Governing Health

It's the perfect time of year to take stock of the leading developments of the prior 12 months and consider what lessons they have to offer us. This valuable exercise for corporate directors can put them in a better position from which to address the looming agenda items their boards face in 2023. For directors of healthcare companies, governance trends range from the economy to the corporate social voice, ESG to mission-critical corporate risks with many stops in between. To lead this review, Michael Peregrine sits down with Charles Elson, Founding Director, Weinberg Center for Corporate Governance, Retired, Willard Shared, Corporate Governance, University of Delaware, and Executive Editor at Large, Directors & Boards. Charles offers a comprehensive review of the leading governance issues of 2022, as well as a look at what may be to come in 2023.

How, if at all, do ESG principles affect the healthcare sector in general and the not-for-profit sector in particular? 2022 has demonstrated how ESG is being incorporated into healthcare, and it is critical that the entire organizational leadership team, not just the CFO, finance team or other senior executive leaders, as well as the board, understand the scope of this new approach. To gain a greater understanding of the vast implications of Moody’s new ESG scoring system, Michael Peregrine is joined by Moody's Vice President and Senior Credit Officer Daniel Steingart, and Eva Bogaty, Associate Managing Director, Non-for-profit Healthcare Group at Moody’s. Together they discuss the significant business case underscoring the importance of a focus on ESG scores in the healthcare industry, including:

- An overview of Moody’s ESG scoring and history.

- The message behind a low ESG score.

- The correlation between ESG score and the general credit rating process.

- Overall governance considerations of a healthcare organization.

- ESG scoring focuses on measuring risk, not social good.

- Five sub-factors that are considered in scoring for environmental and social issues.

- Extreme highs and lows in governance scoring.

- Key notable trends in preliminary scoring.

In this, the second part of an insightful conversation about the challenges and trends facing the executive compensation committee, Michael Peregrine, Tim Cotter, and Ralph DeJong address (i) considerations for special compensation arrangements, (ii) the role of discretion in business judgment and goal-setting for the coming year, and (iii) how the committee can best prepare for and respond to media questions about CEO compensation in advance—as well as a host of additional challenges facing the committee, including:

- Performance measures for ESG themes.

- Should organizational structural considerations be a committee concern?

- Revisiting the committee charter to ensure continued relevance.

- Key takeaways from recent committee meetings.

The board’s executive compensation committee is the focus point for many of the extraordinary financial, economic and operating challenges currently facing healthcare organizations. Executive compensation increases are impacted by both an inflationary economy and significant revenue downturn. In addition, the Department of Justice has identified executive compensation as an important conduit through by which corporate compliance incentives and deterrence can be implemented. Furthermore, executive recruitment and retention amidst the “Great Resignation” remains a key compensation concern.

These and similar issues have become important agenda items for the board’s executive compensation Committee. Michael Peregrine is joined by industry experts Tim Cotter and Ralph DeJong for the first in a two-part conversation about the impact of the developments on the compensation committee, including:

Key topics for briefing the board’s compensation committee.

Increasing communication between the compensation committee and the C-Suite.

- Addressing pressures felt by executive committee members.

- Insights from the Sullivan Cotter compensation data survey.

- Projections for the impact of inflation on next year’s salary increases.

- Expectations for future CEO salary increases and organization departures.

- The segmenting approach to leadership plans.

- Coordination with the Audit & Compliance Committee on compensation incentives.

Nonprofit healthcare organizations and their governing boards are subject to the authority of the state attorney general, which has broad statutory and common law power with respect to its duty to preserve charitable assets. The attorney general is supported in this work by dedicated charity officials who work within what is normally referred to as the “charitable trust division” of the attorney general’s office.

To help inform nonprofit health systems and their leaders on the role of the attorney general and its charity regulators, Michael Peregrine is joined by Leslie Friedlander, an Assistant Attorney General in the office of the Texas Attorney General. Leslie is currently the president of the National Association of State Charity Officials (NASCO), and offers a “refresher course” about state regulation of nonprofit organizations, and NASCO’s related educational role, including:

- An overview of the role of NASCO, its purposes, and the value of its educational materials.

- Charity officials’ interest in nonprofit board business practices.

- How state charity officials gather information that informs enforcement policies.

- Effective means of communication between the charitable sector and NASCO.

- Examples of what a state charity official might consider as “red flag activities” by a nonprofit and its board.

- Other divisions within the Attorney General’s office that may get involved with charitable trust decisions.

- NASCO’s priorities and policies for the coming year.

