April 1, 2025 • 26 mins
Rob Gerberry, Senior Vice President and Chief Legal Officer, Summa Health, speaks with Michael Peregrine, Partner, McDermott Will & Emery, about the distinction between the role of the health care board and the role of management. They discuss the current landscape of board and management roles and responsibilities, what corporate law says, what governance organizations are saying, the leading duties of board members versus those of management, decisions around organizational risk, and lessons for health care organizations.
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Speaker 1 (00:00):
Speaker 2 (00:04):
ALA's, popular Health Law Daily email
newsletter is now a dailypodcast exclusively for a HLA
premium members. Get all yourhealth law news from the major
media outlets on this newpodcast. To subscribe and add
this private podcast, feed toyour podcast app, go to
American health law.org/dailypodcast .
Speaker 3 (00:26):
Hello everyone, this is Rob Berry. I'm the Chief
legal officer of Summa Healthand a member of the HLA Board
of Directors. I'd like towelcome you to our latest and
our continuing series of keycorporate governance issues
affecting healthcareorganizations. Today's topic is
one of continuing interest toour membership and their
clients, the distinctionbetween the role of the board
and the role of management.
(00:48):
It's the basic roadmap by whichthe organization's senior
leadership navigates theirapproach to issues confronting
the organization and whetherthose issues need to be the
responsibility of the board ofthe management team, or is it a
joint issue. It's an issue thatbecomes, has become more acute
in recent years as CEOsencountering increasingly more
complex agenda, which requiresnimble and proper response from
(01:10):
them while boards are feelingpressures from court decisions
and regulators as to theiroversight responsibilities and
leading into management morethan ever before. And of
course, as the leadinggovernance advisor to the
board, the general counsel orchief legal officer is the
likely source of guidance onwhere the distinction lies
between the role of managementand the role of the board lucky
(01:31):
us and this profession. Sotoday's podcast seeks to
position our members to have ainformed conversation with
their client leadership teamson how to best address this
sticky issue and reach someform of accommodation and
understanding as to theirrespective duties and
allocation of authority. Asalways, we're joined by my HLA
colleague and friend MichaelPeregrine of McDermott, will
(01:52):
and Emery, who's also an A HLAfellow and a fellow of the
American College of GovernanceCouncil. Well, welcome Michael.
Speaker 4 (01:59):
Thank you, Rob .
Speaker 3 (02:00):
So, Michael, before we get too deep into this
topic, I'm wondering if there'srisk of making too much of this
issue. And by that I mean, doboards in their management
teams ultimately have a cadenceor a pattern that they've , uh,
developed through years of workand informal allocation of
roles and responsibilities? Orhow formal do you think we
really need to get indescribing this , uh, level of
(02:20):
allocation of responsibility,
Speaker 4 (02:23):
Rob? I think it's a , a great question, and I think
unfortunately, that we need ascounseling , um, board and
management on these issues thatwe need to be prepared to push
them towards a little bit moreformal , uh, recordation of
roles and responsibilities. AndI say that because from
anecdotal evidence or evidenceof my own practice, I would say
(02:46):
over the last three years , uh,that I have seen more instances
of real friction between theboard and management, real
leadership friction as to whodoes what than ever before. And
I've been doing this now, thisis my 46th year, you know, take
(03:07):
a little history lesson I thinkis useful here. Uh, it was my
experience that with covid andnow we're what, a year six
after that , uh, uh, startedfive or six, that the board was
more than willing to take astep back , uh, and let
management run with the ball. I, I think principally because
(03:29):
the issue was so operationaland quality of care related ,
and that there was a sense thatthe board , um, didn't have a
lot to contribute to, to theconversation. I don't think
that's correct, but I thinkthat was the sense, and I think
the state's , state attorneygenerals kind of gave the board
some slack in that regard. Ithink you're seeing now that
(03:53):
with all sorts of issues , uh,critical issues confronting the
board, and, you know, as youwere and I were talking before
we started this podcast, youknow, Medicaid issues and the ,
uh, and the issue there , uh,uh, other major crises, the
board is realizing that thereare issues where they need to
lean in a little bit more. AndI think that that's, you know,
(04:15):
creating a little bit of, offriction that management says,
wait a minute, all of a suddennow you're leaning in on me
when you've been out for thelast couple of years. So, but
at the same time, I think , um,uh, management has to be
certainly concerned about , uh,micromanagement. The NACD has
flagged that it's an issue, but, uh, but I do believe also
that management needs to beaware that the board is getting
(04:38):
pushed as well , uh, from a ,some , as you and I have
discussed on these programsbefore, courts are increasingly
looking at whether or not theboard is adequately engaged on
certain, you know , what Iwould call top of line issues.
They're , uh, concerned aboutwhether boards are exercising
(04:58):
the proper amount of oversightand they're holding directors,
especially in the for-profitworld, viable , uh, for
inaccurate , uh, inadequateoversight. Long way of saying,
I think it's an issue that weneed to, as council , continue
to be prepared to address ourleadership teams because the
natural pressures of businesson ma on management and the ,
(05:21):
and the issues on their agendaare encouraging management to ,
you know, we need to get thingsdone quickly, promptly, and
effectively. And I can't beslowed down by a board that's
not prepared or not adequatelyengaged. And the board is
saying, whoa, wait a minute.
