Hospital boards are often risk-averse. Here's why they need to embrace it — and how

Healthcare has never had a particularly high risk tolerance. Communities depend on their hospitals, health systems and clinics to always be accessible and provide high-quality care, despite economic turbulence or frustrating policies and regulations. Because of this, strategy has traditionally been centered on financial and operational conservatism, according to Andrew Chastain, managing partner of the healthcare practice at executive search firm Witt/Kieffer.

However, since the advent of the Affordable Care Act and as providers continue to seek ways to rein in costs, establish efficiencies and leverage new revenue sources, organizations are increasingly realizing the need to pursue more disruptive, aggressive strategies, Mr. Chastain wrote in a recent report published in Directors & Boards magazine. This may come in the form of mergers and acquisitions, strategic partnerships or even new creative advertising campaigns. 

This means taking risk — something hospital and health system boards are generally averse to. After all, it is the board's duty to ensure stability and accountability for the organization. However, in the current healthcare climate, boards must "get in tune with their CEOs and executives and play a more engaged governance role," wrote Mr. Chastain. "To solve embedded historical challenges, boards must foster an environment where they communicate with and expect leadership to take calculated risks and experiment without fear of undue reprisal."

This may come as a challenge, as many board members may be unfamiliar with how risk is formally assessed, incorporated and documented. Directors need time to develop this knowledge and seek guidance from the executive team.

Here are five steps boards can take to cultivate a greater aptitude for risk taking, according to Mr. Chastain.

1. Create a structure that clarifies the board's role on risk, and work with the management team to define responsibilities.

2. Recruit new board members with risk-related expertise.

3. Educate board members on risk through training, mentoring, consulting, engagement with the executive team and frequent discussion of current market trends and conditions.

4. Keep risk on the agenda at every meeting and engage with the executive team regularly so risk becomes embedded in governance practices.

5. Share information (as appropriate) and the logic behind new initiatives with stakeholders to increase buy-in and mitigate shock from surprises.

"I do not see board functions changing dramatically, nor should they," wrote Mr. Chastain. "Rather, it is the scope and sophistication of all governance matters that are changing, and thus it is incumbent upon boards to learn to ask better, more insightful questions of each other and of executives. This includes questions surrounding risk."

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