In this chapter from
Nurse on Board: Planning Your Path to the Boardroom, author Connie Curran provides a road map to understanding board governance and the importance of nurses on boards.
Salaries, staffing cutbacks, clinical outcomes, adding new programs, and ending old programs all are decisions made in the boardroom. Nurses have multiple opportunities to become involved with a board of directors. A wide range of boards exists, ranging from nonprofit boards (most hospital boards are nonprofit) to corporate (for profit) boards that govern very large, publicly held organizations. There are also advisory boards, start-up boards, and nursing or professional association boards. All these types of boards share common elements; however, there are important differences.
Educate yourself about the different types of boards, as well as how your specific board operates, who the stakeholders are, and what their roles are. Then, learn your responsibilities as a board member. Other members may not instruct you fully of your roles and responsibilities, even if you become a member.
Nonprofit status means that the organization does not have to pay federal income taxes and property taxes. In exchange for their nonprofit status, organizations are expected to benefit the communities in which they serve.
The concept of governance has existed for hundreds of years and traces back to European countries. It is the basis for much of what we now know as corporate governance. In the case of hospital boards, governance means responsibility for the hospital’s performance.
Nonprofit and not-for-profit are often used interchangeably. However, for the purposes of this book, we will refer to nonprofit to indicate an organization established for purposes other than profit making and that is recognized by its government as tax exempt.
In the United States, boards have nearly always governed corporations. In fact, an 1811 New York act (Birds-eye, 1890) established that “… the stock, property and concerns of such company shall be managed and conducted by trustees, who, except those for the first year, shall be elected at such time and place as shall be directed by the by-laws of the said company” (p. 1876).
Daniel J. Pesut is a professor in the University of Minnesota–Twin Cities School of Nursing and director of the Katharine J. Densford International Center for Nursing Leadership. Pesut has a significant amount of board experience, most notably as a member of the board of directors for Sigma Theta Tau International (STTI), where he served for 8 years as a director, president-elect, and president.
“Having your finger on the pulse of what those stakeholders want is critical,” says Pesut. “You can’t just sit in the boardroom. You’ve really got to pay attention to those people you serve and figure out how to engage them in strategic ways.” In other words, if you’re on a hospital board, what is important to patients and staff? Board members represent the organization and are stewards of the organization, but they serve the stakeholders.
Gladys Campbell is the chief executive officer for the Northwest Organization of Nurse Executives (NWONE). “Many nurses really don’t understand the role of a trustee,” says Campbell. “Before going into a board role, we need to understand what the role of a board is and what a trustee on a board is accountable for.”
Nurses considering board service need to understand both what a board does and what their role and responsibilities will be if they pursue board service. “I don’t think most nurses have this information, and I don’t think most boards perform a fully effective job of orienting board members to their board roles and responsibilities,” says Campbell.
A board’s responsibilities mostly focus on the organization; some responsibilities focus on the board itself.
Board roles and responsibilities include:
Developing policies that provide a framework for the organization’s actions and decision-making
Setting goals that direct the chief executive officer (CEO) and the organization toward achieving specific levels of performance in areas such as financial health, quality, and safety
Being responsible for CEO performance, setting and managing the implementation of performance goals, evaluating the outcomes, and setting CEO compensation
In general, a board’s primary responsibility is to guide and direct an organization to ensure that it meets stakeholder needs.
As hospitals have increasingly become part of larger systems, and independent hospitals are becoming less common, these new organizations generally have both system and local boards.
In addition, many hospitals operate foundations that are also governed by boards. Each type of healthcare board has different roles and responsibilities. Some systems operate in a centralized fashion, where most decisions are made at the systems level; others are decentralized, and local hospital boards have a great deal of autonomy. In other words, some boards work mostly by committee, and others work more as a whole board. A review of the board’s charter will reveal the particular board’s duties.
Different regulations are specific to different kinds of boards: specifically, profit and nonprofit. The board members are obligated to understand the regulations that dictate their roles and responsibilities.
Boards vary greatly on the amount of time and money they expect from their board members.
The pathway to a corporate board role for nurses will likely progress from a nonprofit, or an advisory board, to a start-up and then to a corporate role. There are important lessons to be learned and experiences to be gained along this journey.
Like nonprofit boards, start-up boards are usually easier to gain membership on than corporate boards. Typically, start-ups are small entrepreneurial efforts—companies that are in a formative stage. The kinds of skills that these small entrepreneurial companies need are different from the kinds of skills needed in corporate governance. Yet, as these companies move from their small formative stages into more advanced stages, they can benefit from the wisdom and governance experience that a board can bring.
Start-ups are often looking for independent individuals with a variety of life experience. They cannot offer their board members much in terms of remuneration for their help, but they often offer shares of stock. If the company is a hit, board members can do well financially.