I've got courts and my lawyer'stelling me that we need to be
more engaged because we need tobe exercising more oversight,
more informed oversight. It's,it's a recipe for conflict, and
(05:47):
we need to be prepared ascouncil to support our internal
constituents in , in resolvingthat conflict.
Speaker 3 (05:55):
So often, Michael, I see, as part of that resolution
, uh, the issue is brought upto chief legal officer. Alright
, point me to what the lawsays. Let's move away from
everyone's feelings on this.
Let's point to black and , uh,letter law. Is there anything
that you would point to ourmembership as far as what the
corporate law statements arearound this?
Speaker 4 (06:13):
You know , it , we're fortunate, Rob, in this
instance where the law actuallydoes weigh in a little bit in ,
in kind of setting the table ,uh, for the question of , uh,
the line separating what's theresponsibility of the board and
what's the responsibility ofmanagement? Most corporate
laws, most modern statecorporation codes provide that
(06:37):
the ultimate authority forcorporate affairs lies with the
board of directors, which thelaw says is supposed to
maintain an oversight andadvisory role towards
management. I think if you, notthat I encouraging our
listeners to , uh, drop theirheadsets and go off and open up
the state corporation code, butI think you'll see that they
(06:57):
often require certainactivities to be performed by
full boards and things thatcan't be delegated to
committees. Uh , but moreimportantly, I think that
there's usually a statement inthe corporate code saying, the
operation , uh, responsibilityfor operation of the affairs of
(07:17):
the corporation lies with theboard of directors. However ,
uh, you'll essentially go tothe next sentence of that code
and say that the board maydelegate the responsibility for
management , uh, to competentexecutive management. You know,
if you look at Delaware law asan example, Delaware says that
the business and affairs ofcorporations shall be managed
(07:40):
by or under the direction of aboard of directors, but
ultimately , uh, delegation ofmanagement duties to executive
employees is gonna be subjectto the board's ultimate
authority. So what does thatmean? It means that the , uh,
corporate laws say the buckstops with the board, but they
also say indirectly that theyknow that no board can
(08:03):
effectively manage theday-to-day affairs of a
business enterprise . So ofcourse, they , they're supposed
to delegate affairs to theirexecutive management team,
however, what they delegate andhow they monitor that
delegation is subject to theirauthority. So we start with
that. I think when we're, whenwe're sitting down and having
(08:24):
the conversation and it's, it'sa bargain, it's a balance. But
I do think it's important tosay that the , uh, remind both
management of the board thatthe law does have something to
say about that.
Speaker 3 (08:36):
That's great. So when you look at other
governance associations thatput out pronouncements related
to best practices on governance, um, what advice do they give?
Speaker 4 (08:45):
What we're looking at in a situation there, Ravi ,
we know what are our , what areour leading governance
principles? Who , what aretheir statements? And, you
know, we look at least from myperspective to groups like the
Business Round Table , thecommon Sense principles , uh,
uh, organizations like that,that , um, that generally weigh
in on the concept of governanceprinciples. And, you know, I
(09:08):
think that , uh, they will saythat we understand that the
board has an oversightresponsibility, but they , the
board, in order to truly beeffective , uh, must stick to
strategic issues and allow themanagement to address tactical
(09:30):
issues. Um, there is a , a kindof an inherent bias for the
board to be , um, notstandoffish, but to take a
higher, more overarching role.
And, and not to get out of theway of management, but to allow
management to do its job andnot to , uh, uh, complicate the
(09:54):
agenda of the board with issuesthat are specifically or at
least traditionally consideredto be the role of management.
And that's, you know, the onlything I I would say about that,
Rob, is it's a little bitmisleading in the sense that
you don't want to draw fromthat a conclusion that the
(10:15):
board should be , uh, you know, uh, absent on some of the
critical operational issues ofthe day. Uh, I think that's a ,
that's a little bit of aproblem. What, what's missing
sometimes from some of thegovernance principles, which
have not been updated in acouple of years, is the
recognition of, of , uh, thered flag events. It's a
(10:39):
recognition of the , um, blackswan events, whatever examples
you can say that there are justcertain fundamental crises ,
uh, certain fundamentaldevelopments, which require the
board to lean in more. That'sthe kind of judicial , uh,
color. So again, you know ,we're talking about a situation
, uh, uh, uh, you know,critical rules and
(11:01):
responsibilities. Uh, thegeneral rule is let the board
govern, let management manage,and then the really the
question go gets down to whatare the details , uh, you know,
how does that work on aday-to-day relationship? How do
you kind of, if you , where doyou draw the line , uh, between
what's governance and what'smanagement? And I, and I do
(11:23):
think that there's someguidance on that.
Speaker 3 (11:26):
So Michael, like many of my peer general
counsel, you're sitting infront of a board chair who is
very , uh, deliberate andasking you, I want very
prescriptive advice. As weonboard new board members, can
you tell me what are theleading roles and
responsibilities as we onboardboard members?
