For more information, see the August 2001 issue of the GREAT BOARDS newsletter.
The consent agenda is designed to expedite the conduct of routine business during board meetings in order to allocate more meeting time to education and discussion of substantive issues.
A board that finds that roughly 20 percent or more of meeting time is occupied by routine items should consider use of a consent agenda.
The consent agenda should include only routine financial, legal and administrative matters that require board action, and which are expected to be non-controversial and not requiring of discussion.
Consent agenda items always will have been reviewed by a board committee, medical staff committee, or senior management in advance.
Motions, resolutions and all supporting materials for the consent agenda should be sent to board members at least one week in advance. The consent agenda should be considered early in a board meeting. Any member may have an item removed from the consent agenda for separate consideration.
It is not appropriate to add to the consent at the meeting without circulating background information in advance.
For a sample board policy on using consent agendas, please see "Policy On Consent Agendas" (PDF).
There is a substantial amount of variance in meeting frequency. According to the 2003 survey of boards by The Governance Institute:
What are the most common committees of hospital and health system boards? According to the 2003 survey of boards by The Governance Institute, 93% of hospital and health system boards have one or more board committees. The range was one to 19 committees – with a median of five committees. The most common committees are:
This practice, common on corporate boards, is rare among not-for-profit organizations but is growing slowly because of the increased responsibilities and time demands placed on directors. According to the 2003 survey of boards by The Governance Institute, 88% of hospital and health system boards do not compensate board members. Compensation is most common among boards of Catholic health systems (27%), other systems (15%), County hospitals (37%) and District hospitals (24%). Among Catholic health systems, another 9% compensate selected board members, such as the Board Chair.
A follow-up survey published in November by The Governance Institute and Clark Consulting found little change. Of the 439 organizations that responded (22% response rate), just 12% offer boards cash compensation, with an annual retainer of $8,572 and an average per meeting fee of $528.
If your board is thinking about compensation, consider these questions:
An opinion from legal counsel on the implications for directors’ liability is essential. In addition, how will the community and public regulators, such as the State Attorney General, view compensation for directors? Draft guidelines from IRS (Feb. 2007) say boards generally should not be compensated, and if they are, compensation must be approved by a committee of independent directors.
Yes, the chief executive officer should be a voting, ex-officio board member, unless the practice is prohibited by statute, which is the case with some governmentally owned facilities. We say this with respect for CEOs who are not voting members and believe they shouldn’t be. Many are quite effective and comfortable in their roles. However, we believe the chief executive should be a voting board member because:
The CEO should not participate in deliberations on her compensate nor serve as a voting member of the Executive Compensation, Audit Committee, or Governance Committee of the Board, although she may advise these committees.
It depends. Some boards function as a committee of the whole, while others make extensive use of working committees.
The most common committees for boards of health systems and hospitals are:
To keep the committee structure relevant, consider abolishing all committees (except those required by law) every one to two years. Re-establish only those committees truly needed given the organization's current vision and the board's core responsibilities. Consider using task forces rather than standing committees to perform short-term projects.
Decades ago, volunteer boards actively engaged in managing their hospitals on a daily basis. Today, with highly trained executives at the helm, effective hospital boards stay out of operations and focus on governance, not management.
Effective boards concentrate on these six essential aspects of governance:
Adelman: If there's something going on that is illegal or not in the best interest of the corporation, and the CEO isn't reporting it to the board, then counsel has an obligation to go to the board and report it. That's extremely rare. It's sort of the bottom line, the end point on your relationship that defines everything in front of it.
Governance is the process by which a board of directors ensures that a company is run in the best interests of the stockholders, the owners of the company. Directors govern by setting company goals and direction, adopting policies, making major decisions, selecting and evaluating the chief executive and monitoring corporate performance.
Not-for-profit organizations don't have shareholders, but they do have "stakeholders," constituencies that benefit from the organization's good works. Faith-based organizations such as Catholic hospitals have "Sponsors," often the local diocese or a religious community that sponsors the hospital as a ministry of the Church.
In a not-for-profit or faith-based organization, governance means the board ensures that the organization is run in the best interests of the major stakeholders. A hospital's stakeholders include its patients, their families and the community, including the poor and medically indigent. Stakeholders also include Sponsors, employees, physicians, local businesses and government, all of which have a stake in the hospital's success.