Start-up companies usually have a small, highly specialized group of employees. They rarely have support departments such as human resources. They often do not have clear policies in place, and they may need assistance with determining CEO evaluation and compensation. Very often, the CEO is one of the early entrepreneurs who founded the company. He or she may have great skills for forming a business yet lack the skills to manage and govern, especially as the organization grows. Thus, a board can provide a good complement to the entrepreneur in terms of bringing the knowledge and skills needed to make the growing business a success.
Start-up companies generally need to raise funds in order to develop. A common source of early funding is from venture capitalists, who invest in the organization. In exchange for this funding, the venture capitalist gets a seat on the board. This quid pro quo sets up an interesting and sometimes challenging dynamic for the board because venture capitalists seldom invest for the long term. Instead, they seek to recoup their money quickly. After repayment, they often move off the board. Thus, there are often conflicts between the short-term mentality of the venture capitalist and the focus on the long-term health of the organization that the board as a whole should be concerned. It is important that the board has representation of independent members who are there to focus on the long-term health and survival of the company.
Quid pro quo is Latin for “something for something,” which means an exchange, generally for goods or services, where one “something” is contingent upon the other “something.”
The board needs to assist management to strategize about:
How to build the business.
How to build a larger customer base.
How to please and continue to grow that customer base.
How to revise or redevelop the product to meet the needs of emerging markets.
Nurses can be very valuable for start-up boards that:
Seek to gain perspectives from diverse audiences.
Are in healthcare-related industries. In Silicon Valley, for example, a number of start-ups produce healthcare-related apps to help monitor exercise routines, track calories, and so on. Nurses can add expertise related to the effects of chronic illness, medications, patient compliance, and others.
Need clinical expertise, which is often highly valued by the technical development staff of start-up companies.
Lack human resource departments or internal structure. Nurse managers and executives bring their human resource, organizational, and leadership skills to these very technical, specialized executives and employees.
Advisory boards are different from typical boards because they do not have official decision- making responsibilities or fiduciary duties. Instead, they provide their organizations with advice and input. Advisory boards must have a clear purpose and evaluate their effectiveness in addressing that purpose.
Companies may create user groups to give them feedback on their products and services. Hospitals may have advisory boards made up of community members who share perspectives about the healthcare needs of the community. Universities often have alumni boards, which provide input for the curriculum, mentorships for graduates, and so on. Advisory boards provide a great venue for communication with stakeholders. Serving in an advisory capacity can be a good first step in learning about board service.
Laurie Benson is CEO of LSB Unlimited, a board and strategy company, and the former CEO of Inacom Information Systems. She has served on seven corporate boards in the technology, finance, insurance, manufacturing, and services industries and has been actively engaged in the healthcare industry through board service and executive leadership roles. She currently serves on five private company boards and five non-profit boards. “In my case, I found myself a founder and CEO of a technology company, yet I had no background in the field,” she recalls. “What I did have was a vision for the impending importance of technology in providing information for companies to make decisions in a fast-paced and changing world.” She knew that she would need wisdom from others.
“We created an advisory board from day one,” she says. “We had seven advisors and three employees.” Over time, she evolved this advisory board into a high-performance board of directors, but from the outset she embraced the concept of how a group of very smart people could play a key role.
As more independent hospitals become part of larger systems, local hospital boards become more advisory in nature. The local boards lose their fiduciary responsibilities, and the true governance exists at the system level.
In the 2013–2018 Futurescan report from the American College of Healthcare Executives (ACHE, 2013), one of the trends noted is that the economic pressures hospitals face will fuel more consolidation among systems and the elimination of local boards. The bar is rising for board members at the system level.
The report further suggests that:
Boards will need to evolve to meet the more complex needs of the future as hospitals transform into care systems.
Board members must be selected based on the skills and expertise they bring as well as their strategic and visionary abilities.
Clear standards must be established for board members’ attendance and participation.
Continuing education is necessary to keep board members up to date on the rapid changes in the field.
Boards must engage in a regular and rigorous self-assessment process.
Despite the fact that these smaller, local hospital boards are likely to diminish in terms of their governance role, they do present another opportunity for nurses hoping to gain board experience.
PROFESSIONAL NURSING ORGANIZATIONS
American nursing organizations have evolved with the nursing profession. The first U.S. nurses’ training school was started in 1873 (New York University Health Sciences Library, n.d.). A mere 20 years later, the American Society of Superintendents of Training Schools for Nurses was founded (Egenes, 2009). This society was focused on helping the schools’ administrators identify common curriculum, standards, policies, and procedures. The organization evolved into the National League for Nursing, which still focuses on issues related to nursing education.
Today, there are hundreds of professional nursing organizations. Some are focused on nursing scholarship, such as Sigma Theta Tau International; some are focused on specific clinical practice areas, such as the Oncology Nursing Society and the American Association of Critical-Care Nurses; some are focused on nursing education, such as the National League of Nursing; and some are broad based in their focus, such as the American Nurses Association. Despite the many differences between and among the various organizations, they all have governing boards. Many nurses report that their first governance experiences were in nursing organizations.