Speaker 4 (11:41):
Yeah, I, I think that if I was to brief a new
board member, or if I was goingto sit down , uh, between board
leadership and executiveleadership and say, this is
generally where I would drawthe line, I, I would say as to
the board's oversight dutiesthat they would include, a
couple of this isn't gonna be a, you know, an all inclusive
list, but I think they would ,uh, encompass the following nu
(12:04):
uh , uh, job number one isgonna be selection and
evaluation of the CEO . I think, uh, then you would pick up ,
uh, establishing the ethicaltone at the top of leadership
in the organization , uh,ensuring the effectiveness of
the corporate complianceprogram. We know that from the
Caremark issues , uh, anothercritical role is approving the
(12:27):
development of a strategic planand ensuring its
implementation. I wanna confirmthat the board's role is to
make sure that the strategicplan is developed and, and
assure that management pursuesthat, and then monitoring the
effectiveness of the plan. Butthe board is not to do the
strategic plan itself. Youknow, then we have the
(12:48):
traditional duties arising fromSarbanes and others about
ensuring the integrity andtransparency of financial
reporting and disclosures. And, and I think , uh, and , and ,
and also I should add to that,financial plans. I think
increasingly Rob, we see theboard being charged with , uh,
assuring the , uh, protectionof reputational risks of trust,
(13:13):
which is something that you andI have discussed in some
previous podcasts. And then,then I would say another
fundamental responsibility ofthe board, one that I don't
think you see picked up in someof the governance statements,
governance principle statementsthat are prior to say, 2020 is
the obligation to exerciseoversight of the workplace. Uh,
(13:36):
I think those are the ones thatI would , uh, say about, you
know , where if I was to tellthe board this is, this is in
your corner of the world.
Speaker 3 (13:45):
So now you switch from that hot seat with the
board chair to the hot seat infront of the CEO and the CEO
says, Michael, let's make surethat we're educating management
on what our responsibilitiesare. How would you define
those?
Speaker 4 (13:55):
Well, the first thing I would say is it's much
easier. I mean, the , the listof of board oversight bilities,
and actually areas of where,where the board has fundamental
responsibility is gonna belonger than managements,
because management'sresponsibility, number one, is
to run the day-to-day affairsof the business. And that
encompasses so many the issues.
(14:17):
But , uh, the , that includes,you know, on top of that, I
would specifically say not onlyare you responsible for the
day-to-day management issues,but you're also responsible
specifically for things such asimplementing , uh, and
developing and implementing thestrategic plan , uh, making
(14:37):
recommendations to the board oncapital allocations allocation,
maintaining the complianceplan. Um, I think an
increasingly importantresponsibility of management is
the identification and analysisin response to enterprise and
operational risk . The wholequestion of , uh, developing a
risk profile of theorganization, you know,
(14:59):
preparing financial statements,preparing operational plans,
selecting qualified manexecutive leadership , uh,
driving talent development anddeveloping crisis management,
those kinds of things. But Ithink it all spins off of Rob,
the fundamental responsibilitythat executive leadership is
(15:20):
charged directly with runningthe day-to-day affairs of the
business. Where there , the ,the roles of the board and
management merge is when theboard is, is charged with
specific oversightresponsibilities of aspects of
the day-to-day operations andmanagement feels that the
board's involvement there is,is too great, is too , is
(15:44):
overwhelming. And, and that'sthe where I think we as council
to leadership can encourage ourinternal clients to be more
accommodating and more aware ofwhat the motivations and
interests are. Will there betimes when the board, for
(16:04):
example, engages inmicromanagement? A hundred
percent. Will there be timeswhen management is less than
engaging with the board onissues? You bet. The, it's easy
to say, here are the black andwhite duties. We know the core
duties of the board. Here arethe black and white duties of
(16:25):
management. Uh, this goes backto your first question. What
council can do is help the bothparties understand where you
move away from the black andwhite and you move into the
gray and where the parties haveto work together.
Speaker 3 (16:40):
Michael, where do you come out on ultimate risk
tolerance decisions for theorganization, whether it be how
many years can we operate inthe red with a negative
operating performance orthinking of risks on the other
side? Do we make a compliancedisclosure? Do we enter into a
piece of litigation? Um, how doyou ultimately see that board
management dynamic around risktolerance?
Speaker 4 (17:01):
Uh , you know, it's interesting because I've just
been dealing with exactly thelatter question. I think that ,
uh, there are just certainissues with, with respect to
the long-term viability of thebusiness that have to percolate
up from management. And theboard has the ultimate call
(17:21):
where , and for example, the,this , let's just say on a
compliance issue, Rob. Um , thequestion of , uh, whether we
self-report or not , uh,whether we , um, engage in
litigation or not. Thehomework, the , the, the
development of the issues, theevaluation of the advantage and
(17:43):
disadvantages, it has to comefrom the management. They are
the experts. But those are theissues where the board has the
final authority to say yes orno. And again, the, the board's
responsibility is to be inforsufficiently informed on these
issues. So management iscomfortable that the board will
(18:04):
make an the right decision. Wedon't talk about this enough,
but the board management hasevery right to expect the board
to be prepared, to be engagedand to be an effective partner
, uh, to management and supportmanagement in the exercise of
their duties. I see terribleproblems arising , uh, when
(18:29):
management loses confidence inthe board's ability to make the
final decisions on the kinds ofissues that you say. On the
flip side, I see terribleproblems arise when the board
believes that management ismaking certain decisions that
at least should engage theboard as a partner in making
(18:51):
those decisions. It'sultimately, is there some kind
of fundamental compact orunderstanding , uh, that it's a
, that effective leadership isa partnership, a shared
enterprise.
Speaker 3 (19:07):
So you mentioned earlier about, you know , these
issues continue to evolve.
Where do you see the boardmanagement dynamic as we
currently sit with boards thatyou're working with? Is it, is
it healthy or is it gonnarequire more work?
Speaker 4 (19:17):
I think it's absolutely requiring more work.
