The importance of board composition within the context of a transformative business climate has been emphasized by recent, highly publicized changes to the GE board, as well as by the release of a new survey on board composition.
The substantial restructuring of the GE board, as has been reported in The Wall Street Journal and other publications, will serve to reduce the size of the board from 18 to 12, and remove several long-standing directors, replacing them with directors whose expertise is more closely aligned with the strategy of the new GE CEO to streamline the iconic industrial conglomerate. GE’s actions offer several key lessons to health care boards as they grapple with issues of board composition and organizational strategy.
First, it is important for the board to periodically evaluate its composition to assure the necessary level of effectiveness given the competitive environment, business cycles, disruption and consistency with strategic direction.
Second, there is no “best practice” when it comes to board size. The standard should be whether the board size is sufficient to assure that it is capable of satisfying “the business of the board” with the necessary level of engagement, that the health system maintains a culture of legal compliance, effectively safeguards its assets, and furthers its organizational goals and objectives. As the IRS itself has noted, very small or very large governing boards may not adequately serve the needs of the organization. If a corporate behemoth such as GE believes it can be effectively governed by a 12 person board, it may be more difficult to argue that large health systems require large boards to assure effective governance.
Third is the need to address needed skills, competencies and backgrounds in the director nomination process; i.e. selecting directors whose individual expertise is complementary with the strategic direction of the company. (This is particularly important in health care, as many providers and other organizations are revisiting their strategic direction in response to dramatic industry change).
Fourth is the need to maintain robust board refreshment policies and procedures that allow the board to re-tool itself as may be necessary, especially when confronted with concerns about lack of performance by the board as a whole, or by particular constituencies of the board.
Also notable is a
new consulting firm survey on board composition, which recommends continued emphasis on such important issues as director diversity, tenure and qualifications.