Nursing associations typically have local, state, regional, national, and sometimes international chapters. Many nurses join their local chapter and find it relatively easy to volunteer for a committee assignment and eventually move into a board position at a local level.
Many organizations are involved in political advocacy on the state and national level. They work to influence legislators regarding the needs of nurses and the patients who they serve. Each nursing organization has its unique mission statement, values, vision, and goals. Most nursing organizations’ goals include:
They all have the advantages of:
Annual conventions and meetings
Massive databases regarding issues of evidence-based practice, best clinical practices, and so on
Disseminating new and important data to their membership
Nursing organization boards do all the things other boards do: choose, direct, evaluate, and reward the organization’s CEO; approve and monitor the budget; and focus on recruiting, retaining, and optimizing the organization’s membership. Essentially, they have all the responsibilities of any non-profit board.
Nurse board members are helpful because of their stakeholder knowledge. Nurses are often close to patients and families in their professional roles, and they also interact with community members through their participation in places of faith, education, civic, and others.
Susan Groenwald is the president of Chamberlain College of Nursing in Chicago. Groenwald was elected to the board of directors of the Oncology Nursing Society in 1975. “I was a complete unknown at the time,” says Groenwald, “but was director of the oncology graduate program at Rush and a charter member of the Oncology Nursing Society (ONS). My master’s degree was a clinical specialist in oncology nursing from Rush.” She was elected to the International Reciprocal Trade Association (IRTA) in 1983, which is an international trade association for commercial barter companies. Currently, she serves on the board of trustees of Chamberlain College of Nursing and put together the board.
“Both the ONS and IRTA were my industry associations, which were facing industry, legislative, regulatory, and quality issues that were important to me,” says Groenwald. “I believed that I needed to have a voice, and needed to be a leader in solving the challenges of my industry.”
The best thing nurses can do, says Groenwald, is get involved in a nursing association—join committees and volunteer to help at conventions or other initiatives. “Make yourself known and be helpful to the point of being invaluable. When the time is right, and you have paid dues and served the organization, run for office,” she recommends.
Recently, there has been a great deal of legislative discussion regarding the scope of practice—or practice acts—of advanced practice nurses (APN). Professional nursing organizations have worked tirelessly to expand APN nursing practice acts.
FOR-PROFIT (CORPORATE) GOVERNANCE
Corporate boards exist to maximize shareholder value. A corporation’s board of directors is elected by the company’s shareholders. There are many specific Security and Exchange Commission (SEC) regulations that dictate how corporate boards are to function. Boards that violate these rules risk huge fines, public humiliation, and even possible incarceration for executives or board members. There have been numerous instances over the years where corporate governance has led to scandal. The Enron financial fraud scandal of 2000 led to the creation of The Sarbanes-Oxley Act in 2002 (SOX) (Fass, A., 2003). SOX governs the actions of U.S. corporate boards of directors, including the regulation requiring that the work of corporate boards become very visible and transparent. Many nonprofit boards, including hospital boards, have also applied SOX principles, although they are not required to do so. SOX mandates that members of the board’s audit and compensation committees be only independent board members.
For-profit governance is often referred to as corporate governance. Corporate governance is the system of structure: the duties and the regulations by which corporations are directed and controlled. In corporations, shareholders are the owners. That’s not necessarily the same as a stakeholder.
The corporate governance system in the United States is subject to a high degree of regulation. When considering, then, who should be a board member, it is important to consider those who have expertise in running a business or deep knowledge of a particular industry. Corporate boards are often made up of former CEOs and CFOs, individuals who have a high level of expertise in an area of business, experts in regulation, information systems, marketing, and so on.
Nurses seldom think of themselves as candidates for corporate boards, usually lacking experience as a CEO or CFO. However, nurses can position their backgrounds and experiences in other ways as key benefits for a board position.
Independent board members are those who have no financial relationship with the company.
Nurses can be very valuable for corporate boards because:
Many nurse executives manage budgets that may be equivalent to the budget of a small corporation. It is not unusual for a nurse manager to have responsibility for dozens of employees.
The financial and human resource skills needed to manage units, hospitals, and clinics are appropriate skills for board positions. Nurses who serve as deans and association executives have the financial, human resource, and customer service experience necessary for board roles.
Nurses have deep knowledge about something that is critically important to a business. Pediatric nurses, for instance, know about baby formula or diapers. They have interacted with hundreds or even thousands of parents, and they have been privy to their perspectives. Diaper or formula companies could receive significant benefit from those insights.