And that's because , uh,critical funding , uh, issues
relating to the viability of,of hospitals and health systems
with respect to organic ornon-organic growth. Uh, with
respect to the current crisis ,and I'm not trying to be
political here, but the crisisenvironment we're in right now
, uh, the , uh, if , if whenwe're looking at this, you know
(19:40):
, uh, this issue today , lateMarch , uh, early , uh, April,
2025, I , I think I have foundthat by and large, many large
health systems are kind ofsuffering from , uh, just being
overwhelmed , uh, by the , uh,level of turbulence coming out
(20:00):
of Washington. Again, nottrying to make a political
statement here, butacknowledging, which I think is
obvious, is the combination ofthe, the , um, flood of
executive orders and change.
Uh, it has, has made itdifficult for management shoot
for lawyers to stay up to speedon , uh, on what's going on,
(20:22):
what's new, what's, what's alaw, what's not , uh, and
concerns about reimbursementespecially. And the board has a
special role to, I think, weighin here, be informed, and be
there for management. Whenmanagement comes and says,
chairman Berry , what do youthink? Uh , and that, I think
(20:42):
is what's most important in thecurrent environment. If we
continue to , uh, experienceturbulence, which affects the
long-term viability,operational, reputational , uh,
financial of a health system,management is going to and
should go to the board and seekits input and advice and
(21:04):
counsel . And the boardabsolutely needs to be prepared
to respond , uh, to that. Uh,they need to be informed. They
need to be available. Again, asI said, they need to be a good
partner to the management team.
Speaker 3 (21:18):
So Michael, you've been a trusted advisor to many
boards through the years. Asyou look to give advice to our
members, whether they're insidecouncil or outside counsel on
how to best navigate thistopic, any lessons learned?
Speaker 4 (21:28):
Yeah, I would be proactive at this point, Rob,
and say , and use some of thecurrent, the current
environment to say, is this agood time for us to revisit, to
sit down and have the issue? Inother words, I would force the
conversation. Uh, it might besomething that's unspoken.
There might be turbulence underthe , uh, surface , uh, in , in
the , in the boardroom betweenexecutive leadership and
(21:52):
management. And I think, I'mnot talking about throwing a
hand grenade into theboardroom, but I am saying that
I think that general counselcan really do a service by
simply prompting the issue ,uh, uh, using this , the
current situation to say, youknow, how, how, how do we wanna
handle this? What's the , uh,to talking to the management
team? Is this something that ,um, we should , uh, be
(22:14):
involving board leadership on alittle more? Should we be
preparing more educationalprograms on the board? Uh,
should we ask the board to bespending more time so they can
be available to us? Raise it ina non-threatening, discrete
way, but raise itnotwithstanding, because I
think that right now we've,we've gone through so many
(22:36):
crises in our industry over thelast 20 , 30 years. This one
might be different, differentkinds of issues. And it's a ,
it's an opportunity for thegeneral counsel to play a great
service by saying, Hey, howabout let's just kick the tires
on, you know, who does whathere? Is this a , is this an
issue where management can ,uh, roll on its own? Is it an
(22:58):
issue where management shouldbe , um, involving letting the
board know what it's doingbefore , uh, when it makes a
decision? Is this is , is thisan issue where the board
absolutely needs to get , uh,management absolutely needs to
get board approval? Those arehealthy discussions. So, you
know, you , you and the generalcounsel , I think can be
because of its dual reportingrelationship can be a , a very
(23:20):
helpful guide, facilitator,what , uh, whatever in those
discussions.
Speaker 3 (23:26):
So Michael, as you look at this issue, is it gonna
be an intractable divide orsomething where the respective
constituents can ever come to a, a meeting of the minds?
Speaker 4 (23:34):
Well, I , I'll go back to one of your earlier
observations, Rob. I think thata , a , a good number of
organizations have have settledinto a comfortable
understanding of roles andresponsibilities and the lines
of authority. And those areones , uh, where you've got
stable management teams andstable boards of directors. On
(23:58):
the other hand, you know,boards of directors are , uh,
especially focused on turnoverand, and, and being independent
and things of that nature. So Iwouldn't say it's an
intractable issue. I would sayit's an ongoing issue, and
especially as you said,onboarding where , where
(24:18):
there's lots of turnover inboard leadership on management
team issue , uh, I wouldabsolutely push the refresh
button. Uh , again, perfectworld is where everybody's used
to dealing with each other andthey in inherently know to take
issues to the board or to deferto management. But when you
have new folks coming in,whether you either the senior
(24:40):
management level of the board,it, it's good to, to to be
proactive, have thoseconversations so they're not
arising in the context of realtension. That latter one,
believe me, can be exceedinglydivisive and can destroy the
relationship between the boardmanagement if it's not direct
or directly addressed.
Speaker 3 (25:02):
Great. Well, Michael, not an easy topic by
any stretch, but we sureappreciate your perspective.
Uh, it's a difficult one thatwe all continue to tackle in
this industry and your commentsaround having that proactive
partnership and that advanceddiscussion around what are the
standards upon which our boardand our management team are
gonna operate , uh, is reallyinsightful. So thanks as always
for sharing those thoughts withus. We'll be back next month
(25:24):
for our next governance podcastdiscussion where we'll dig into
the distinction between recusaland abstention and when they're
appropriately applied and whenthey are misapplied. So thanks
Michael again for , uh, allyour insights.
