In the wake of Congressional hearings, charity care lawsuits, IRS audits and state government inquiries into their activities, not-for-profit organizations and their boards no longer enjoy the public's presumption of doing good work for selfless motives. Rather, they must be prepared to demonstrate effective oversight, board integrity, and community benefit more transparently than ever. So say Barry S. Bader, Edward A. Kazemek and Roger W. Witalis in a new White Paper, "Emerging Standards for Institutional Integrity: A Tipping Point for Charitable Organizations," just published by The Governance Institute. The White Paper describes the pressures for accountability facing tax-exempt organizations and offers 72 recommended practices for community benefit oversight, fiscal integrity, executive compensation oversight, conflict of interest, public transparency, and effective overall governance. The White Paper currently is available to members of The Governance Institute. For further information, contact TGI at http://www.governanceinstitute.com/ or call (877) 712-8778.
The winter issue of Great Boards will be available in December. We will look at trends and hot issues healthcare boards can expect in 2007 and also revisit the board's role in executive compensation, offering best practices and red flags to watch for.
If you missed it, the fall 2006 issue of Great Boards is available on line at www.GreatBoards.org. Our lead story examines community benefit: how to define and measure it, how to inform your community of your hospitals' good works, and most important -- what boards need to ask about their hospitals' community benefit activities. Be sure to check out the links to community benefit guidelines, hospital association web sites, and hospitals' reports to their communities on the Great Boards website, at http://www.greatboards.org/resources/cbr.asp. The fall issue also includes advice for choosing and preparing the next board chairperson.
1. CALIFORNIA AG ISSUES REPORT ON THE GETTY TRUST
Bill Lockyer issued the results of his investigation into allegations that the giant J. Paul Getty Trust had failed in its fiduciary oversight responsibilities. His report faulted the trustees for, among other things, approving travel expenses for the CEO's wife and allowing the use of charitable funds to purchase gifts for retiring trustees. He also criticized the board for authorizing first class travel for the CEO on trips that were neither international nor transcontinental. The now-former CEO repaid the trust for expenditures found to be improper. Lockyer exonerated the trust on charges the CEO's pay was excessive and that certain real estate transactions involved insider dealings.
Two things are notable about the Getty investigation. First, boards need to be ready for state officials to pry into detailed aspects of board oversight of ethical conduct. Second, while the investigation was underway, the Getty board adopted new governance policies to tighten up oversight of travel expenses, reimbursement of spousal expenses, use of employees for personal purposes, and purchase of gifts for trustees. Getty's reforms include a website that's state-of-the-art in transparency of communications about board policies and composition. Take a look at it at http://www.getty.edu/about/.
2. CORPORATE BOARDS HAVING TROUBLE RECRUITING DIRECTORS
The demands and risks of being a corporate director are impeding recruitment, according to Korn Ferry, an executive and board search firm. In 2002, the year the Sarbanes Oxley (SOX) Act took effect, 13% of individuals who were asked to serve on a board declined. The percentages of "no thank you's" jumped to 29% in 2004 and 59% in 2005. Liability and time are the likely detractors. Workloads increased, as 62% of corporate directors reported devoting 16-20 hours a month to board work, while 25% spent more than 25 hours monthly. See http://www.kornferry.com/.
Not-for-profit hospitals and health systems aren't experiencing the same rejection problem yet, probably because SOX doesn't apply and the charitable mission is a compelling reason to serve. However, with outside scrutiny increasing, recruitment could be harder in the future. To attract new directors, not-for-profits need to convince prospective directors that the board enforces strong ethics policies and procedures and makes efficient use of the board's time.
3. WALL STREET JOURNAL STORIES FOCUS ON GOVERNANCE
"Drama in the boardroom" (WSJ, October 2, 2006) headed a special section on corporate governance. It found that today's directors are "more outspoken" and willing to challenge management on strategic matters previously left to the CEO. Citing a Mercer Delta study, the story says 37% of corporate boards in 2006 reported they "act with courage and take appropriate action when necessary," compared with 29% in 2003. Some 24% will voice opinions in conflict with the CEO, up from 17%. (We wonder, though, why not 100% for both behaviors?) Another story, "How am I doing," (WSJ, October 9, 2006) reports that peer evaluations are taking hold, with more than 30% of corporate directors in 2005 saying they regularly evaluated their peers, up more than 10% since 2003.
4. OIG SETTLEMENT WITH TENET OUTLINES CORPORATE INTEGRITY EXPECTATIONS FOR BOARDS
Although designed to address the egregious conduct of one health care company, all health system boards should review the corporate integrity agreement the HHS Office of Inspector General signed with Tenet Health Corporation for guidance on corporate compliance oversight practices. The agreement requires, says the OIG, "unprecedented provisions" requiring the Quality, Compliance and Ethics Committee of Tenet's board to oversee the efficacy of its compliance program. Specifically, the agreement requires the committee to be educated, composed of independent members, have direct access and frequent communication with the corporate compliance officer, and frequently report to the full board. For a copy, go to http://www.tenethealth.com/NR/rdonlyres/
0D2B70E7-9810-4146-B0A6-F3C4B9212929/104341/TenetCIA1.pdf.
5. SCORECARD RATES U.S. POOR ON MANY HEALTH MEASURES
The Commonwealth Fund's recent National Scorecard on U.S. Health System Performance finds the nation falling far short on many measures of health system performance, resulting in thousands of lives lost and billions of dollars wasted each year. The measures include preventable hospital admissions and readmissions, preventable deaths, and use of health information technology. See http://www.cmwf.org/publications/publications.htm.
6. HEALTH SPENDING GROWTH OUPACES INFLATION, BUT CONSUMER-DRIVEN HEALTH PLANS NOT THE ANSWER
In the same story we hear every year at this time, healthcare costs per privately insured American grew 7.4 percent in 2005, virtually the same rate of increase as the previous two years, according to a study by the Center for Studying Health System Change. Health spending growth continued to outpace overall economic growth in 2005, despite a 5.4 percent increase in the overall U.S. gross domestic product. For more information, see http://www.hschange.com/. But another study found consumer-driven health plans, trumpeted as the savior by some, aren't showing much impact yet. About 4 percent of covered employees, or 2.7 million workers, have enrolled in high-deductible plans with a savings option, such as health savings accounts (HSAs), according to the study. The rate is statistically unchanged from the prior year and employer interest in adding the plans is low. See http://www.kff.org/.
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Barry S. Bader, Bader & Associates
12225 Seline Way, Potomac MD 20854, 301-340-0903
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