When I was at Montefiore Medical Center 30 years ago, I managed a budget of $130 million and had 2,500 RNs within my organization. Montefiore had 10,000 employees in ancillary, housekeeping, dietary, and other roles. We had numerous union contracts, a medical school, and thousands of physicians. We were a complex organization of hospitals, clinics, and homecare settings. In the 1980s, there were many American companies that were smaller than my nursing organization at Montefiore.
Few individuals outside healthcare realize the budget and human resource responsibilities that nurses possess. Highlighting those responsibilities on resumes and letters of introduction is essential.
Still, where most nurses will gain access to a corporate board is not through budget management or high-level corporate positions.
Pyxis, Inc., was the first corporate board that I served on as a board member. Pyxis is a company that provides technology related to medication supply and safety pioneered an automated medication- dispensing system. When I was a practicing clinical nurse, one of my key interests was getting patients their medications on time. Back then, a number of barriers interfered with timely medication administration. It was often necessary to leave your patients and run to the hospital pharmacy, or the pharmacist would have to run up to the unit, or you’d have to get a last-minute order from a physician—and it seemed nearly impossible to get in touch with a physician or pharmacist when you needed an urgent medication order.
So, when I saw that first Pyxis device and found that the meds would be on the unit—and when the nurse inserted her PIN, she had immediate access to the patient’s medication—I became a huge fan of the technology. For a number of years, I encouraged that company to just keep pushing that technology, and I supported and encouraged the company and talked about Pyxis whenever I could. It was such a wonderful thing for nurses and physicians, and it saved patients from suffering. I watched as other healthcare organizations installed the product, and it became obvious that Pyxis saved enormous amounts of time for nurses and pharmacists and enabled patients to receive their medications in a timely manner.
At one point, Pyxis offered to pay me for my support and promotion of its technology, but I didn’t feel right about getting paid, so I said to Pyxis, “I’d like to be on your board.” Even I was surprised that I said that, but I had been on a couple of nonprofit boards, and I realized how much power a board can exert on the product. In a hospital, the product is patient care; for Pyxis, the product was this medication-dispensing system.
I caught the CEO by surprise when I asked to be on the board, and he told me that the board was entirely filled with venture capitalists that had given Pyxis money. But he assured me that when one of those investors was repaid and left the board, he would put me on it, and he did.
The day he introduced me to the other board members, who were all brilliant men with financial backgrounds, he said, “Connie is the only one of you who has ever been in touch with the people who use our product. She knows how it benefits nurses, pharmacists, and patients.” That was my key differentiator for this board, and that’s what made me valuable to them. That’s what can also make you valuable to various boards. It’s something you need to really think about in terms of how you build your resume to position yourself for board service.
It was my academic background that appealed to the DeVry Education Group board members. DeVry was diversifying into the healthcare professions and wanted to find a board member who understood academic healthcare organizations and nursing education. Earlier in my career, I was a faculty member at several universities and Dean at the Medical College of Wisconsin. The DeVry board valued my nursing and academic background and selected me to serve on its board.
Linda Procci, PhD, RN, was vice president for Service Line Operations at Cedars-Sinai Medical Center in Los Angeles. “Most of the boards that I’ve been on have been small, nonprofit boards with budgets of $15 million a year, or less, and a very focused mission,” says Procci. For example, she has also served on the Los Angeles Free Clinic board, which, she says, “exemplifies the kind of board opportunities that are out there for nurses.”
Procci stresses that a nursing perspective can be readily applied in any type of boardroom setting. “Nursing can be practiced anywhere, so it would be hard for me to imagine any organization where your healthcare clinical skill would not come into play,” she says. For instance, “If your organization has employees, at the very least they’re going to be discussing selecting the right health insurance plan for their employees. They may be dealing with safety issues and workers compensation issue.” These are topics that nurses are well positioned to discuss.
As you study the organization’s mission and goals, identify how your personal and professional experience can contribute to the organization’s success.
What experiences have you had with consumers—or patients—that provide you with keen insights that would make you a valuable member of a corporate board? How can you quantify those experiences in your resume?
Nonprofit organizations have stakeholders rather than shareholders. Stakeholders are the owners—individuals who are significantly affected by the organization. They are individuals or groups who have important wants and needs that they rely on an organization to meet. They are invested in a way other than monetarily. By and large, hospitals are nonprofit companies. Nursing organizations are nonprofit organizations. Board members act like stakeholders would if they were guiding and governing the organization.
Members on nonprofits boards are stakeholder advocates.
Healthcare organizations specifically have stakeholders that include citizens, patients, employees, physicians, and many others. Usually, a hospital board’s core responsibility is related to providing high-quality, cost-effective healthcare.
