Abstract: President Harry S. Truman had a sign on his desk that read “The buck stops here.” It was his reminder that the ultimate decision-making authority rested in his office. President Truman’s sign should sit on the board of directors’ conference table in most healthcare entities.
As a national expert on healthcare governance, Sara Larch is well suited to guide us through the world of selection and service of members of boards of directors. Whether you aspire to sit on a board or already a member, this episode of SoundPractice will be valuable to you. Ms. Larch helps us understand what characteristics are look for in potential board members. She lists questions candidates should ask before agreeing to serve. Ms. Larch walks us through new member orientation and techniques to become an effective member of the board. This episode of SoundPractice is a “how to,” manual for members of board of directors.
Key Words: Board of Directors, governance, healthcare policy, diversity, women executives, financial management, physicians, executive, leadership
Sara Larch, FACMPE, is a healthcare executive, consultant, and nationally recognized expert on physician governance. From serving as a practice administrator to a managing director of life science and healthcare at Deloitte, Ms. Larch has had vast experience in healthcare administration. Welcome to SoundPractice!
This is a podcast of the American Association for Physician Leadership, and the AAPL often receives questions from individuals how to be appointed to a board of directors. What are boards of directors looking for in prospective directors?
It does depend on the specific board, and it does depend on what kind of board, but let's assume for a few minutes that we're going to talk about a healthcare board and that it's a not for profit organization. I'll also give you examples from advisory boards or public and private or private equity boards too, because in some areas those things are very similar, and in some they're very different. So, I'll mention that as we go. What are organizations looking for in a board candidate? Obviously, an accomplished professional. They're going to look at your experiences, they're going to look at what knowledge you have, both financial and clinical and advisory. If a physician is coming on a board, they often look specifically to the physician to be the clinical quality expert. The physician may even become an educator for the board.
They are looking for someone who has experience with strategic thinking. They are looking for someone who can set their personal interests at the door. They are looking for someone who is committed to the organization and the organization's mission. And if it's a physician, I think it's really the reputation of the physician. Are you well-regarded by your peers? That certainly plays a role. Diversity is a big topic right now for boards, and I think that boards are looking for a mix of experiences and a mix of points of view. So right now, I think that women and people of color have more opportunities to be considered than maybe they have had in the past. And that's a good thing. Here’s another aspect that they are looking for – are you really willing to do the work? You have to prepare; you have to be ready.
The last thing I would mention is, depending on the kind of board it is, there are times when it's required of you to fundraise. That is a traditional and classic board perspective. It may be the sort of board who expects members to bring wealth, bring work, bring wisdom. And depending on what kind of board you're considering; they may want all three of those.
Great. So, you brought up some good characteristics of things that boards would look for in prospective candidates. What type of activities specifically should individuals undertake to prepare to join a board of directors?
I think that finance is a big topic on boards, and let’s be clear on this -- not all of us have been CFOs. I have not been a CFO, but it hasn't hindered my ability to be on boards. However, they want you to know how to read financial statements and understand the economics of healthcare, if that's the industry where you're looking for a board position in. You want to prepare and to make sure you're comfortable in the finance world. You will be questioned about that as you're considered. Another suggestion is to reach out and meet with the CEO and/or the board chair individually. It is important to talk about their goals and what they are looking for, specifically, in a board member.
Do your research. Read the strategic plan. Almost all strategic plans are available on the web these days. I shouldn't say all, but let's say not-for-profit boards, the strategic plan is usually out there. You can read who their main competitors are. You can get smart about that. As far as other preparation, make sure you have a social media presence. My advice is to make sure you're on LinkedIn, that you have a profile, that the listing profiles kinds of experiences that you want to highlight. A classic CV can tell much about your accomplishments, but a complete LinkedIn profile and bio profile can reveal much about your value to an organization.
I had the opportunity to attend a board preparation course. Different associations have courses, and they have articles and I really encourage people to take advantage of that. I attended one of those, and one of the things I learned is that you must translate your bio or your LinkedIn or your resume to the “language” of being on the board. To translate your bio into a document that shows your capabilities of doing certain things. You may be interested in a board that has a certain niche. I've served on a board for an animal shelter, which is completely off topic from healthcare, but they were looking at different capabilities than what a healthcare organization would want from a board member. So, depending on the board you're pursuing, you may want to emphasize certain experiences or interests that align with the organization strategy. These are some of the ways I'd prepare.
