5 Steps Toward Board Efficiency

Since the behavior modelled by the board of directors of your healthcare organization becomes the example for the rest of the organization, following are five steps your board can make to ensure that your nonprofit hospital or health system board is operating in a way that will drive clinical and financial discipline at all levels.

Editor's note: This opinion piece was written by Rulon F. Stacey, PhD, FACHE, who served as the former CEO of Poudre Valley Health System, the 2008 recipient of the Malcolm Baldrige National Quality Award and Honorary Member, as well as the former chair of the American College of Healthcare Executives. Dr. Stacey is currently the director of graduate programs in health administration at University of Colorado Denver, a member of UCD’s Health Administration Research Consortium, and a Partner for Guidehouse Consulting. 

In the post-COVID-19 “new normal,” hospitals and health systems will no longer have the luxury of repeating mistakes of the past. In a 2021 study by the University of Colorado Denver’s Health Administration Research Consortium, healthcare leaders noted that as the industry was pushed to the very edge of sustainability over the prior 18 months, it became increasingly clear that there was a direct correlation between organizational discipline and both quality and financial improvement. It seems clear that success in the organizational success in the future will accrue to hospitals and health systems who can force discipline into every part of their organization. It is equally clear that patients will be the ultimate beneficiary. 

Pictured: Rulon F. Stacey, PhD, FACHE. Photo courtesy of Rulon Stacey.

Since the behavior modelled by the board of directors of your healthcare organization becomes the example for the rest of the organization, following are five steps your board can make to ensure that your nonprofit hospital or health system board is operating in a way that will drive clinical and financial discipline at all levels. It is important to note that this is intended for nonprofit boards.

1. Board Size

As the need for nonprofit boards to engage their communities became of increasing interest over the past half-century, many boards addressed this issue by simply growing. While increasing the number of board seats often presented to the public that the board was responding to community need, that process rarely lead to organizational discipline. The reason is because as the size of a board increases, human tendency is to avoid conflict and seek for solutions that are, well, vanilla. And, vanilla never leads to discipline. 

To address the issue of board size I have created a representation in Figure 1 that shows how the process works:

As shown in Figure 1, if a board is too small, they simply can’t function effectively. One personality eventually dominates and with too few board members the board can be disproportionately swayed by one or two individuals. However, as a board grows and more voices are included, the board has an opportunity to learn from various and diverse backgrounds, which always leads to increased board efficiency.

At the right size, a board can have an appropriate representation of all the diverse skills and backgrounds needed to make the board work optimally. However, as the board continues to grow, listening to all voices becomes functionally more difficult. At some point, the board becomes so large that having a meaningful discussion on any relevant topic simply can’t happen. For example, working collaboratively to build a meaningful strategic plan truly is impossible. So, in the end, if a board becomes too large the board is driven by the executive committee and the problems described above with a small board become visible all over again.

Given this, I have found that the optimal number of board members is between 13–15. The size of your hospital or health system does not change this optimal board size. A high-functioning board will address the needs of the organization in a data-driven, quality-focused manner. If a board is the right size, then the size of the organization doesn’t matter. 

However, only an appropriately sized board can drive organizational discipline, and creating the right-sized board in the first place can only be accomplished by that same sense of discipline.

2. Ex-officio Representation^[1]

A high-functioning board will have only one ex-officio member, and that will be the CEO of the organization. As the number of ex-officio members grows, the more the board will act like a representational board and not the fiduciary of the hospital or health system. Oftentimes nonprofit boards will create ex-officio board positions for the medial staff or for the foundation or for different hospitals that are brought into the system. 

The problem with this process is that these ex-officio board members will almost always feel that their primary responsibility is to represent the group for whom the ex-officio position was created. Unfortunately, that is never a correct conclusion. Rather, the fiduciary obligation of an ex-officio member of the board is to the organization, not to the "hospital" or "foundation" or other organization who has an automatic board seat. Ex-officio members typically feel like they need to "represent" the interests of the group or organization for whom the ex-officio seat is held. As a matter of simple math then, as the number of ex-officio seats grows, the board will become increasingly like a group of "representatives" and not the fiduciary the board was designed to be. Eventually, a board of ex-officio members will become like the U.S. Congress, which we can all agree is hopelessly inefficient.