The Guide to Not-for-Profit Governance (Weil, Gotshal & Manges, LLP, 2012), sponsored by the Not-for-Profit Practice Group and the Pro Bono Committee of Weil, Gotshal & Manges LLP, notes that
The role of the board of directors of a not-for-profit organization is similar to the role of a for-profit board. In both cases, the organizations are tasked with managing other people’s money and in both cases they are judged by their success in doing so. Yet, there is a very key difference: in the for-profit context, shareholders are able to hold corporate directors and officers accountable, whereas in the not-for-profit context there is no private mechanism by which the organization can be held accountable when it fails to act in furtherance of its mission (pp. 1-2).
Nonprofit organizations typically have many stakeholders, often with conflicting needs. Board members must have a range of knowledge, skills, and behaviors to govern effectively on the stakeholders’ behalves.
Know who your organization’s stakeholders are. Know what they most expect and need from the organization.
Because stakeholders and their needs can change over time, boards should conduct periodic stakeholder assessments to stay updated. Stakeholders judge the organization based on how well the board meets its needs and expectations. They also seek care (or whatever “product” they get from the organization) elsewhere if their needs are not met.
Consider a small community that is about a 20-minute drive from a larger city. For years, the stakeholders of the hospital located in the small community have rated cost and quality of care as their key concerns. A large corporation recently established its headquarters in the larger, nearby city. The corporation is attracting a large number of younger employees. Many of these employees and their families are moving to the smaller community because it is a good place to raise a family relatively close to their work.
In addition to affordable, quality care, these young people want greater access to care at more locations and at times that are convenient for them. These new younger families have integrated technology into their daily lives. They want to work with clinicians whom they can e-mail their questions and receive a timely response. They want easy and rapid access to clinicians at “minute clinics” and other ambulatory centers. They want immediate access to their medical records and key healthcare information. What was once a 20-minute geographic advantage for the older, small community hospital disappears in an age of technology.
Thus, the stakeholder dynamic is changing for the hospital board based on the influx of these young families and their needs. For these families, if their questions can be answered through e-mail and there is easy, rapid, ambulatory access, they have no need to affiliate with a healthcare organization merely because of physical proximity.
HOW CORPORATE AND NONPROFIT BOARDS DIFFER
For-profit boards and nonprofit boards are the two major board classifications:
For-profit boards are associated with corporations and are owned by their stockholders. Their chief purpose is to increase stockholder wealth. Corporate boards are usually small, and their board members are paid.
Nonprofit organizations are usually owned by the community and exist to serve a community need. These boards are usually large and made up of unpaid volunteers.
Table 1.1 shows some clear distinctions between for-profit and nonprofit organizations.
TABLE 1.1: COMPARING CORPORATE AND NONPROFIT BOARDS
They’re owned by stockholders.
They’re owned by the public (stakeholders).
They generate money for the owners.
They serve the public/constituents.
Success is making sizeable profit.
Success is meeting the needs of the public/constituents.
Board members are usually paid.
Board members are usually unpaid volunteers.
Money earned over and above what is needed to pay expenses is kept as profit and distributed to shareholders.
Money earned over and above that needed to pay expenses is retained as surplus and spent on meeting public need (essential to keeping tax-free status).
The CEO is often on the board of directors and is sometimes the chairperson of the board.
The CEO is not usually a board member but attends board meetings.
They pay federal, state, and local taxes.
They’re usually exempt from paying federal, state, and local taxes.
Money invested in for-profits typically cannot be deducted from the investor’s personal tax liability.
Money donated to the nonprofit can be deducted from the donor’s personal tax liability (if the nonprofit was granted charitable status from the appropriate government agency).
Adapted from McNamara, C. (2008). Field guide to developing, operating, and restoring your nonprofit board. Authenticity Consulting, LLC: Minneapolis, MN.
TRANSPARENCY AND PROXY STATEMENTS
Both nonprofit and corporate boards have rules that board members must understand and comply with. In the profit world, one of these compliance areas is transparency.
The proxy statement includes both good news and sometimes not-so-good news. A proxy statement is required when firms are soliciting shareholder votes, and it is filed with the SEC in advance of the corporation’s annual meeting.
In the proxy statement, the corporation is required to include details about the past year’s business performance and activities anticipated for the future. Any expected changes of a material—or major—nature need to be conveyed. These might include such things as losing a big contract, acquiring another organization, and so on. Basically, any event that could impact the value and the performance of the company over the next year should be discussed in the proxy statement.
Transparency means being forthright with the truth regarding all aspects of organizational operations. Transparency is formalized in a proxy statement, which is a thorough document that presents the state of the company.
To review a proxy statement, find a sample online. In one Apple, Inc. proxy statement, for instance, the company sought approval on:
Electing representatives to the board
Amending the “blank check” authority of the board to issue preferred stock
Approving the employee stock ownership plan
These are the types of things that Apple shareholders would review and determine whether to vote for or against—or whether to allow their votes to be handled by proxy.
Although proxy statements exist in the world of corporate governance, best-practice nonprofit organizations provide transparency to their stakeholders, too. Many hospitals provide an annual community benefit report to inform their stakeholders of their many charitable activities.
