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Obligations of the BOD
- 1. Duty of Care
- 2. Duty of Loyalty
- 3. Duty of Disclosure
- 4. Business Judgement Rule
- 5. Confidentiality
Duty of Loyalty
- 1. Conduct must be in the best interest of org
- 2. Disclose conflicts of interests
- 3. Reveal any related business opportunities (directly related to org)
- 4. Common issue in NFP
Duty of Care
- 1. Directors exercise appropriate diligence in good faith to become informed in making decisions and overseeing management.
- 2. Attend and actively engage in meetings
- 3. Req management to provide adequate reports concerning org operations
- 4. Inquire about any potential problems that could arise - address problems
Duty of Disclosure
- Directors must inform fellow directors and management of information known to the director that is material to corporate decisions.
- Put it on the table.
Business Judgement Rule
- 1. Act in an informed and good faith basis
- 2. Presumes director believed the decision was the best for the org.
- 3. Protects a disinterested director from personal liability if the decision while the director approved is a mistake.
- 1. Must keep confidential all matters involving the org. that have not been disclosed to public.
- 2. Common sense rule
- 3. Duty of Obedience - obey the law (bylaws, state laws - follow own rules)
- NFP directors can cause org to lose NFP status.
- Has caused directors to be liable - not to be messed with
- Section 49.58 IRS Code
- Ultimate loss
- Pick up taxes from every year of non-compliance
- An individual who in a position to exercise substantial influence over the org.
- Director of Finance
- board Director
Actions resulting in Intermediate Sanctions
- Paying unreasonable compensation (tax penalties)
- Paying revenue based compensation
- Participating in bargain sales
- 10% excess benefit paid + additional penalties
5 Managerial Functions of the Governing Board
- 1. Appoint or terminate CEO
- 2. Establish Mission, Vision, and Values
- 3. Approve Strategic plan(long range plans) and annual budget
- 4. Ensure Quality - board ultimately responsible (Approve Med Staff Bylaws.
- 5. Monitor perf. against plan and budgets - rigorous board/committee review
- Board responsible for self - annual self eval
- Usually 3 years - If elected can have a 3 yr term tacked on
- Limits can remove poorly functioning members
- however also removes highly functioning members too
Common Board committees (make recommendations to complete board)
- 1. Executive
- 2. Strategic Planning
- 3. Finance
- 4. Audit
- 5. Quality
- 6. Governance
- Made up of board officers (Chair, Vice Chair, Sec, Treasure, past chair)
- Handles issues such as CEO performance appraisals
- Can make decisions alone (large boards)
- Meets often (1/month)
- Deals with medical Staff
Strategic Planning committee
- Focused on future of org
- Resp. for program and building planning
- Plans - 3-5 years
- Monitors plan& progress (periodic review of progress)
- Focus- financial health of org
- Duties include: budget review, approval of financing mechanisms, investment philosophy (Bond offering/ Lines of credit)
- Resp. analyzing quality of care of facility
- Must be active in obtaining quality data reports and benchmarks against other facilities
- Must be diligent in staying ahead of quality benchmarks recommended by outside orgs
- Works with outside auditors to ensure financial statements are accurate
- Separate from finance committee
- AKA nominating committee
- Oversees member recruitment, training, cont. ed., and self evaluation
- Works for board
- Organizes board and facilitates work
- Elected by board
- Term -3-5 years
- Need some limits
Appointing committee members
- New members appt by chair with concurrence of exec. committee
- Duties overlap
- Cont Ed of board
- Changing nature of objectives
- Chair - ex oficio 'by virtue of the office'
- i.e. Pres of medical staff - ex ficio member of board - no vote
Medical Staff Board Member
- Med Staff Reps - elected by med staff
- Some reps do NOT have votes (some can)
- Must include some MDs on the board
- MDs selected w same criteria of other board members
- May give opinions
- Only elected MDs are voice of med staff
Rules of CEO in Governance
- Assures board fully informed to make decisions
- Provide info timely manner
- Never surprise the board - give heads up on potentially neg info
- Help recruit new members (active role in making suggestions to gov. committee)
- Help board stay involved in governance and NOT management(fine line between gov info and mgt info)
- Actuate annual board retreat
- Review Mission, Vision, and Values
- Review Strategic plan and progress of plan
- Provide governance education
- Invite non members to hear new opinions
Sarbanes-Oxley Act of 2002
- Compliance mandatory
- Mostly for profit
- Mgt must file internal control report
- External auditors certify report
- Exec certification of financials (CEO/CFO must sign off on fin statements)
- Audit committee independent of finance committee
- Regulation of financial practice and corporate governance.
Sarbanes-Oxley Act of 2002 (cont)
- Best Practice
- 'Financial expert on audit committee (CPA/accountant - at least 11 person on audit committee)
- Must disclose audit fees
- Restricts non audit consulting services from auditors
- Imposes criminal penalties
- Proposals for director selection process by shareholders
Sarbanes-Oxley Act Of 2002 (SOX)
- Protect investors from the possibility of fraudulent accounting activities by corporations.
