Health service governance boards or bureaucrats

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Health service governance boards or bureaucrats

• Friday 8 November 2007

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Overview

• Governance what is it?
• Governance whose responsibility?
• The role of boards and the duties of directors
• Boards or bureaucrats does it matter?
• Conclusion

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Governance what is it?

• No universal agreement on the definition of
  governance or the structures that are necessary
  to achieve good governance
• Corporate governance encompasses the
  arrangements by which the power of those in
  control of the strategy and direction of an
  entity is both delegated and limited to enhance
  prospects for the entitys long-term success,
  taking into account risk and the environment in
  which it is operating.
• The Uhrig Report

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Governance what is it?
Appoint and work through CEO
Adapted from Robert I. Tricker, International
Corporate Governance Text Readings and Cases,
New York Prentice Hall, 1994, p.149
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Governance what is it?

• The governing body is responsible for ensuring
  that there is a strong governance system in place
• The governance system permeates the organisation
  everyone has a role in good governance
• Good governance typically requires
• Strong, visionary leadership
• Sound strategy
• Effective policy
• Sensible and clear delegations of authority
• Effective monitoring of organisational
  performance
• Clear systems of accountability
• Strong risk management systems

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Governance what is it?

• Clinical Governance is a framework through which
  NHS organizations are accountable for
  continuously improving the quality of their
  services and safeguarding high standards of care
  by creating an environment in which excellence in
  clinical care will flourish.
• Sir Liam Donaldson, Chief Medical Officer, NHS

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Governance whose responsibility?

• In large private sector companies with multiple
  shareholders, the power to control the strategy
  and direction of the entity usually is vested by
  the companys owners in the Board of Directors
• Community-owned organisations usually are
  structured as companies limited by guarantee.
  The owners are the members of the organisation,
  and there are various mechanisms for appointing a
  board to lead the company in the interests of the
  members as a whole

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Governance whose responsibility?

• It is the Boards responsibility to ensure good
  governance and to account to shareholders for
  their record in this regard.
• Sir Robert Hampel, UK Committee on Corporate
  Governance

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Governance whose responsibility?

• Clinical governance is commonly discussed in the
  health care sector as if it were a new and
  distinct governance responsibility
• There has been inadequate attention paid to
  clinical governance in health care there has
  been a culture of delegation of authority to
  professionals, without effective risk management
  or proper accountability structures
• Some stakeholders thought that clinical groups or
  the professional colleges were responsible for
  clinical governance
• There were insufficient rescue mechanisms if
  self-regulation by the professions failed

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Governance whose responsibility?

• It makes no legal or practical sense to define
  the scope of organisational governance in health
  care as excluding the core business of the
  organisation
• Clinical governance in health care is a core
  governance responsibility of the governing body,
  similar to the responsibilities of the governing
  body for
• Financial governance
• Human resources governance (including governance
  of occupational health and safety)
• Information technology governance, etc.
• The clinical governance role is complex most
  organisations are still developing structures,
  skills and tools

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Governance whose responsibility?

• After heading two health inquiries in NSW and
  South Australia, I have concluded that no one
  runs hospitals Hospitals in Australia have a
  life of their own with no clear lines of
  responsibility and accountability. Only the good
  sense of people in the system prevents it from
  descending into chaos. No one runs hospitals.
  Governance is fundamentally flawed . A highly
  dysfunctional system in need of fundamental
  reform.
• John Menadue

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The role of boards and the duties of directors

• Individual directors have clearly defined legal
  duties
• To exercise care, diligence and skill
• To act bona fide, and in the companys best
  interests
• To not fetter their discretions
• To exercise powers only for proper corporate
  purposes
• To avoid conflicts of interest
• The last four are fiduciary duties (duties of
  utmost good faith)

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The role of boards and the duties of directors

• Boards must ensure compliance with the law and
  the companys constitution, but otherwise in the
  private sector are autonomous entities,
  accountable only to their owners
• Directors must act in the best interests of the
  company as a whole, in accordance with the
  constitution and on behalf of the companys
  shareholders or members

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The role of boards and the duties of directors

• The buck stops with the board
• shareholders of non-performing companies usually
  will change their boards
• directors who break the law (e.g. trading whilst
  insolvent) may go to jail or face very
  significant penalties
• there are clear risks associated with being a
  director, which need to be managed

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The role of boards and the duties of directors

• There have been many examples of governance
  failure in both private and public sectors
  (health and non-health) with serious consequences
  (civil, criminal, reputational) for those with
  governance responsibilities
• National Safety Council
• National Australia Bank
• HIH Insurance
• OneTel
• Bristol Royal Infirmary
• King Edward Memorial Hospital
• Bundaberg Hospital
• Manitoba paediatric cardiac surgery
• Etc..