I think the social media comment is very astute and interesting. Would it not also be advisable to follow the social media of the organization?
Absolutely. Great point, absolutely. Just learn everything you can about that organization. Talk to as many people as you can. I mean, networking is a powerful thing in all the ways that we pursue our lives, so yes, social media of all kinds would be excellent.
Let’s say that the strategy that you’ve just laid out is successful and now you're considering whether to join the board. What are questions that a potential director should ask before he or she accepts a position on a board?
This is a great question. Sometimes we get so excited that we're invited to a board that we just say, “yes.” Sometimes you need to stop and ask questions. I'll mention a couple. Some of these would be basic for any board conversation, but you might want to ask some of these questions early in the process. Then as they get more interested in you, you could probe a bit more. Clearly, you want to ask about the strategic plan. Do they have one? To some of us it might be a surprise that not everyone has a plan, but that is true. Not every organization has one. And if they don't have one, you want to find out if they plan on creating one, in that year. You do want to ask about fundraising requirements as a responsibility of the board member. Do they expect you to write a check? Do they expect you to go find friends and help with fundraising?
How often does the board meet? Many times, it is monthly and quarterly, but if you get asked to be on a committee, there'll be more of a commitment. Just make sure that you're at the right point in your career that you can manage your time and be available as much as they require. Another thing is risk. For yourself. You will have financial or a fiduciary responsibility being on a board, and so you need to ask them about D&O insurance or directors’ and officers’ insurance. Most boards have, but you would never want to go on a board if they didn’t have such. You will want to know about the insurance coverage upfront, to protect your personal liability should something happen.
I wouldn't lead with this question, but if it's getting serious, there should be an inquiry about whether the organization has any pending litigation. I am on a board committee for my local community hospital right now. I’m not on the board, but I volunteered to be on a board committee. (A great way to get onto boards is to volunteer to help in different ways.) But I didn't ask the question about litigation. Good news was there's nothing pending right now, but they had a very, very big litigation about five years ago. I thought about how that would have impacted the board that year, that would have been a big deal.
I would also ask about the mechanics of working on the board. Do they have a board portal? Do they have an electronic way to deliver materials? More and more boards are doing this, and it is the preferred way to operate. In the olden days, just even 10 or 20 years ago, you would get a big board book, a big binder of things every time there was a meeting. Now, to have it electronically is easier. Having a portal or digital communication shows you if the board operates efficiently and if they are tech savvy? You want to know the personality of the organization you’ll be spending time with – these questions will give you some hints on how they are doing overall.
That’s a great tip. It gets to the infrastructure in place to support the board. That's a great tip. What should go into a new board's member's orientation or education?
They should be asking you to sign a conflict-of-interest form. They should ask you to sign a confidentiality form as well as the D&O insurance that we've already mentioned. They will also give you a tour of their company and an explanation about the facilities. They're going to give you the org chart and the organizational overview. I would encourage you to get an introduction to the executive management, but you may need to ask for that. You’ll need to build a relationship with the executives of that organization as your role as a board member. The executive staff manage the day-to-day business, but there is a relationship. Having some insight into who those people are should be part of an orientation.
Let's talk about the conflict of interest that you just raised. There would be documentation around that. What are some potential conflicts of interest for physicians who serve upon a hospital board of directors? How can those conflicts be avoided?
I'm going to say first that I don't think all conflicts can be avoided. Some just are, and it might not be the right match because of personal circumstances. I'll give you a couple examples here in a minute, but I think the most important thing about conflicts is identify them early. Stop and think about if there are any. You want to get all of that out before selection even gets close to happening. So that's a great question because some people might not stop to think they even have a conflict. When I think about conflicts, they are mainly financial. If it's a not-for-profit organization the IRS has regulations about having independent directors. They can only have financial transactions with you up to a certain dollar amount. I'm not going to quote the certain dollar amount because those things can change.