The term proxy also refers to voting. When you own shares in a company, you have the right to vote those shares. If you cannot be physically present at a shareholder meeting, you might allow your shares to be voted on by proxy. That is, by someone else.
For members of corporate boards and nonprofit boards, the issue of independence is becoming increasingly important.
Here, again, is an area where nurses have an advantage. Being independent means that you do not have a financial relationship with the company and that nobody in your immediate family has a financial relationship with the company. True financial independence eliminates many conflicts of interest. Board members who are responsible for the organization’s audit and executive compensation are much more likely to make fair and responsible decisions if they are not financially related to the organization.
The SEC requires that all members of a corporate board’s audit or compensation committees be independent. This same type of requirement is emerging in the nonprofit sector.
BOARD MEMBER COMPENSATION
Corporate boards are paid for board service. Compensation is usually a combination of a cash retainer and shares of stock, often 50/50, with half cash retainer and half shares of stock.
Nonprofit board members usually are not paid. This is changing, however. Still, the pay for board members in the nonprofit arena, when they are paid, is significantly less than what directors receive in the for-profit world.
Compensation for nonprofit hospital board members is on the rise. In its 2013 survey of hospitals and healthcare systems, the Governance Institute found that the percentage of nonprofit hospitals and health systems that compensated some or all of their board members increased from 10.2% in 2009 to 15.5% in 2013. This trend is expected to continue because healthcare organizations are dealing with increasing complexity that demands a higher level of expertise and engagement among board members.
According to Green and Suzuki (2013), pay for directors of the Standard & Poor’s 500 Index (SPX) rose to a record average of $251,000 in 2012. That was the sixth consecutive year that board compensation increased. For their compensation, board members work an average of 250 to 300 hours per year. According to the same article, the lowest paying board is Berkshire Hathaway, which should come as no surprise given Warren Buffett’s reputation for frugality. Buffett, Berkshire Hathaway’s famous CEO, pays his board members only $3,800 per year, but he also gives them shares of stock, which is common, and incredibly valuable in this particular case.Tyson Foods is at the high end with an average board member cash retainer of $540,000.
Because shareholding is an effective way to align the interests of the board, the executives, the employees, and the public, there are many shareholding requirements. It is generally believed to be in the best interest of shareholders if corporate directors own shares of stock. If share values increase, the directors and shareholders benefit together. If share prices go down, both are negatively impacted. Members of the corporation’s management and executive team are also expected to own shares of stock. Many corporations expect executives to own shares equal to a multiple of their annual compensation.
For-profit board members are generally required to own a certain number of shares over a certain period of time. Thus, typically, there would be a requirement at the end of 5 years to be holding a certain number of shares, at least equal in value to the board member’s annual compensation. These shares are not given to the board member and must be purchased at their expense—with most requiring board members maintaining a specific share level.
THE BOARD’S FIDUCIARY ROLE AND BOARD MEMBER DUTIES
Understanding your role as a board member is crucial to performing your duties effectively.
A fiduciary can have legal duties. That person, per Slee’s Healthcare Terms (2007), acts primarily for another person’s benefit. It is incorrect to believe that a board’s fiduciary role extends only to its financial oversight responsibilities. In fact, the board’s fiduciary responsibilities go beyond financial.
The issue of quality is relevant to any board setting, of course. For instance, in the academic world, the board is responsible for ensuring the quality of the academic product and the viability of the university. The DeVry Education Group uses a scorecard that measures academic achievement, student persistence, faculty engagement, and other key metrics that address the fiduciary responsibilities of its various academic boards. In professional associations, the board will be focused on ensuring the quality of the services provided to its members. In corporations, the board is responsible for the quality of the product or services that it sells.
Fiduciary is related to trust, especially when someone benefits and someone else is in charge (a trustee). Although most individuals who serve on boards today are referred to as board members or directors, the more traditional term is board of trustees and trustee. That language speaks to the critical importance of the board’s fiduciary role.
A board’s fiduciary responsibilities include oversight of areas such as organizational compliance with legal and regulatory requirements; and in the case of hospital or health system boards, the areas of quality of care and patient safety.
In recent years, there has been a much greater emphasis placed on the boards’ responsibilities around patient safety and quality. For the first time in U.S. history, the Centers for Medicare & Medicaid Services (n.d.) pay hospitals based on the quality of performance. Board members are expected to know how the healthcare organization measures and monitors quality. They are expected to establish quality goals and discuss them at every board meeting.
In the case of healthcare organizations, it is important to have quality goals for patient outcomes, patient satisfaction, and employee and physician satisfaction as well as the health of the community. Nurses are well positioned here. Healthcare boards are looking for people who have experience with quality outcomes, satisfaction, and healthcare metrics.
