A word to CEOs: Anticipate the anxiety of your board

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Directors of hospitals and health systems have a right — and perhaps also an obligation — to be anxious about current economic and public health developments. It is an anxiety that senior executive leadership should recognize, and try to address proactively, for the sake of effective board/management relationships.

After experiencing the intense governance challenges associated with the initial COVID-19 outbreak in the spring, hospital and health system directors could be excused if they thought that the days of heavy engagement with management were over; that they could return to the more traditional aspects of the board agenda. In other words, a sense that things were returning somewhat back to normal, and that their level of board service could similarly return back to normal (to the extent "normal" applies to any aspect of the healthcare delivery system today).

But recent headlines suggest otherwise: "Coronavirus Deaths Jump in Florida, Texas and California"; "U.S. Sees Deadliest Day of Summer"; Doctors, Community Groups Struggle to Tackle Covid 19 Racial Disparities"; "How a Rush to Reopen Led L.A. County to a Health Crisis"; "Fearing a 'Twindemic,' Health Experts Push Urgently for Flu Shots", "Five years of growth vanishes in months"; "COVID-19 Job Losses Threaten Insurance Coverage and Access to Reproductive Health Care for Millions".

When these headlines are what they're reading, healthcare directors may understandably become apprehensive that the coronavirus pandemic will continue for the foreseeable future. Indeed, the continuing presence of the pandemic threatens to jeopardize the progress of healthcare companies working to attain business resiliency, and the return of the economy to a pre-crisis stage.

Negativism? Sure, but for many healthcare boards, there still remains no strong basis for optimism. These are potentially monumental issues that go to the heart of the board's oversight obligations. They also beg the question of what is properly the board's responsibility should the "black swan" threaten to nest for awhile longer.

Let's take a step back for a second. As most healthcare leaders know, a fundamental board responsibility is to exercise oversight of management's performance. In normal circumstances, that responsibility involves monitoring the day-to-day business operations of the company, with special focus on the CEO and senior management. This responsibility incorporates a respectful deference to management.

That's a deference that, for most healthcare boards, was fully extended during the crucial days of March through May, when their institutions and companies were at best treading water. Directors sensibly took a step back and, while maintaining proper oversight, relied heavily on the expertise of the senior leadership team to guide the organization through an upheaval of generational proportions.

And that level of engagement has continued as most healthcare companies have moved beyond crisis management into implementation of business resiliency plans. These are plans which, while normally requested and overseen by governance, are intended to be implemented by management. The board's responsibility is to monitor the roll-out of the plan and to make sure that the plan is consistent with director goals and expectations.

Under normal circumstances, this gradual escalation of board involvement would not significantly increase unless the organization was contemplating some major change in mission or purpose, or contemplating a major "re-imagination" of its approach to the market. For most healthcare companies, that's not happening now. Their directors are primarily focused on helping the company get back on its feet; on making sure that management's resiliency strategies are supported, incentivized and refreshed on a frequent basis.

So why would the board veer from this approach now? If the leadership team is effectively guiding the company back to stability, why play with the board/management dynamic? There are at least five reasons why, and management should anticipate each of them.

First is the fact that corporate directors have been exposed over the last six months to an incredible amount of external governance commentary of all stripes, on the importance of engagement and crisis management. They're ultra-aware of their responsibilities; they think about them in their sleep.

Second is the extent to which the board interprets the latest headlines as a series of yellow warning flags, indicating the potential for future concern and crisis. Keep in mind that these are the circumstances in which the seeds of director liability are planted.

Third is the extent to which the particular yellow flags implicate technical, financial or quality of care issues with which directors are unfamiliar and would need additional briefing from management in order to evaluate.

Fourth is the fact that some of the yellow flags (e.g., relevant global economic and political trends) come from outside the healthcare industry. Management may not be the best source of information about them.

Fifth is that the board's judgment on whether these constitute a trend, or something to indeed be concerned about, may actually be right. The board's perspective might just be a little sharper, a little fresher, a little broader on big picture issues than that of a management team that has essentially been working 24/7 for the last six months.

This extra attention shouldn't be viewed by management as a threat; it isn't about the board sticking its nose into management affairs and it's not about the need to give management a wide berth. In most cases, it's about an attentive board asking critical questions concerning business sustainability in the context of a pandemic/recession with no definite end in sight.

But that extra attention can "go overboard" if not controlled or guided by board leadership. No matter how sincere a board may be, increased levels of engagement with management carry the risk of distracting management from its primary responsibilities. Indeed, the National Association of Corporate Directors has identified management fatigue as a specific concern arising from the unrelenting demands of the pandemic.

This is one of those situations in which both the board, and management, have a legitimate point. The board has a right to evaluate what it perceives to be the warning signs of increased organizational risk, especially under the current circumstances. Management, on the other hand, has a right to be concerned that increased board engagement could prove to be a significant distraction to its important efforts.

Under the circumstances, perhaps the best approach is for executive management to anticipate the board's increased crisis-related sensitivity and to reach out with suggestions on how best to address it; i.e., though clarification, greater information flow, increased board support, etc. What risks are legitimate and which are speculative? What are management's risk management plans and contingencies? How is the resiliency planning proceeding?

The board chair, working with the CEO, can team to channel the board's reasonable interest and concern into a positive exercise of governance/management dialogue.

Michael W. Peregrine, a partner at the law firm of McDermott Will & Emery, advises corporations, officers, and directors on matters relating to corporate governance, fiduciary duties, and officer and director liability issues. He is outside governance counsel to many prominent  hospitals and health systems, voluntary health organizations, social service agencies and health insurance companies. His views do not necessarily reflect the views of the firm or its clients.

 

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