3. Elected Boards

If care is not taken, the concerns that periodically present themselves with too many ex-officio members of a board can be compounded when all members of the board are elected. If an elected board member has run for that position because of a personal issue, the overall efficiency of a board can be compromised. As such, I highly recommend that any elected board work in conjunction with senior leaders to adopt and maintain a meaningful board education process. Elected board members who understand the complexities, regulatory environment, and recruiting difficulties specifically associated with healthcare will often soften any stance they have regarding a personal issue, which served as their platform during their campaign. 

Without an ongoing process of education for elected board members at events like the AHA Rural Health Care Leadership Conference, boards run the risk of allowing a lack of discipline that reduces quality and access while increasing costs. Elected boards that allow personal agendas will find it hard to progress in the future.

For this reason I also recommend that elected boards consider the advantages that can only come by being a 501(c)3 organization. Such a structure change is, in my experience, the only way to ensure that the best interests of patients and the community are represented in the long term. Having led several organizations through this change, I am well aware of the questions raised by making an organizational change like this. Some of these questions include:

• If we create a nonprofit, how will the community have a say in the delivery of healthcare in the future?
• The hospital is a community asset. How can we simply "give" this asset away?
• Without the community board running this hospital, the CEO will gain far too much power and we will lose access to care.

However, every one of those questions has a very reasonable answer, and I believe that a prudent board of elected members will at least explore the idea.

4. Term Limits

The best boards always have a term limit structure. How the term limits are structured can vary, but total service on the board of directors should be limited to 9–12 years. This can be structured as three terms of three years or three terms of four years or some variation. The specifics of how term limits are structured is not important. What is important is that all board members know that their time on the board is limited and that they are not welcome to serve in perpetuity.  

The reason for this is because when a board has no term limits, membership on the board becomes about the individual and not about the organization. There comes a time when any one individual on the board has offered as much to the organization as they have the capacity to offer and they need to move on for new perspectives and a new skill set. If a member of the board is so valuable that they just can’t be missed, then after that person has rotated off the board for a year, the nominating committee can elect to put them back on the board during the next nominating process. But, the proactive process to make this happen is important. For good boards, the default must be that a board member rotates off the board after a set amount of time.

There is an argument to be made that periodically a board member who provides so much benefit to the organization, the organization just cannot afford to lost this board member as he or she rotates off the board at the end of the term limit. Having worked with several board members who were so valuable that I hated to lose them, I understand this argument.  However, the opposite is also a possibility. Sadly, my significant experience in this area has shown that having a bad board member who won’t leave is far more destructive than a good board member we want to stay. For this reason, the best boards always have a term limit clause.

5. Board Officers

However important it is for board members to have term limits, it is even more important for board officers to have term limits. Is it appropriate for a board officer to serve 1 or 2 years as the chair elect, the chair, and then the past chair? It is also realistic to extend a member’s overall board service term limits if that member is in a leadership rotation. But, more than any other position in the organization, if a board chair is in place for more than 1 or 2 or on the outside, 3 years, then the organization has run off course. 

In my career, I have known and worked with many hospitals or health systems where the board chair served as board chair for 5 or 10 or even 20 years. In all cases, this has shown that the board has become eerily focused on one individual as opposed to that one individual devoting their time to supporting the nonprofit organization. And, in many situations, I have noted that the health system has a contract with the board chair’s company or that the board chair has become overly consumed with the community prestige of the position or any one of a number of other similar scenarios.

In each of these cases the relationship is simply not healthy and potentially illegal. In short, I would submit that if you are on a board with a board chair who has served in that position for more than five years, then your board has lost its focus on providing benefit to patients in exchange for meeting the needs of that individual. I strongly recommend that if you are in this position, you work to create a meaningful opportunity for regular board leadership change, or you resign from the board. 

The best nonprofit hospital and health system boards of directors continually make changes to improve their own performance and to show their organization that the board is willing to model the behavior needed to drive the quality and financial discipline a hospital needs to excel. There are countless ways that a board can improve, but five quick steps will help your board start this process immediately. These steps are:

1. Right size the number of directors on your board
2. Limit ex-officio directors on your board
3. If you are a government or quasi-governmental board, move with all due haste to a 501(c)3 organizational format
4. Establish meaningful board term limits
5. Establish meaningful board leadership rotation

While these steps are not in-and-of-themselves sufficient for long-term success, these are five meaningful steps that are easily understood and will instantly improve the performance of any board.