Regardless of the type of organization, board members have legal duties that they must perform.
THE DUTY OF CARE
The Duty of Care is focused on the board’s process of decision-making. The Revised Model Nonprofit Corporation Act of 1987, which guided the development of many state laws, the first of the board’s core legal duties—the Duty of Care—requires board members to:
Act in good faith
Use the same degree of diligence, care, and skill that a prudent person would use in similar circumstances
Act in a manner that the director reasonably believes to be in the best interests of the corporation (Siegel, 2006)
The Duty of Care focuses on how trustees act and make decisions rather than on the results of their actions or decisions.
Board members must meet the following essential requirements to fulfill the Duty of Care:
Make informed decisions by being diligent and prudent, using good judgment, and exercising a reasonable effort to become familiar with relevant, available facts. This, of course, requires that board members do their homework and attend all board meetings.
Conduct due inquiry. That is, they must ask questions if facts raise issues about the validity and completeness of the information the board receives. It is important that board members thoroughly discuss and debate issues. When members always vote unanimously, it looks like a “rubber stamp board” rather than a conscientious group of decision-makers. Often, closed executive sessions are called to allow discussion to build board cohesiveness for a show of solidarity, especially for controversial decisions.
According to governance expert Dennis Pointer (Pointer, 2008), the test for determining whether the Duty of Care has been fulfilled is to ask the question, “Is there evidence that reasonable care was exercised?” The test is not, “Was the result optimal, satisfactory, or even tolerable?”
Pointer says that directors, for example, can presume that data, analyses, and recommendations from others are accurate and truthful if there appears to be no evidence to the contrary. He also says that the Duty of Care does not require board members to be overly cautious or to avoid taking any risks. What they must do is be informed and act carefully with good sense and sound judgment.
Most state courts offer trustees further protection through the business judgment rule, which provides that trustees will not be held personally liable if they make informed decisions, in good faith, without self-interest and in the best interest of the corporation. It is critical to know the laws. The courts will not protect trustees who claim ignorance while making no effort to understand the laws.
There are many actions that board members can take to fulfill the Duty of Care:
Be prepared for all board and committee meetings.
Ask questions or seek additional information.
Ensure that the organization has in place and has implemented an effective compliance plan.
Be aware of quality and safety trends and how the organization continues to improve its quality and safety performance.
Challenge assumptions and ensure alternatives were satisfactorily explored before accepting recommendations.
Be willing to express a dissenting opinion or negative vote when they believe it is the right thing to do.
THE DUTY OF LOYALTY
The Duty of Loyalty requires board members to safeguard the organization’s business interests. Fulfilling the Duty of Loyalty means that board members understand they owe allegiance to the organization’s stakeholders and act in the stakeholders’ best interests (Entin, Andersen, & O’Brien, 2006).
To fulfill the duty of loyalty, board members must:
Act in good faith and without self-interest when making decisions
Preserve the confidentiality of corporate affairs. They cannot discuss confidential board deliberations or actions outside the boardroom.
Avoid conflicts of interest. Board members should understand that in today’s world, best-practice organizations are beginning to hold themselves to a higher standard with regard to conflicts of interest and are seeking individuals who are not conflicted to serve on the board.
Avoid taking advantage of a corporate opportunity for personal gain. That requires disclosing all conflicts of interest at least annually by completing a conflict-of-interest statement and acknowledging before the board any conflicts that may come throughout the year. Many organizations now ask board members to disclose all affiliations annually so the determination of conflict of interest falls to the board and not the board member.
Board members must understand that considerable questions have been raised about whether a board member who has an interest in a business that competes with the organization can adequately fulfill his or her Duty of Loyalty. At the same time, this does not mean that a person with a conflict of interest is automatically prevented from serving on a board.
However, when a conflict is present, conditions must be met. These conditions include:
Making sure the board is given notice in advance that it will be considering an issue in conflict
Identifying the director who has the conflict
Asking the conflicted director to leave the room while the board deliberates and votes on the issue
Because of the vast number of nurses in a community, it is relatively easy to find nurse board members who are truly independent, with no financial relationship with a healthcare organization.
Many healthcare organizations are changing their structures to resemble accountable care organizations (ACOs) or other structures that include employing or partnering with physicians. As an employee, a physician is not an independent trustee. The same is true for anyone who is an employee of the organization or has a business relationship with it. These new organizational structures are provoking organizations to re-examine their board policies and relationships. The many changes in organizational structure and governance provide a good opportunity for nurses to seek board positions.
THE DUTY OF OBEDIENCE
The Duty of Obedience requires board members to comply with applicable laws, rules, and regulations. The Duty of Obedience is the most important duty. If an organization’s board does not obey the laws and comply with regulations, the Duties of Loyalty and Care are irrelevant.