This question is discussed thoroughly in the May 2002 issue of the Great Boards newsletter. The next few questions and answers were cut from the article for space reasons; be sure to read the newsletter article along with these FAQs. Our sources include several experts in healthcare auditing:
Bob Wilson, an independent consultant who works with financially troubled companies, including hospitals. Wilson worked as an auditor and consultant for Arthur Andersen for 29 years until 2000. (robt_e_wilson@yahoo.com)
Mike Riley, president of transAction Associates in Baltimore, Md., a healthcare management consultant providing project management, capital financing and financial turnaround services to hospitals and health systems. (mriley@transactionassociates.com)
Bob LeFever, a financial and management consultant in Philadelphia for 25 years, and a member of the Temple University Health System board. LeFever also is a former member and chairman of the Jeanes Hospital board.
David LeMoine, CEO of Catholic Healthcare Audit Network in St. Louis, which conducts internal audits for Catholic healthcare systems. (dlemoine@chanllc.com)
To get started, here are a few basics: Virtually all hospitals and healthcare organizations hire an accounting firm to conduct an annual audit of their financial statements. Management prepares the financial statements and works closely with the external auditors, but the Board of Trustees, through its Audit Committee, is responsible for overseeing the relationship with the external auditor and approving its report.
"There's a common misconception that the external audit is a fraud audit to find every single accounting error," says Mike Riley. "External audit procedures are designed to test the fairness of the financial statements' presentation, taken as a whole-not the accuracy of every accounting transaction."
Nonetheless, the external auditor's first job is to evaluate the organization's accounting procedures to determine how much it can reply on management's data in conducting its own tests to certify the accuracy of the financial statements. In the course of its work, the external auditor may identify potential problems and areas to examine closely in the way the system keeps its books and reports on its financial operations. Is it classifying revenues or expenses in an overly aggressive way that doesn't conform to accounting standards? In addition, the auditor inspects any transactions that are not routine, and it spot checks the system's accounting and inventory systems.
Auditors make a note of any "material" discrepancies in the organization's financial statements. What is "material" varies depending on the system and the auditor, but usually falls in the range of a 5 percent to 10 percent deviation from what has been reported on financial statements.
Then the auditor gives the Audit Committee its opinion: Are the financial statements a true representation of the organization's financial statements? Is it at risk of failing in the next year? Are there particular concerns that management, and the board, should examine and address? These notes to the audit report may be the most important part of the document.
A second audit-one that's less common in healthcare-is the internal audit, during which a staff auditor or an outside auditing firm follow a similar process to determine whether internal accounting systems and departmental procedures are in order. The board's Audit Committee also oversees that relationship.
"Policy" may be generally defined as a recommended course of action, a guiding principle, or a procedure that is established to guide current and future decision making.
It’s often said that the board makes policy while management implements it. Implementation is an operating responsibility.
Of course, an organization has numerous administrative policies developed and approved by management without board involvement, such as personnel and travel policies. No board that understands its role wants to be involved in such details. So what is the appropriate arena for policy making?
Effective boards limit their policy making to broad, high level matters. Establishing clear board policies on high-level matters helps directors to stay out of operations by articulating clear guidelines for operational decision making.
What types of high-level policies should boards adopt?
Several types of policies are appropriate for a board to adopt:
Some policies are nearly universal while others are found in some organizations and not others. For example, virtually all organizations have an equal opportunity policy and a conflict of interest policy for directors and officers.
From time to time, however, an organization needs the board to express its posture on a particular issue that is generating controversy or for which the organization needs a powerful statement of the board’s values and expectations. Examples of policies developed by some hospitals and health systems to meet particular needs include:
Some of our board members have a hard time distinguishing policy from operations -- how should we get everyone singing the same tune?
Have your Governance Committee, Executive Committee or hospital counsel draft a board policy distinguishing policy from operations, and then discuss it during a board meeting or at a retreat. For an example, please see "Governance Policy Statement On Distinguishing Policy From Operations" (PDF).
Some 73% of hospitals and health systems consider a formal program of orientation and ongoing education “very important” to effective governance. An initial orientation program for new directors should include:
Follow-up orientation sessions might drill down on financial matters, quality and patient safety, physician relationships, community health, advocacy, and fund development. Ongoing education should keep the board updated on industry trends, emerging issues and effective governance practices. See the “Resources” section of the Great Boards website for an orientation course outline and other tools.