), fiscal oversight, corporate vision, creating the limits of authority under which management acts.

While governance is about creating the “means” by which the organization operates(1), management is responsible for creating the “ends” – putting the team together, translating policy, values, and vision into action to get the results defined by the board. Often when the boundaries are crossed, confusion reigns; CEOs are perceived as overstepping their bounds and trustees are seen as “meddling” in operations.

While the boundaries can be elusive at times, figures 1 & 2 (below) provide a graphic illustration of the governance/management interface and how the board can set limits of authority as part of its oversight role. Over time, these boundaries can expand or contract, through policy decisions of the board, to meet current organizational circumstances.

For example, in the face of a financial downturn, the board may wish to create a policy that limits non-budgeted spending authority by the CEO, until conditions improve. We often see the situation in which, after the retirement of a long-tenured CEO, the board puts spending limits on management until they are more comfortable with the management style of a new CEO. Using policy as a vehicle to setting “reasonable limits” (i.e., limits that do not encumber the ability of the CEO to manage operations, can be an effective way to exercise the board’s governance role with interfering with management’s ability to get the job done.

How to create synergy without confusing roles
 
There are numerous ways in which the Board-CEO can create synergy and provide added benefit to both governance and management. Here are four things that the board and CEO can do to build a more effective governance-management team:

1. Develop a clear understanding of each others respective roles and responsibilities.
2. Capitalize on areas of overlap and fill each other’s blind spots.
3. Develop a collegial two-way mentoring relationship between the board chair and CEO.
4. Treat the CEO like a non-voting board member and drawing on his/her experience and expertise as a health care professional.

1. Understand each other’s roles and responsibilities

The challenge for boards and CEOs is learning to respect the areas of exclusive responsibility for each and while learning to optimize their efforts in the areas of overlap. Working the boundaries of the governance-management interface can be tricky, but adeptness in doing so often results in strong board-CEO partnerships and better organizational decision making.

The table below provides a few examples of the divergence and overlap in board and CEO roles and responsibilities and offer a good starting place for understanding the differences and identifying areas for mutual support. While it is critical that boards do not become managers and managers do not become board members, the zone of overlapping roles and responsibilities creates an opportunity for synergy.

Key Roles and Responsibilities of Board and CEO

 2. Capitalize on areas of board/management overlap

The goal of every board and CEO should be to use each others experience and experience to effectively fulfill their individual roles and responsibilities. Some hospital trustees hold the notion that if the CEO reports to and is accountable to the board that the CEO should take their lead exclusively from the board. Some CEOs feel the same way.

On the other and, an experienced health care CEO will likely have more industry knowledge than most of the board members, so in most cases the board will be looking to the CEO to help the board identify everything from key strategies to technical issues involving reimbursement, regulatory and legal issues, physician recruitment and clinical service-line development, areas for policy development, to just name a few.

High-performing boards form a tight collegial bond with their CEOs and draw liberally on their expertise to guide the board in the “governance realm.” Good examples of this concept are the board that actively involves the CEO and key senior administrative staff:

• As its advisors in the strategic planning process
• To identify the key areas for compliance under HIPAA regulations
• Provide recommendations for ways to improve the quality improvement programming.

3. Encourage two-way mentoring between board chair and CEO

While a strong working relationship between the entire board and the senior management team is essential, the relationship between the CEO and the board chair is critical to building organizational synergy; especially in smaller health care organizations where board governance experience and knowledge of the health care industry may be limited; and where CEOs have limited staff resources with which to get things done.

In a co-mentoring relationship, the governance-management boundaries are respected, but the board chair and CEO function as a team focusing on pre-board meeting work and broadening each others perspectives of governance and operational issues. They fill-in each others blind spots and help each other to grow in their respective positions. Effective board chair-CEO teams meet on a scheduled basis to prepare for board meetings, structure board agendas and discussion points; determine key items for either discussion of action; decide how to handle personnel and other confidential information; discuss financial issues; and identify potential board educational needs.

An ideal co-mentoring relationship is based on a “no-surprises/no hand grenades” approach – each knows the others position on issues that are coming up for discussion or action - and they anticipate areas of contentious board discussion and how the discussion should be facilitated. Not being surprised means providing adequate warning when significant issues are to be brought before the board.

The benefits that arise out of the co-mentoring relationship are a clearer understanding which issues are in the purview of the board and which are those for management to deal with and resolve. When contentious issues do arise or are anticipated (e.g., personnel issues, community reaction, medical staff) effective board chairs and CEOs are able to speak bluntly and honestly with each other to determine whether or not the whole board or a specific committee should get involved in resolving the problem. CEOs which are relative new to their positions can learn enormously from time spent with seasoned board chairs which have themselves served in executive positions.

4. Treat the CEO as non-voting board member

The question is often asked whether or not the hospital CEO should be a member of the board. The answer really depends on a variety of issues: including, state statues, organizational culture, and individual board experiences and preferences. Strong cases can be made in either direction. It is probably less important that the CEO be “on the board” than it is that they are treated as if they “are” a de facto board member.

Boards can facilitate their own learning curves by tapping the industry experience of the lead health care management professional in the organization to sharpen the board’s perspective on a variety of issues. While governance should and needs to remain the realm of the board, an experienced CEO needs to be at the board room table (with select senior administrative staff) to provide management’s perspective to the decision-making process.

Final thoughts and take-aways

Governance and management are inexact activities – part theory, science and art – made better by constant practice and experience. Putting the three together is the challenges that all boards and managers face. One way to develop the competencies of both boards and managers is to look for ways to create synergies between the two; specially, exploring ways to create a closer working relationship between the critical leadership components of both groups – the board chair and CEO.

The board chair/CEO relationship should be a closely woven partnership – ideally functioning as “corporate soul-mates.”  Board chairs and their CEOs should meet at least monthly to prepare for board meetings and discuss the issues that should come before the board. They should be engaged in an on-going dialogue about operational issues that have a potential impact on the board and use a “no-surprises” approach, so that both grow and learn from each other.

Footnotes
(1)  Carver, John, “A Theory of Corporate Governance Finding a New Balance for Boards and Their CEOs.” Canadian Journal Gouvernance - Revue Internationale, Vol. 2, no. 1, Spring 2000, pp. 100-108.

David C. Hoffman, Ph.D., is a partner in the Wipfli health care practice and frequent speaker on this topic. He can be contacted at 608.274.1980 or dhoffman@wipfli.com.