To fulfill the Duty of Obedience (Hopt & von Hippel, 2010), board members must:
Honor the terms and conditions of the organization’s mission, bylaws, policies, and procedures
Act at all times within the scope of their authority under the corporation’s articles, bylaws, and applicable laws
In nonprofit organizations, focus beyond the organization’s financial health to safeguard its charitable purpose
Preserve the organization’s assets held in trust for the community
What happens in the board room stays in the boardroom, down to the smallest details.
There’s no place for social media in the boardroom.
Boards can comply with the Duty of Obedience by:
Instructing new and seasoned board members about the requirements of this duty and how to fulfill them.
Ensuring that all board members understand key laws and regulations and their implications for organizational governance.
Keeping an up-to-date book of board policies and procedures. Many organizations are now putting their policies and procedures online so that they can consistently and easily be updated.
Educating the board about changes and ensuring that the board does not act in ways that are inconsistent with them. It is the responsibility of the board to pursue continuing education about the changing rules and regulations that affect their organization.
VISION, MISSION, AND VALUES
One of a board’s key responsibilities is to establish (or revisit at regular intervals) the organization’s vision.
Vision statements are usually broad, inspiring, and future focused. As such, their language is typically high level and lacks specific details.
Vision statements should be challenging enough to guide the organization for many years.
Vision statements describe what an organization is striving to become in order to meet stakeholder needs and expectations.
Consider the vision statement of Dignity Health, a California-based nonprofit healthcare system that operates hospitals and ancillary care facilities in 17 states. From its early inception, Dignity Health envisioned itself as, “a growing and diversified healthcare ministry distinguished by excellent quality and committed to expanding access to those in need.” Consider what this vision statement tells you about the organization. What stakeholder needs does the Dignity Health vision say the system is committed to meeting today and into the future?
Mission statements can guide organizations to meaningful strategies and goals. They should energize stakeholders and position the organization as unique.
Flowing from its vision to be a ministry focused on quality of and access to healthcare, the mission of Dignity Health stated: “Dignity Health and our Sponsoring Congregations are committed to furthering the healing ministry of Jesus. We dedicate our resources to: Delivering compassionate, high-quality affordable health services, serving and advocating for our sisters and brothers who are poor and disenfranchised, partnering with others in the community to improve the quality of life.” This mission statement is clear about the organization’s commitment to its religious foundations; high-quality, affordable care; and focusing on the poor and disenfranchised.
Mission statements describe the primary work of the organization today, not the future, in service of stakeholder needs and expectations.
Values statements describe the core behaviors that guide stakeholder relationships, defining how the organization will act.
Values statements are consistent with the mission and vision. As such, they should drive action that supports them. For example, an organization’s values should help focus hiring decisions that result in employees who share the organization’s values. They should reward behavior consistent with them. It is important for board members and leaders to understand that their behavior must reflect the values to ensure that others in the organization behave in ways that support the values as well.
Dignity Health expressed its foundational values in the following way: “Dignity Health is committed to providing high-quality affordable healthcare to the communities we serve. Above all, we value:
Dignity—respecting the inherent value and worth of each person
Collaboration—working together with people who support common values and vision to achieve shared goals
Justice—advocating for social change and acting in ways that promote respect for all persons and demonstrate compassion for our sisters and brothers who are powerless
Stewardship—cultivating the resources entrusted to us to promote healing and wholeness
Excellence—exceeding expectations through teamwork and innovation.”
Even though these values may seem similar to those of other healthcare organizations, it is often in the values statement that the organization’s unique identity is clearly expressed.
To gain a better understanding of this, compare the Dignity Health values statement (Dignity Health, n.d.) with the values of the Carolinas HealthCare System, which expresses its four core values in this way.
“Carolinas HealthCare System recognizes our employees are our most valuable asset. We have identified four core values successful employees need to strive for in order for us to accomplish our mission:
Caring: We treat our customers with dignity, giving them the courtesy and gentleness they need. We are helpful; we listen; we communicate; we respond to patient needs.
Commitment: We are dedicated to Carolinas HealthCare System, taking pride in our organization and our jobs, projecting a professional image, and striving to be the best in all we do.
Integrity: We honor and uphold confidentiality, are honest and ethical, keep our commitments, accept responsibility for our actions, and respect the rights of patients, families, and each other.
Teamwork: Linked by our common mission, we respect the professionalism and contributions of our coworkers, understand that physicians are an integral part of the team, value diversity in all its forms, and recognize that people are our greatest asset.
The Carolinas HealthCare System core values are different from that of Dignity Health and express the foundational beliefs, which guide this system to achieve its mission and vision. The type of board member, executive, or employee attracted to one system may not be attracted to the other.
Connie Curran, EdD, RN, FAAN, was founder and chief executive officer of Best on Board, a national organization focused on educating and certifying healhcare trustees.
Information on purchasing Nurse on Board: Planning Your Path to the Boardroom.
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