Speaker 4 (25:36):
Thank you, Rob, very much. Always a pleasure to be
with you.
Speaker 2 (25:43):
Thank you for listening. If you enjoyed this
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Speaker 2 (00:04):
ALA's, popular Health Law Daily email
newsletter is now a dailypodcast exclusively for a HLA
premium members. Get all yourhealth law news from the major
media outlets on this newpodcast. To subscribe and add
this private podcast, feed toyour podcast app, go to
American health law.org/dailypodcast .
Speaker 3 (00:26):
Hello everyone, this is Rob Berry. I'm the Chief
legal officer of Summa Healthand a member of the HLA Board
of Directors. I'd like towelcome you to our latest and
our continuing series of keycorporate governance issues
affecting healthcareorganizations. Today's topic is
one of continuing interest toour membership and their
clients, the distinctionbetween the role of the board
and the role of management.
(00:48):
It's the basic roadmap by whichthe organization's senior
leadership navigates theirapproach to issues confronting
the organization and whetherthose issues need to be the
responsibility of the board ofthe management team, or is it a
joint issue. It's an issue thatbecomes, has become more acute
in recent years as CEOsencountering increasingly more
complex agenda, which requiresnimble and proper response from
(01:10):
them while boards are feelingpressures from court decisions
and regulators as to theiroversight responsibilities and
leading into management morethan ever before. And of
course, as the leadinggovernance advisor to the
board, the general counsel orchief legal officer is the
likely source of guidance onwhere the distinction lies
between the role of managementand the role of the board lucky
(01:31):
us and this profession. Sotoday's podcast seeks to
position our members to have ainformed conversation with
their client leadership teamson how to best address this
sticky issue and reach someform of accommodation and
understanding as to theirrespective duties and
allocation of authority. Asalways, we're joined by my HLA
colleague and friend MichaelPeregrine of McDermott, will
(01:52):
and Emery, who's also an A HLAfellow and a fellow of the
American College of GovernanceCouncil. Well, welcome Michael.
Speaker 4 (01:59):
Thank you, Rob .
Speaker 3 (02:00):
So, Michael, before we get too deep into this
topic, I'm wondering if there'srisk of making too much of this
issue. And by that I mean, doboards in their management
teams ultimately have a cadenceor a pattern that they've , uh,
developed through years of workand informal allocation of
roles and responsibilities? Orhow formal do you think we
really need to get indescribing this , uh, level of
(02:20):
allocation of responsibility,
Speaker 4 (02:23):
Rob? I think it's a , a great question, and I think
unfortunately, that we need ascounseling , um, board and
management on these issues thatwe need to be prepared to push
them towards a little bit moreformal , uh, recordation of
roles and responsibilities. AndI say that because from
anecdotal evidence or evidenceof my own practice, I would say
(02:46):
over the last three years , uh,that I have seen more instances
of real friction between theboard and management, real
leadership friction as to whodoes what than ever before. And
I've been doing this now, thisis my 46th year, you know, take
(03:07):
a little history lesson I thinkis useful here. Uh, it was my
experience that with covid andnow we're what, a year six
after that , uh, uh, startedfive or six, that the board was
more than willing to take astep back , uh, and let
management run with the ball. I, I think principally because
(03:29):
the issue was so operationaland quality of care related ,
and that there was a sense thatthe board , um, didn't have a
lot to contribute to, to theconversation. I don't think
that's correct, but I thinkthat was the sense, and I think
the state's , state attorneygenerals kind of gave the board
some slack in that regard. Ithink you're seeing now that
(03:53):
with all sorts of issues , uh,critical issues confronting the
board, and, you know, as youwere and I were talking before
we started this podcast, youknow, Medicaid issues and the ,
uh, and the issue there , uh,uh, other major crises, the
board is realizing that thereare issues where they need to
lean in a little bit more. AndI think that that's, you know,
(04:15):
creating a little bit of, offriction that management says,
wait a minute, all of a suddennow you're leaning in on me
when you've been out for thelast couple of years. So, but
at the same time, I think , um,uh, management has to be
certainly concerned about , uh,micromanagement. The NACD has
flagged that it's an issue, but, uh, but I do believe also
that management needs to beaware that the board is getting
(04:38):
pushed as well , uh, from a ,some , as you and I have
discussed on these programsbefore, courts are increasingly
looking at whether or not theboard is adequately engaged on
certain, you know , what Iwould call top of line issues.
They're , uh, concerned aboutwhether boards are exercising
(04:58):
the proper amount of oversightand they're holding directors,
especially in the for-profitworld, viable , uh, for
inaccurate , uh, inadequateoversight. Long way of saying,
I think it's an issue that weneed to, as council , continue
to be prepared to address ourleadership teams because the
natural pressures of businesson ma on management and the ,
(05:21):
and the issues on their agendaare encouraging management to ,
you know, we need to get thingsdone quickly, promptly, and
effectively. And I can't beslowed down by a board that's
not prepared or not adequatelyengaged. And the board is
saying, whoa, wait a minute.
I've got courts and my lawyer'stelling me that we need to be
more engaged because we need tobe exercising more oversight,
more informed oversight. It's,it's a recipe for conflict, and
(05:47):
we need to be prepared ascouncil to support our internal
constituents in , in resolvingthat conflict.
Speaker 3 (05:55):
So often, Michael, I see, as part of that resolution
, uh, the issue is brought upto chief legal officer. Alright
, point me to what the lawsays. Let's move away from
everyone's feelings on this.