For instance, concerning physicians, a good example is when physicians who are employed by a hospital or a healthcare organization are not on that board because they're employed by the organization. There's a financial relationship and it might get a little complicated. Now I would point out though that there are some hospital and healthcare systems that are comfortable with employed physicians, especially like a leadership of the physician enterprise or the medical group as an ex officio, or kind of like a community member where they'd be non-voting. So, it'd be more advisory role, but you'd be at all the board meetings, and you might even be a representative role, representing that medical group. You need to understand that.
If you're a physician in the community, and you're not employed by that entity, you're in a private group, here’s what you need to think about. Are there any business transactions? One example I can bring up is maybe you're a woman applicant and you don't have any business transactions, but your husband happens to be a physician too and he does call in the ED and gets X amount of money from the organization. That could be a conflict. Or you're in a private practice. There are two partners in the practice and you're going to apply for the board position, but maybe your partner is chief of Ob/Gyn at the hospital and gets a stipend. It may not be a lot of money, or it may be a lot of money and that may be a conflict. These are the situations that need to be considered.
If you are involved with a competitor, it is going to be another issue. Perhaps you do most of your business at this hospital, but you're now taking call at the major competitor in town. Everybody knows these things. It is going to come up. So just be thoughtful about that.
This is why some physicians wait until they're a little bit further into their career before they apply to boards. Early in their career, you have relationships with a lot of different hospitals, a lot of different healthcare organizations. On occasion it is just a bit too complex to sort out. Most of these things are common sense. When you get the form to fill out, the potential conflicts will be identified as you fill out the form.
What about standard parameters for board size, time required for board members, numbers of committees to sit on? Can you set some expectations for us?
Yes. For the size of the board, usually it is 8-12 members. I've seen larger boards, however. I researched the national average, and the average corporate board has 9.2 members. But they could be as small as 3 and as large as 31. But I think that the 8 to 12 is a good range to consider. Sometimes they have additional community members or advisors and sometimes they have ex- officio members. So sometimes those additions increase the number overall.
As far as time required, you're going to have a monthly meeting and/or a quarterly meeting. You may have an annual retreat. Now in this past year of doing lots of things on Zoom, it's not that difficult. Sometimes you may have to fly to it depending on what kind of board you're on. So, you can consider meeting time, maybe travel time, certainly preparation time. And then committees, I think a lot of board members end up being on at least one committee. Then you kind of have a duplicate set of meetings and prep because you've got some pretty key committees that require X number of people on them.
The time commitment is not too bad in a not-for-profit world. If you think about public boards where more of your time is required, you are called upon more for participation and you actually have to work in between meetings, those boards are more likely to pay you for your time. There may be a consideration of stock options. That would be a usual practice in a public board. For a not-for profit board that is usually not the case, you're usually not compensated. It's more about the mission and your passion for that organization and your interest in helping them.
Fair enough. Let's stick with compensation for just a moment. Do you believe that directors should be compensated for their service?
If you're on a board, you'd love to be compensated, so that's just natural. Depending on the kind of board, there are rules, and the board doesn't really get a lot of choice about some of these things. For a not-for-profit board, such as a hospital or health system or your specialty society, they usually do not compensate. They may pay your travel if the meeting is national, they may provide some perks as part of your leadership role, but you don't usually get actual compensation for not-for-profit.
For advisory boards, this is a great way to entree into very large organizations. Physicians can be on clinical advisory boards, they can be on scientific advisory boards, their credentials allow them to go into things that I would never be qualified for. So, for those roles, advisory boards can be attached to all kinds of different companies. In some of those cases, there can be stipends or stock options, depending on what kind of company. They're looking, in that case, more for deep expertise in a certain topic like around life sciences; around a certain specialty. So those kinds of credentials make you eligible. And they're looking for those people, right? I mentioned public boards a little bit. I would mention they usually use a recruiter for their whole applicant process, whereas your local hospital doesn't usually use a recruiter. They've got a process for identifying and inviting new board members.