- (SOX) mandated strict reforms to improve financial disclosures from corporations and prevent accounting fraud.
- SOX enacted in response toscandals in the early 2000s, such as Enron, Tyco, and WorldCom shook investor confidence in financial statements and required an overhaul of regulatory standards.
Implications for NFP
- S-OX - best practice
- IRS going after conflict of interest
- Major donors asking governance questions
5 Major Areas of S-OX for NFP
- 1. Audit committee
- 2. Supervision of external auditors
- 3. Create audit committee charter and code of ethics
- 4. Executive certification of financials
- 5. Est. system of internal controls
- a) periodic sessions - CEO excluded
- b) Board discussing CEO perf. and compensation
- Executive sessions - free exchange
CEO Role (5)
- 1. Comm. effectively and frequently with BOD
- 2. Avoid springing info on board
- 3. Rec that serve at pleasure of the board
- 4. Be visionary and inspire board with vision
- 5. Take calculated risks
- Mechanism to ensure timely flow of 'need to know' info
- Board Meeting Agenda - Most ESSENTIAL tool of communication
Board Meeting Agenda
- Agenda must meet following criteria
- a) Discuss agenda with chair B4 finalizing?
- b) Board receive material sufficiently before meeting to allow for thorough review? (Ideally 1 week in advance)
- c) Agenda point to items that require board action?
- d) If issues board not addressed on agenda, are materials that provide sufficient and balanced background on the issues enclosed?
- e) Are financials timely, accurate, understandable?
- f) Does packet contain reports stared months or even years ago that are no longer relevant?
- g) Are all enclosures clearly written and to the point?
- Key not to overwhelm or underwhelm board with info.
Enclosures (board packets)
- Quarterly or annual report of KFI and quality indicators of org perf. in packets
- (JCAHO requires that board be involved in improving perf.
Frequency of meeting
- Held no more than 6 times annually
- (If more often - revisit process for getting board work done)
- May not have effectively delegated work to committees and subcomm. and are asking board to consider issues that can be appropriately handled elsewhere
Day to day communications
- Informal communication as impt as formal
- Stay connected with staff (including medical)
- Critical to effectiveness as conduit between org and board
- Need to be accessible and approachable
- Present self as staff's biggest advocate (but not to diminish responsibilities to the org
Assessment of CEO
- 360 degree feedback
- Process where CEO, board and CEO mgt team assess leadership effectiveness and communication style
Informal communication with board
- Take time to talk with board outside of meetings
- 1 on 1 meetings once a year with each member extremely beneficial
- Board members committ to org because believe in it - they need to know that CEO cares as much
- Make time for board chair - routinely
- time to review board agenda B4 each meeting
- Be accessible every minute, day or night
No surprise school of leadership
- Boards job is to set policy NOT become involved in management
- Labor dispute - example of info want to think long and hard about NOT sharing with board
Questions to ask to help determine if issue needs to be shared with board
- Does issue have potential to be explosive?
- Is board likely to learn from others?
- Will effective resolution of issue possibly require policy changes?
- Has issue surfaced before and has it benefited from board attention in past?
- Is CEO reluctant to bring issue to boards attention bc the fact that it is an issue may reflect poorly on CEO
Who's the boss
- CEO serves at the boards pleasure
- Can depend on boards support bc board members trust CEO and believe that CEO wants to do right thing
- Cross that line and lose sight of role and dynamics change quickly
- CEO - required to be visionary
- Responsibility to lead into future bc firsthand understanding of HC marketplace
- Responsibility to anticipate the future
- Keep org on steady course
Responsibilities of CEO
- Articulate vision that board can embrace and staff can work towards
- No Schizophrenic leadership - vision constantly fluctuates breeds confusion and undermines others confidence
Responsibilities of CEO cont
- Best position to propose new direction
- As CEO - understand hc and intricacies
- & know strengths and weaknesses of org
- 'Big picture' understanding of org
- With knowledge comes responsibility - to id new initiative that will help fortify the org in future
- Has employment contract - insurance policy for risk taking
- Flip side - no risk - greater peril
- Status quo - org may be fine at moment but won't be positioned well in future
- Not taking risks - riskier than taking risks
?s help determine orgs readiness for risk taking
- 1. Aware of local, regional or national trends have potential to affect org?
- 2. How entrenched is org in its current way of doing things? Flexible enough to respond quickly?
- 3. What ways is org vulnerable or potentially vulnerable? what actions take to fortify position?
- 4. Should the CEO present issue and potential sol for board consideration.
- If difficulty answering last question requires soul searching
5 universal truths of board chairs
- 1. Lead the board
- 2. Cultivate effective working relationship with CEO
- 3. Mentor other board members
- 4. Be decisive and move board to action
- 5. Walk strt and narrow