Let's point to black and , uh,letter law. Is there anything
that you would point to ourmembership as far as what the
corporate law statements arearound this?
Speaker 4 (06:13):
You know , it , we're fortunate, Rob, in this
instance where the law actuallydoes weigh in a little bit in ,
in kind of setting the table ,uh, for the question of , uh,
the line separating what's theresponsibility of the board and
what's the responsibility ofmanagement? Most corporate
laws, most modern statecorporation codes provide that
(06:37):
the ultimate authority forcorporate affairs lies with the
board of directors, which thelaw says is supposed to
maintain an oversight andadvisory role towards
management. I think if you, notthat I encouraging our
listeners to , uh, drop theirheadsets and go off and open up
the state corporation code, butI think you'll see that they
(06:57):
often require certainactivities to be performed by
full boards and things thatcan't be delegated to
committees. Uh , but moreimportantly, I think that
there's usually a statement inthe corporate code saying, the
operation , uh, responsibilityfor operation of the affairs of
(07:17):
the corporation lies with theboard of directors. However ,
uh, you'll essentially go tothe next sentence of that code
and say that the board maydelegate the responsibility for
management , uh, to competentexecutive management. You know,
if you look at Delaware law asan example, Delaware says that
the business and affairs ofcorporations shall be managed
(07:40):
by or under the direction of aboard of directors, but
ultimately , uh, delegation ofmanagement duties to executive
employees is gonna be subjectto the board's ultimate
authority. So what does thatmean? It means that the , uh,
corporate laws say the buckstops with the board, but they
also say indirectly that theyknow that no board can
(08:03):
effectively manage theday-to-day affairs of a
business enterprise . So ofcourse, they , they're supposed
to delegate affairs to theirexecutive management team,
however, what they delegate andhow they monitor that
delegation is subject to theirauthority. So we start with
that. I think when we're, whenwe're sitting down and having
(08:24):
the conversation and it's, it'sa bargain, it's a balance. But
I do think it's important tosay that the , uh, remind both
management of the board thatthe law does have something to
say about that.
Speaker 3 (08:36):
That's great. So when you look at other
governance associations thatput out pronouncements related
to best practices on governance, um, what advice do they give?
Speaker 4 (08:45):
What we're looking at in a situation there, Ravi ,
we know what are our , what areour leading governance
principles? Who , what aretheir statements? And, you
know, we look at least from myperspective to groups like the
Business Round Table , thecommon Sense principles , uh,
uh, organizations like that,that , um, that generally weigh
in on the concept of governanceprinciples. And, you know, I
(09:08):
think that , uh, they will saythat we understand that the
board has an oversightresponsibility, but they , the
board, in order to truly beeffective , uh, must stick to
strategic issues and allow themanagement to address tactical
(09:30):
issues. Um, there is a , a kindof an inherent bias for the
board to be , um, notstandoffish, but to take a
higher, more overarching role.
And, and not to get out of theway of management, but to allow
management to do its job andnot to , uh, uh, complicate the
(09:54):
agenda of the board with issuesthat are specifically or at
least traditionally consideredto be the role of management.
And that's, you know, the onlything I I would say about that,
Rob, is it's a little bitmisleading in the sense that
you don't want to draw fromthat a conclusion that the
(10:15):
board should be , uh, you know, uh, absent on some of the
critical operational issues ofthe day. Uh, I think that's a ,
that's a little bit of aproblem. What, what's missing
sometimes from some of thegovernance principles, which
have not been updated in acouple of years, is the
recognition of, of , uh, thered flag events. It's a
(10:39):
recognition of the , um, blackswan events, whatever examples
you can say that there are justcertain fundamental crises ,
uh, certain fundamentaldevelopments, which require the
board to lean in more. That'sthe kind of judicial , uh,
color. So again, you know ,we're talking about a situation
, uh, uh, uh, you know,critical rules and
(11:01):
responsibilities. Uh, thegeneral rule is let the board
govern, let management manage,and then the really the
question go gets down to whatare the details , uh, you know,
how does that work on aday-to-day relationship? How do
you kind of, if you , where doyou draw the line , uh, between
what's governance and what'smanagement? And I, and I do
(11:23):
think that there's someguidance on that.
Speaker 3 (11:26):
So Michael, like many of my peer general
counsel, you're sitting infront of a board chair who is
very , uh, deliberate andasking you, I want very
prescriptive advice. As weonboard new board members, can
you tell me what are theleading roles and
responsibilities as we onboardboard members?
Speaker 4 (11:41):
Yeah, I, I think that if I was to brief a new
board member, or if I was goingto sit down , uh, between board
leadership and executiveleadership and say, this is
generally where I would drawthe line, I, I would say as to
the board's oversight dutiesthat they would include, a
couple of this isn't gonna be a, you know, an all inclusive
list, but I think they would ,uh, encompass the following nu
(12:04):
uh , uh, job number one isgonna be selection and
evaluation of the CEO . I think, uh, then you would pick up ,
uh, establishing the ethicaltone at the top of leadership
in the organization , uh,ensuring the effectiveness of
the corporate complianceprogram. We know that from the
Caremark issues , uh, anothercritical role is approving the
(12:27):
development of a strategic planand ensuring its
implementation. I wanna confirmthat the board's role is to
make sure that the strategicplan is developed and, and
assure that management pursuesthat, and then monitoring the
effectiveness of the plan. Butthe board is not to do the
strategic plan itself. Youknow, then we have the
(12:48):
traditional duties arising fromSarbanes and others about
ensuring the integrity andtransparency of financial
reporting and disclosures. And, and I think , uh, and , and ,
and also I should add to that,financial plans. I think
increasingly Rob, we see theboard being charged with , uh,
assuring the , uh, protectionof reputational risks of trust,
(13:13):
which is something that you andI have discussed in some
previous podcasts. And then,then I would say another
fundamental responsibility ofthe board, one that I don't
think you see picked up in someof the governance statements,
governance principle statementsthat are prior to say, 2020 is
the obligation to exerciseoversight of the workplace. Uh,
(13:36):
I think those are the ones thatI would , uh, say about, you
know , where if I was to tellthe board this is, this is in
your corner of the world.