As I mentioned, for profit companies have more time required, but there usually is compensation. That's built into the company's governance process. It's budgeted that way. And you can make some serious money on public boards, but they're also harder to get. So sometimes if you're thinking about board service as a new thing, you might look at getting on other kinds of boards before you get on a public board, because you'll look more attractive to a public board, be more competitive. On a private or a private equity board, it's kind of all over the map as far as compensation. Think about them as kind of the same kind of schedule, quarterly meetings, monthly meetings, and things like that, but some of these entities are new companies, really new companies. They're really needing you to have arms and legs in there helping them figure out the business and give your brain your knowledge over to them. What often will happen is there isn't any compensation, but if all goes well, then you end up being eligible for stock options later down the process.
Especially in healthcare, there's a lot of private equity these days. Think about all the healthcare organizations out there that would be very interested in having a physician involved. So that would be something to look at. Sometimes recruiters are used for those, but sometimes it is just relationships.
Let me mention here that if you have friends on a board, they're a great source of referral. So, tell your friends. I'm interested in looking at board service. I have interest in these areas. Right now, I tell people I'm interested in all healthcare topics, and I love dogs. So just whatever your niche is, there’s likely a board. It could be a sport. It doesn't have to be your profession. You have leadership opportunities to contribute in different ways.
Let's say that we've made it, we've been selected, we've asked our questions and we're pleased with the answer and now we are a newly minted member of a board. Can you give me some tips for new directors on boards? What should a new director, what should he or she be doing to be a great member of that board?
Well, the first thing that many of us need to hear, including myself, is to listen. As a new board member, it is important to learn the board issues, the board culture, and get smart. Read all the materials that you're sent, stay current on your industry and future trends. They expect you to know everything. You're from healthcare and you are a physician. I come from the medical practice physician enterprise world. They do expect me to know everything about it. If there’s a meeting and yesterday in the paper, there was something about healthcare – they are going to expect me to know about it. Be at your best and be prepared. Always think, "Am I prepared? Did I do my homework and read all my materials? Am I current? Are there topics on there that I don't understand?”
I mentioned the local community hospital finance committee. When I attended my first meeting, there was a lot in there about the hospital's investments, their foundation, and things like that. I did not know that much about these details, so I called one of the finance team members in the hospital to ask questions ahead of time. And they were delighted to get those questions. So be prepared.
Once you are on the board, create relationships with every person on the board. You need to get to know each other. You're going to be learning from each other. Each member comes with their own expertise. Most people, by the time they're getting on boards, they already have plenty of experience working with people. Working with people different than themselves. They have an understanding how to handle conflict. Although there will be a board chair who is handling certain things, remember that just like anything else we've all done, is the more the people in the room, the better the interaction is.
Even though I said listen, at the beginning, also bring your questions. Sometimes new board members were brought on for a reason, that they have a certain knowledge that somebody else doesn't have. They want you to ask questions. Attend a meeting or two before speaking so you can learn what's going on. Then ask your questions.
As a new board member, don't feel pushed to a decision when you feel you don’t have enough understanding or data. Let them know, "I really don't understand this. Can we talk about this some more? " Because the decisions you're making are deciding the strategies for the organization, you want to be thoughtful about your decisions. And you can't possibly know every topic when you're new to the board. You just can't.
Great advice from Sara Larch. Thank you so much for being a guest on SoundPractice.
Sara Larch brings 30+ years of industry experience in large physician groups in Integrated Delivery Systems and Academic Medical Centers, and eight years at Deloitte Consulting as Managing Director and National Leader of the Physician Enterprise (PE) practice. She has C-suite experience as COO of University of Maryland’s 900-physician enterprise and as VP of Inova Health System. In both these roles, she led teams of physicians and other leaders to define the optimized operating model. Sara is a Fellow in the American College of Medical Practice Executives and received the Harry Harwick Lifetime Achievement Award from the Medical Group Management Association (MGMA). Sara has years of board experience including Board Chair of a 50,000-member health care association, Advisory board member of a national women organization, and Board member of an animal shelter. She was recently appointed to a community hospital Board Finance Committee. Sara holds a BA in Public Administration from Miami University in Oxford, Ohio and a MSHA from Virginia Commonwealth University in Richmond, VA.