Governance in Developing Systems: How Boards Add Value

by Mary K. Totten

Editor’s Note: In “Navigating the Stages of System Development,” which appeared in the October 2013 issue of InsideTrustee, authors Casey Nolan, Thomas Dixon and Chris Meyers of Navigant Consulting discussed three stages in the development of health care systems. They outlined areas of focus, required capabilities, desired outcomes and governance models that typically occur at each stage: Asset Aggregation, Functional Integration and System Optimization (see Figure 1: Stages of System Development). Great Boards talked further with author Casey Nolan, managing director of Navigant’s Healthcare Provider Strategy Practice, Washington, D.C., about how boards typically function and the challenges they are likely to face at each stage of development. Nolan also discussed what board members need to know to govern effectively and add value as their systems evolve.

GB: You suggest that organizations in the first stage of system development, Asset Aggregation, typically focus on bringing together competing hospitals and their assets under one parent organization umbrella. Boards exist at both the system and subsidiary levels, with system boards typically composed of board members from system hospitals and organizations. Control and authority are often decentralized, with local boards retaining a high degree of autonomy and decision-making. What are some of the governance challenges at this stage of system development?

Nolan: Because newly forming systems usually have multiple organizations, each with its own board and set of board committees, governance can be hampered by top-heavy board structures. Boards tend to duplicate each other’s work because they are still operating autonomously as they did in the past. As new corporations join the system they also bring their boards with them, further increasing the density of governance structure and function. Challenges at this stage include figuring out “Who’s on first?” regarding authority and responsibility between system and subsidiary boards and committees, as subsidiary boards struggle with the prospect of giving up some level of control. Another challenge is determining what mechanisms to put in place to ensure communication of key information across all boards. Representational governance on the system board may actually impede system development and effectiveness at this stage, if system board members believe their role is to represent the interests of their subsidiaries rather than the interest of the evolving system. Development of a common culture can be slow-going as board members continue to identify with the organization they came from, rather than the system they are now charged with governing.

GB: What can boards and system leaders do at this stage to increase governance effectiveness and ensure boards add value to the developing system?

Nolan: System leaders and boards should not underestimate the value of developing and articulating a clear vision and mission for the system that can foster clarity about the role of each component and how each contributes to system success. Boards and leaders that fail to have explicit discussions that result in this type of clarity will have a harder time achieving the value that systems can deliver. Because multiple, steep learning curves are embedded in this first stage of system development, boards and leaders need to make sure that governance at all levels is not under-resourced. Boards need adequate staff support and resources devoted to board communication, education and development as they work together and with system leadership to sort through relative roles and authority and help the system evolve. At this stage, boards also need to develop a broader perspective that focuses on governance within a larger enterprise and view their organization and board as a contributing member of the larger system. Communication between and among all boards should be two-way and system-focused. Boards can add value by ensuring communication focuses not on what individual organizations want or need, but on how each organization can add value to the system.

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