Corporate directorship continues relentlessly to increase in complexity. The ability of directors to fully engage with the board agenda and to be effective partners in management are two of the most critical corporate governance issues in the current environment. These are issues that implicate a level of commitment by directors to be informed, attentive, and up to speed on their duties and on the issues of importance to the organization that they serve. This commitment is made even more critical this year by the many turns of events that are impacting the agenda in many boardrooms.

To learn more about how directors at leading companies are handling this increase in role complexity board communication, Kimberly Simpson, the COO of NACD (the National Association of Corporate Directors) which serves both for-profit and nonprofit directors and boards, and offers the country’s premier director certification program, joins Michael Peregrine for a conversation about the multifactorial challenges facing boards today, including:

- The role of directors in understanding today’s topsy turvy economic environment

- Where private and public company directors place inflation within other boardroom priorities

- ESG challenges and opportunities

- The important role of board refreshment

- Top trends from NACD’s public and private company surveys

- Updates on NACD Directorship Certification®

To highlight the important connections between financial risk management, the credit rating process and effective governance, Michael Peregrine welcomes Lisa Goldstein, Senior Vice President at Kauffman Hall and a nationally recognized analyst, speaker, writer and expert on nonprofit healthcare, for a conversation exploring:

- The responsibilities of a strong finance committee

- The value of subject matter expertise within the finance committee

- Key metrics that rating agencies use to evaluate governance

- Insights from high-performing healthcare system boards

- The role of covenant management in repayment performance

- Lessons learned from the pandemic, including credit-related crisis management

- ESG issues for nonprofit healthcare

July 30, 2022, marks the 20th anniversary of the Sarbanes Oxley Act, one of the most consequential pieces of federal financial regulation ever enacted into law. It serves as the foundation for many of the guidelines and principles that are now considered routine by boards and their audit, compensation and finance committees. It’s difficult to overstate the continuing impact of Sarbanes on corporate governance. Thus, given the passage of time there is value in board members refreshing their familiarity with the Sarbanes history, in order to better appreciate its influence.

To help underscore the Sarbanes legacy, Michael Peregrine welcomes back Scott Steffens, well-known audit partner in Grant Thornton’s national nonprofit and educational practice. In their conversation, Scott and Michael review the circumstances that led to Sarbanes’s enactment, and how auditor, management and audit committee interactions have changed over the last 20 years, particularly in the nonprofit and healthcare sectors, including:

- The role and function of the Audit Committee

- The continuing importance of independent directors in Committee membership

- The frequency and length of Audit Committee meetings

- Rotation of the lead audit partner

- Preserving auditor independence

- Internal consideration of issues raised in “Management Letter”

- Related party disclosures

Ongoing COVID-19 and related patient care concerns are competing with unexpected financial and economic, and workforce, challenges for room on the boardroom agenda. Hospital and health system boards must find time to accommodate these and other emerging oversight issues within the context of an already-crowded governance docket.

Diligent director preparation and fulsome management support, along with disciplined leadership from the board chair and CEO, will well position the board to satisfy these expanded oversight duties.

Diligent director preparation and fulsome management support, along with disciplined leadership from the board chair and CEO, will well position the board to satisfy these expanded oversight duties. Michael Peregrine welcomes back Jamie Orlikoff, president of Orlikoff & Associates, Inc., and Sandy DiVarco, McDermott partner, leader of McDermott health advisory on patient care and safety and accreditation issues, author of the recent client memo series on vaccination mandates and workplace safety developments, for an update on where we stand two years into the COVID-19 pandemic, including:

- Implications and expectations from hospital boards regarding current COVID-19 rates.

- The regulatory authorities’ response to competing pandemic-related pressures.

- Board guidance for addressing financial concerns in light of a stealth surge.

- The governance challenges associated with growing supply chain issues.

- Universal truths following the pandemic that are valuable to healthcare boards.

- Defining purpose and the role of hospitals in leading healthcare issues.

The key topics that should be receiving board attention in the near term have less to do with traditional operational matters, and more to do with social and economic issues of concern to the workforce and the mission. To bring understanding to these key concerns, we turn to our quarterly conversation with Ken Kaufman, Co-Founder and Managing Director of Kaufman Hall.

Ken has been visiting with clients and other leaders of the healthcare industry and has also been busy with his popular blog, addressing pressing subjects ranging from inflation to artificial intelligence. Ken has returned to our podcast today to share his insights on topics that include:

- Social justice board initiatives that have developed in the wake of the George Floyd murder.

- The impact of individual actions regarding equality at the CEO level.

- Addressing current workforce culture and employee retention concerns.

- The impact of rising inflation rates on hospitals and health systems.

- Realities and expectations of today’s board members.

- Forward-thinking advice for board members and directors.