Speaker 3 (13:45):
So now you switch from that hot seat with the
board chair to the hot seat infront of the CEO and the CEO
says, Michael, let's make surethat we're educating management
on what our responsibilitiesare. How would you define
those?
Speaker 4 (13:55):
Well, the first thing I would say is it's much
easier. I mean, the , the listof of board oversight bilities,
and actually areas of where,where the board has fundamental
responsibility is gonna belonger than managements,
because management'sresponsibility, number one, is
to run the day-to-day affairsof the business. And that
encompasses so many the issues.
(14:17):
But , uh, the , that includes,you know, on top of that, I
would specifically say not onlyare you responsible for the
day-to-day management issues,but you're also responsible
specifically for things such asimplementing , uh, and
developing and implementing thestrategic plan , uh, making
(14:37):
recommendations to the board oncapital allocations allocation,
maintaining the complianceplan. Um, I think an
increasingly importantresponsibility of management is
the identification and analysisin response to enterprise and
operational risk . The wholequestion of , uh, developing a
risk profile of theorganization, you know,
(14:59):
preparing financial statements,preparing operational plans,
selecting qualified manexecutive leadership , uh,
driving talent development anddeveloping crisis management,
those kinds of things. But Ithink it all spins off of Rob,
the fundamental responsibilitythat executive leadership is
(15:20):
charged directly with runningthe day-to-day affairs of the
business. Where there , the ,the roles of the board and
management merge is when theboard is, is charged with
specific oversightresponsibilities of aspects of
the day-to-day operations andmanagement feels that the
board's involvement there is,is too great, is too , is
(15:44):
overwhelming. And, and that'sthe where I think we as council
to leadership can encourage ourinternal clients to be more
accommodating and more aware ofwhat the motivations and
interests are. Will there betimes when the board, for
(16:04):
example, engages inmicromanagement? A hundred
percent. Will there be timeswhen management is less than
engaging with the board onissues? You bet. The, it's easy
to say, here are the black andwhite duties. We know the core
duties of the board. Here arethe black and white duties of
(16:25):
management. Uh, this goes backto your first question. What
council can do is help the bothparties understand where you
move away from the black andwhite and you move into the
gray and where the parties haveto work together.
Speaker 3 (16:40):
Michael, where do you come out on ultimate risk
tolerance decisions for theorganization, whether it be how
many years can we operate inthe red with a negative
operating performance orthinking of risks on the other
side? Do we make a compliancedisclosure? Do we enter into a
piece of litigation? Um, how doyou ultimately see that board
management dynamic around risktolerance?
Speaker 4 (17:01):
Uh , you know, it's interesting because I've just
been dealing with exactly thelatter question. I think that ,
uh, there are just certainissues with, with respect to
the long-term viability of thebusiness that have to percolate
up from management. And theboard has the ultimate call
(17:21):
where , and for example, the,this , let's just say on a
compliance issue, Rob. Um , thequestion of , uh, whether we
self-report or not , uh,whether we , um, engage in
litigation or not. Thehomework, the , the, the
development of the issues, theevaluation of the advantage and
(17:43):
disadvantages, it has to comefrom the management. They are
the experts. But those are theissues where the board has the
final authority to say yes orno. And again, the, the board's
responsibility is to be inforsufficiently informed on these
issues. So management iscomfortable that the board will
(18:04):
make an the right decision. Wedon't talk about this enough,
but the board management hasevery right to expect the board
to be prepared, to be engagedand to be an effective partner
, uh, to management and supportmanagement in the exercise of
their duties. I see terribleproblems arising , uh, when
(18:29):
management loses confidence inthe board's ability to make the
final decisions on the kinds ofissues that you say. On the
flip side, I see terribleproblems arise when the board
believes that management ismaking certain decisions that
at least should engage theboard as a partner in making
(18:51):
those decisions. It'sultimately, is there some kind
of fundamental compact orunderstanding , uh, that it's a
, that effective leadership isa partnership, a shared
enterprise.
Speaker 3 (19:07):
So you mentioned earlier about, you know , these
issues continue to evolve.
Where do you see the boardmanagement dynamic as we
currently sit with boards thatyou're working with? Is it, is
it healthy or is it gonnarequire more work?
Speaker 4 (19:17):
I think it's absolutely requiring more work.
