Hospitals operate in a high-risk environment where life and death are prominent considerations. Politics complicate the healthcare industry, which holds much complexity on its own. Whether hospitals are for-profit or nonprofit, boards of directors must show a return on the investment for investors and charitable donors, as well as the taxpayers.
In addition to proving that the hospital or healthcare institution is sustainable for the long term, boards must be concerned about safe, effective and efficient patient care, as well as making sure that patients have a positive healthcare experience under their leadership.
Learning for Past and Current Hospital Board Compositions
For many decades, hospital boards of directors have had the latitude to make their own decisions about board composition. However, recent issues with corporate failures have placed an increased emphasis on solid corporate governance principles. Hospital boards of directors are thinking more strategically about such considerations as the percentage of independent board directors, whether the CEO should hold the board chair position, and the role of clinical professionals on the board.
These changes have put much pressure on hospital boards to increase the number of independent directors, and many are responding positively to that advancement. Many studies conducted between 1998 and 2008 don’t show links between board composition, leadership structure and financial performance related to the CEO and board chair being separate positions. In spite of this, many hospitals are separating the positions to avoid potential conflicts of interest.
Hospitals are notorious for having larger numbers on their boards of directors. A 2009 survey indicated that typical nonprofit hospital boards had between 14 and 17 directors. The average board had 12 independent directors, with an average of two physicians, serving on the board.
A 2011 survey showed that 80% of hospital board directors were non-healthcare providers, 14% were physicians and the remaining 6% were nurses. There has only been a slight change in the number of physicians serving on hospital boards in recent years. Of the 14 CEOs and 57 board directors who participated in the survey, all agreed that their boards could benefit from additional clinical expertise.
When hospital boards of directors appoint more than 19 members to the board, it can become unwieldy and make it difficult for the board to have a reasonable sense of control. Large numbers can easily outweigh any pros of having more experts on the board.
How to Approach Board Composition for Hospital Boards of Directors
Hospital boards typically choose board directors from among local business leaders, lawyers, government leaders, private-sector leaders, physicians and nurses.
It would be impossible for hospital boards to make wise and prudent decisions without the expertise with respect to continuous quality improvement and higher quality of care that physicians and nurses can provide. Nurses spend more time with patients than any other healthcare providers, so their knowledge and expertise is highly valued from a patient care perspective.
The question is not really one of whether doctors and nurses should serve as board directors, but of what the proper balance should be. The quality of patient care is merely one aspect of total board governance.
The largest concern over having physicians and nurses on a hospital board is ensuring that they have no conflicts of interest. Public hospital boards also need to be concerned about government regulations that prevent them from having too many physicians and nurses on their boards. The Sarbanes-Oxley Act requires boards of public hospitals to have the majority of board directors be independent.
While physicians and nurses provide expertise in patient care, most lack the proper knowledge and expertise in leadership and business skills to fully participate in discussions at the board level. There is some conjecture that hospital boards may find a happy medium in board composition by seeking board candidates from the cadre of retired physicians, physicians outside their own health systems or other physicians who work for corporations.
As more physicians and nurses gain valuable board experience, it will increase the public and shareholder trust of hospital boards while enhancing board deliberations.
Some studies have shown that boards need to take a deeper-dive perspective on balancing the numbers of independent and internal board directors. Hospital boards that have a majority of independent directors tend to perform well when the same CEO has held the position for a long period. Hospital boards that have a majority of independent directors that pursue cost-focused strategies over innovation also tend to be higher performing.
Certain situations may make it doubtful that a largely independent board may be successful. Hospitals that are start-ups or that have newly appointed management may be better served when there are more clinical staff members on the board. It’s not enough to merely appoint physicians and nurses to the board. The degree of participation by clinical staff also affects the board’s performance. Entrepreneurs who have a lax approach to board business are also served better by having more clinical professionals on the board.
By contrast, largely independent boards tend to perform well when board directors have held their positions for a long time. They’re more likely to initiate restructuring and to strive for improvements in operational performance, especially during or after times of crisis.
The Right Hospital Board Composition Leads to Good Governance
The enhanced focus on good governance principles has encouraged hospital boards to look at the benefits that a diverse board can provide, particularly as it pertains to gender. Hospitals with female CEOs and board directors show improved performance from all-male-led hospitals.
Composing the highest-quality board of directors for a hospital board requires tapping the widest possible talent pool. Diverse boards collectively understand stakeholders better and prevent groupthink in the boardroom.
It’s clear that there’s currently no single right way to approach hospital board composition, except that boards should consider the diversity, tenure and quality of people serving on their board, and whether the board is performing well.
Regardless of their composition, hospital boards can benefit greatly by using tools that support good governance, such as board management software tools. Board portal software streamlines many of the basic board activities to allow physicians and nurses to get up-to-speed on board duties as soon as possible. Board portals make it easier for busy clinical professionals to participate in board work because it allows them to work on board business around-the-clock using a pc or mobile device. Diligent Boards provides a platform that provides the high-level security that boards need to ensure accountability and good governance practices.
It’s important to get hospital board composition right. It’s even more important to provide board directors with the proper tools for the most successful, high-performing hospital boards.