SECRETS OF THE CMO: PERSPECTIVES AND SUCCESS
Many chief medical officers (CMOs) serve in not-for-profit (NFP) hospitals and health systems and meet with their organization’s board of trustees. In some instances, those CMOs (or chief physician executives or chief medical executives) serve on the board’s subcommittee on quality or even participate in monthly board meetings in an ex officio capacity.
Unfortunately, many CMOs receive minimal onboarding, guidance, or instruction about the board’s functions and fiduciary responsibilities. This can be particularly troublesome if the CMOs are not instructed in the rules of engagement between those in governance roles (board members) and those in management roles (C-suite members).
Frustrations may grow when CMOs or trustees do not share the same awareness or follow the same behaviors when acting in their respective roles. Further, if there is any uncertainty or ambiguity about the responsibility to act in a particular way when unexpected situations occur, the nature of the relationship between the governing board and the management team of NFP healthcare organizations may undergo significant stress.
This stress is compounded when the board members of an NFP healthcare system consist of individuals whose careers and board service originate in for-profit (private or public) enterprises rather than those whose work has been in NFP organizations.
The vested interests of typical board members in for-profit companies lend themselves to those members exerting a more managerial influence on operational decision-making to protect those interests. Additionally, if those members do not have any experience in healthcare delivery, their behaviors may not always be regarded as aligning with the mission of community health, especially when serving alongside those whose experiences mostly originated in NFP settings.
GOVERNANCE AND OPERATIONS
One of the most challenging aspects of any trustee’s responsibilities is determining the line between operations and governance, and it takes intentional effort by the board chair and the trustees to implement that practicality. This challenge is particularly acute when some board members are naturally inclined to behave as they did in the past with a lens of functioning in a for-profit enterprise, either when serving in management, in executive leadership, or on the board. It is common for those types of trustees to exert their expertise in a way that leaves little room for dissent or an alternative course of action when things go awry.
This behavior can significantly impact the C-suite, too, as it can add an unconscious layer of managerial and operational interference into the daily affairs of the executive team. Under these circumstances, the C-suite may be spending undue time and effort managing their relationship with the board for fear of not being granted the autonomy to make operational decisions that do not ultimately align with the undeclared operational function of the board.
For example, this unwitting stance can cause the C-suite to withhold or misrepresent information shared with the board out of concern that it will generate managerial or operational interference. The hidden, undeclared hierarchy of management and trustees can consciously or unconsciously inhibit the sharing of perspectives and generation of consensus regarding what is in the organization’s best interest.
On the other hand, when boards recognize deficiencies and management failures, they can and should act accordingly and not fear crossing the line between governance and operations. In fact, it can be argued that those boards have an obligation to the community (to whom the organization belongs) that should cause the trustees to intervene to prevent an existential mistake, even at the risk of crossing the line between operations and governance.
That is not to suggest that trustees should usurp the organization’s day-to-day management, but rather to encourage trustees to intercede when they see managerial decisions that constitute existential threats to the community’s assets to which their fiduciary duty extends.
To define the line between governance and operations more precisely, CMOs must understand how trustees behave in service to the NFP organization. Surprisingly, all too often, trustees of NFP healthcare organizations are overly deferential to the organization’s management. This reluctance to ask tough questions and suggest different approaches arises from several factors, such as the prior experiences of trustees, individual trustee motivations, and lack of incentivization.(1)
Of critical importance is how management should communicate with trustees (and vice versa) and how best to support the trustees, who will exercise their responsibilities for overseeing the organization.
DEFINING THE LINE
With these factors in mind, we return to the issue of defining the proverbial line between governance and management. As derived from the Revised Model Nonprofit Corporation Act, the directors or trustees of an NFP corporation owe a duty of care, a duty of loyalty, and a duty of obedience.(2)
The duty of care imposes a responsibility to ensure that all organizational assets, including its facilities, employees, and goodwill, are used prudently to advance the organization’s objectives.
The duty of loyalty includes ensuring that the organization’s activities and transactions advance its objectives.
The duty of obedience requires that the directors ensure that the organization adheres to its governing documents, to applicable laws and regulations, and to its mission.
These basic tenets support the governance and oversight of organizational leadership (management) and reinforce the need for board members to be focused on organizational adherence to its mission rather than on day-to-day operations.
Unwittingly, however, these same tenets can negatively reinforce all the behavioral factors listed above, such that trustees should not challenge management activities, as this crosses the proverbial dividing line.
Further, the Revised Model Nonprofit Corporation Act, which has been adopted in various versions in a majority of states, requires that a trustee “… discharge his or her duties … in good faith, with the care an ordinarily prudent person in like position would exercise under similar circumstances and in a manner the trustee reasonably believes to be in the best interests of the corporation.”(2)
In discharging those duties, a trustee may rely on information, opinions, reports, statements, including financial statements and financial data, presented or prepared by officers or employees of the corporation whom the trustee reasonably believes are reliable and competent, or by legal counsel or public accountants as to matters within the person’s professional competence, or by a committee of the board within its jurisdiction, if the director reasonably believes the committee merits confidence.
On the other hand, the Model Act also provides that a director is not acting in good faith if the director has knowledge that makes reliance on the above information unwarranted. In instances where trustees know, directly or indirectly, that the information presented to the board is not reliable, accurate, or ethical, then the trustee has a fiduciary obligation, irrespective of personal motives or relationships pertaining to their board seat, to address such matters in executive session and, when necessary, with the entirety of the board to exert its governance, even to the extent that it replaces the managers and operates the corporation until it is reasonable to return to its primary role of governance.
A PLAN OF ACTION
Chief medical officers need to maintain an objective assessment of the role of the company’s trustees and neither withhold nor provide inaccurate material information from them nor perpetuate any overreliance on their own expertise. A CMO will best serve the organization by effectively communicating the needed information in a transparent, truthful, comprehensible, and approachable way.
Further, the CMO should encourage trustees to ask questions about the information at hand to support them in their obligations of considering the material. At the same time, the CMO should be prepared to be challenged as to the validity of their presentations and/or conclusions, should it cause trustees to consider their inability to act on their fiduciary obligations and duties.
In turn, the board should measure its own competency, not only from a legal viewpoint, but also from the viewpoint of fulfilling its ethical duty to its community. This is particularly relevant in a post-COVID landscape when the compression of margins and workforce issues have placed intense pressure on healthcare systems to continue to provide for the health and well-being of the community they serve.
Looking into the future of healthcare, now is not the time to be timid and stay with outdated traditions, norms, or behaviors. It is time to be progressive, proactive, and intentional about upholding the nobility of caring for others.
References
Trustee Roles and Responsibilities of Not-for-Profit Organizations, AHA Trustee Insights, AHA.org. November 2024. https://trustees.aha.org/roles-and-responsibilities-trustees-not-profit-organizations .
Nonprofit Organizations Committee, American Bar Association. Model Nonprofit Corporation Act, 4th ed. American Bar Association;2022: Section 8.30, General Standards for Directors.