And that's because , uh,critical funding , uh, issues
relating to the viability of,of hospitals and health systems
with respect to organic ornon-organic growth. Uh, with
respect to the current crisis ,and I'm not trying to be
political here, but the crisisenvironment we're in right now
, uh, the , uh, if , if whenwe're looking at this, you know
(19:40):
, uh, this issue today , lateMarch , uh, early , uh, April,
2025, I , I think I have foundthat by and large, many large
health systems are kind ofsuffering from , uh, just being
overwhelmed , uh, by the , uh,level of turbulence coming out
(20:00):
of Washington. Again, nottrying to make a political
statement here, butacknowledging, which I think is
obvious, is the combination ofthe, the , um, flood of
executive orders and change.
Uh, it has, has made itdifficult for management shoot
for lawyers to stay up to speedon , uh, on what's going on,
(20:22):
what's new, what's, what's alaw, what's not , uh, and
concerns about reimbursementespecially. And the board has a
special role to, I think, weighin here, be informed, and be
there for management. Whenmanagement comes and says,
chairman Berry , what do youthink? Uh , and that, I think
(20:42):
is what's most important in thecurrent environment. If we
continue to , uh, experienceturbulence, which affects the
long-term viability,operational, reputational , uh,
financial of a health system,management is going to and
should go to the board and seekits input and advice and
(21:04):
counsel . And the boardabsolutely needs to be prepared
to respond , uh, to that. Uh,they need to be informed. They
need to be available. Again, asI said, they need to be a good
partner to the management team.
Speaker 3 (21:18):
So Michael, you've been a trusted advisor to many
boards through the years. Asyou look to give advice to our
members, whether they're insidecouncil or outside counsel on
how to best navigate thistopic, any lessons learned?
Speaker 4 (21:28):
Yeah, I would be proactive at this point, Rob,
and say , and use some of thecurrent, the current
environment to say, is this agood time for us to revisit, to
sit down and have the issue? Inother words, I would force the
conversation. Uh, it might besomething that's unspoken.
There might be turbulence underthe , uh, surface , uh, in , in
the , in the boardroom betweenexecutive leadership and
(21:52):
management. And I think, I'mnot talking about throwing a
hand grenade into theboardroom, but I am saying that
I think that general counselcan really do a service by
simply prompting the issue ,uh, uh, using this , the
current situation to say, youknow, how, how, how do we wanna
handle this? What's the , uh,to talking to the management
team? Is this something that ,um, we should , uh, be
(22:14):
involving board leadership on alittle more? Should we be
preparing more educationalprograms on the board? Uh,
should we ask the board to bespending more time so they can
be available to us? Raise it ina non-threatening, discrete
way, but raise itnotwithstanding, because I
think that right now we've,we've gone through so many
(22:36):
crises in our industry over thelast 20 , 30 years. This one
might be different, differentkinds of issues. And it's a ,
it's an opportunity for thegeneral counsel to play a great
service by saying, Hey, howabout let's just kick the tires
on, you know, who does whathere? Is this a , is this an
issue where management can ,uh, roll on its own? Is it an
(22:58):
issue where management shouldbe , um, involving letting the
board know what it's doingbefore , uh, when it makes a
decision? Is this is , is thisan issue where the board
absolutely needs to get , uh,management absolutely needs to
get board approval? Those arehealthy discussions. So, you
know, you , you and the generalcounsel , I think can be
because of its dual reportingrelationship can be a , a very
(23:20):
helpful guide, facilitator,what , uh, whatever in those
discussions.
Speaker 3 (23:26):
So Michael, as you look at this issue, is it gonna
be an intractable divide orsomething where the respective
constituents can ever come to a, a meeting of the minds?
Speaker 4 (23:34):
Well, I , I'll go back to one of your earlier
observations, Rob. I think thata , a , a good number of
organizations have have settledinto a comfortable
understanding of roles andresponsibilities and the lines
of authority. And those areones , uh, where you've got
stable management teams andstable boards of directors. On
(23:58):
the other hand, you know,boards of directors are , uh,
especially focused on turnoverand, and, and being independent
and things of that nature. So Iwouldn't say it's an
intractable issue. I would sayit's an ongoing issue, and
especially as you said,onboarding where , where
(24:18):
there's lots of turnover inboard leadership on management
team issue , uh, I wouldabsolutely push the refresh
button. Uh , again, perfectworld is where everybody's used
to dealing with each other andthey in inherently know to take
issues to the board or to deferto management. But when you
have new folks coming in,whether you either the senior
(24:40):
management level of the board,it, it's good to, to to be
proactive, have thoseconversations so they're not
arising in the context of realtension. That latter one,
believe me, can be exceedinglydivisive and can destroy the
relationship between the boardmanagement if it's not direct
or directly addressed.
Speaker 3 (25:02):
Great. Well, Michael, not an easy topic by
any stretch, but we sureappreciate your perspective.
Uh, it's a difficult one thatwe all continue to tackle in
this industry and your commentsaround having that proactive
partnership and that advanceddiscussion around what are the
standards upon which our boardand our management team are
gonna operate , uh, is reallyinsightful. So thanks as always
for sharing those thoughts withus. We'll be back next month
(25:24):
for our next governance podcastdiscussion where we'll dig into
the distinction between recusaland abstention and when they're
appropriately applied and whenthey are misapplied. So thanks
Michael again for , uh, allyour insights.
Speaker 4 (25:36):
Thank you, Rob, very much. Always a pleasure to be
with you.
Speaker 2 (25:43):
Thank you for listening. If you enjoyed this
episode, be sure to subscribeto ALA's speaking of health
law, wherever you get yourpodcasts. To learn more about a
HLA and the educationalresources available to the
health law community, visitAmerican health law.org.
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