Culture conflict and strategic partnerships

The not-for-profit hospital board and the for-profit clinic board had agreed to create a separate board for the new cancer center joint venture, but negotiations were bogged down. The existing boards had rushed to do the deal because of competition, and now problems arose as they tried to determine the new board’s composition and functioning.

This kind of situation occurs more and more frequently because most hospitals, health systems and clinics are developing strategic partnerships to better serve their communities’ health needs. When there is a delay in consummating a partnership, it is sometimes for financial or regulatory reasons. It may also, however, be due to a difference in the cultures of the boards involved. In fact, understanding potentially conflicting governance cultures is an important factor in finalizing and implementing today’s strategic partnerships.

The basic role of boards in strategic partnership formation is to approve the strategy, the choice of partner and the terms. Once the partnership has been finalized, successful implementation is often dependent upon the entities’ boards. Studies have concluded that a new venture’s success is linked to the cultural alignment of the organizations. What is less well understood is the importance of cultural alignment between the boards themselves.

In 1966, Marvin Bower provided a simple definition of “culture” as “the way we do things around here” (The Will to Manage: Corporate Success Through Programmed Management).

In his book Organizational Culture and Leadership, Edgar H. Schein provides a more detailed definition of culture as “a pattern of shared basic assumptions that the group learned as it solved its problems ... that has worked well enough to be considered valid and, therefore, to be taught to new members as the correct way to perceive, think and feel in relation to those problems.”

Working it out

Just as each organization has its own culture, boards have different cultures. Before entering into a formal strategic partnership, therefore, boards should ensure they understand each other’s culture. Key dimensions to assess, along with tips for boards on a partnership journey, include:

Mission and vision: Start by ensuring that the boards have the same mission and vision for the partnership. Too many boards become excited about a new opportunity and assume all are on the same page. A sticking point in one hospital-clinic merger was that the for-profit medical group had a policy of not accepting new patients without insurance, whereas the Catholic, not-for-profit hospital’s mission included “serving the poor.”

Recommended action: Create a jointly developed, written mission statement and a concrete vision for the partnership.

Values: A critical dimension of any culture is its values. One board may believe its success is due to its risk tolerance, while another credits its success to risk aversion. These boards may have difficulty achieving consensus on the initial capitalization and projected profitability of their new joint venture.

Recommended action: Compare the stated values and, assuming sufficient alignment to move forward, agree on the new board’s values.

Board-management relationship: One of the most difficult dimensions to assess is whether the boards have different approaches to the role of the board vis-a-vis management. Some boards believe they should be more "board-led," while other boards think they should be more "management-led." This can manifest itself in conflicting opinions about when the board should be involved in key discussions (e.g., after management has selected a preferred partner or earlier in the process). 

Recommended action: Discuss each board’s current relationship with management and come to a consensus on the desired future approach.

Delegation of authority: Another potential area of conflict is delegation of authority. Many boards delegate some final decision-making authority to committees (e.g., a finance committee may have approval authority up to a certain dollar amount), whereas other boards believe that committees should only make recommendations. In another example of conflicting practice, one board may want all of its members to be involved in all decisions, whereas another board may delegate some decisions to a task force or to management.

Recommended action: Agree on the delegation of authority to committees, task forces and management and capture those decisions in charters.

Board composition: One more difference can be in how boards approach their composition. Some boards use a "representational" approach — a system board including board members from each individual hospital — whereas others believe the only way to ensure they have all the needed skills and perspectives is to utilize a pure "competency-based" approach with no seats saved for any constituency. Disagreements about this can be difficult to resolve, especially if the terms of the deal require seats for certain constituencies.

Recommended action: Agree on and document the desired, future board composition and its rationale.

Independent members: Boards sometimes have different philosophies about "independence" (using the Internal Revenue Service Form 990 and Internal Revenue Code Section 4958 definitions applying to tax-exempt organizations). Some boards believe they should be 100 percent independent to assure objective decision-making, whereas other boards allow seats for nonindependent members (e.g., employees, medical staff).

Recommended action: Decide on and write down the approach to be used on independence.

Governance practices and policies: Some boards take their development seriously and dedicate resources annually to orientation, education, self-evaluation and so forth. Others use a less disciplined approach and/or rely on management to provide governance support.

Recommended action: Determine the desired level of investment in board development and charge the governance committee with overseeing this important function.

Group and interpersonal dynamics: The interpersonal dimension often causes the most discomfort for boards in a partnership. Areas of potential challenge include: operational- versus governance-level discussions; individuals dominating discussions; unclear decision-making styles; and disrespectful behavior.

Recommended action: Develop written policies on board member roles, expectations and behavior.

Think first

The boards at the beginning of this article underestimated the impact of their cultural differences. For instance, members of the for-profit clinic board thought the new board should include a large number of physicians and use an active executive committee; the not-for-profit board insisted that physicians be in the minority among trustees and that all committees be advisory. The two bodies eventually worked out these and other differences, finalized the deal and held a retreat to continue defining the new board’s desired culture.

All of these dimensions of board culture should be considered for partnerships that require the formation of a new board. Most of the issues, though, should also be discussed when boards are contemplating any type of strategic partnership in the first place. At the very least, the deal process will be better understood, and, at best, the resulting entity or service will be more likely to accomplish its intended purpose.

Pamela R. Knecht (pknecht@accordlimited.com) is president and CEO of consulting firm Accord Limited in Chicago.