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Governance failures

• National Australia Bank
• 360 million loss due to rogue trading
• Approx 6 of turnover
• tearing apart its governance structures and
  threatening to do even more damage in the
  future.
• the culture fostered the environment that
  provided the opportunity for the traders to incur
  losses, conceal them and escape detection despite
  ample warning signs. This enabled them to
  operate unchecked and flout the rules and
  standards ultimately the board and CEO must
  accept responsibility for the tone at the top.

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Governance failures

• HIH Royal Commission
• The hand and influence of Williams was
  paramount. In itself, there was nothing
  inherently wrong with a strong and forceful
  influence guiding the affairs of the corporation
  But in the modern commercial context such
  influence must be subject to the countervailing
  effect of close review, debate and questioning.
  This appears to have been a commodity in short
  supply at HIH there were very few occasions
  where the board either rejected or materially
  changed a proposal put forward by management.
  The boards independence was compromised by the
  influence of management in relation to its
  deliberations.

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Governance failures

• National Safety Council
• Auditors advised that 106 million of trade
  debtors could not be collected and that they
  doubted the existence of assets valued at 86.8
  million. The company appeared to be
  irretrievably insolvent
• A 97 million claim was made by the bank against
  each honorary, part time director
• The case was settled with all but the chairman
• In the result there was judgement for the
  plaintiff against the second named defendant,
  Maxwell Walter Eise, to the sum of 96,704,998

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Governance failures

• Bristol Royal Infirmary Inquiry
• It is an account of a time when there was no
  agreed means of assessing the quality of care.
  There were no standards for evaluating
  performance. There was confusion throughout the
  NHS as to who was responsible for monitoring the
  quality of care.
• It is an account of a hospital where there was a
  club culture' an imbalance of power, with too
  much control in the hands of a few individuals.

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Boards or bureaucrats does it matter?

• Most public hospitals in all states and
  territories are owned by Government
• In most states, Government runs public hospitals
  directly (owner-operated) there is no
  independent governance structure
• Governance responsibilities are delegated from
  the Minister through the bureaucracy to hospital
  CEOs and via hospital CEOs throughout their
  management teams
• In one state only at present (Victoria) public
  hospitals are established as companies (under the
  Health Services Act) and are governed by
  independent boards of directors

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Boards or bureaucrats does it matter?

• Responding to the clear voice of the local
  community . the Commonwealth will . support
  the establishment of a Mersey Community Hospital
  Trust, comprising regional local government,
  business and health profession leaders, to run
  the hospital on behalf of the community
• This plan has been put together by locals for
  locals. If the community consensus is to give it
  a go, and it involves no extra cost to the
  Tasmanian Government, I believe that this spirit
  of community self-help deserves encouragement and
  support.
• Prime Minister John Howard, 1/8/2007

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Boards or bureaucrats does it matter?

• States reject hospital board proposal
• State Health Ministers have resoundingly
  rejected Tony Abbott's proposal as a tired
  concept, a diversion..
• The Health Ministers say putting local boards in
  charge of hospitals would simply add another
  level of bureaucracy to the system and drain the
  already limited resources.They also point out
  that the system of hospital boards has been
  tested before and was generally found not to
  work.
• ABC radio, The World Today, 2/10/2007

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Boards or bureaucrats does it matter?

• The objective is to establish a governance system
  that supports the delivery of sustainable health
  services
• If our system is not designed for sustainability,
  there will be
• safety and quality consequences for patients
• cost consequences, because short-term solutions
  to support unsustainable services almost
  invariably generate excessive costs
• poor continuity and integration of care
• reduced community confidence in the health care
  system
• potential consequences for directors
  (reputational or legal)

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Boards or bureaucrats does it matter?

• The role of government is itself a defining
  factor in establishing appropriate governance
  arrangements for statutory authorities.
  Governments are held accountable by the
  electorate for the performance of government as a
  whole. Where statutory authorities are failing to
  perform adequately, the electorate will expect
  governments to act. Inevitably, therefore, there
  is a role for Ministers in the governance of
  statutory authorities.
• The Uhrig Report

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Boards or bureaucrats does it matter?

• There is a lack of effective governance for
  several of the authorities considered by the
  review due to several factors including unclear
  boundaries in their delegation, a lack of clarity
  in their relationships with Ministers and
  portfolio departments, and a lack of
  accountability for the exercise of their power.
  This lack of governance arises primarily due to a
  hands off attitude assumed by many when dealing
  with statutory authorities. This situation is
  often further complicated by the presence of a
  board, particularly those where it is impractical
  for government to provide the full governing
  powers required to be effective.
• The Uhrig Report

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Boards or bureaucrats does it matter?

• Factors that diminish the effectiveness of public
  sector governance
• Unclear boundaries in delegation
• Lack of clarity in relationships with Ministers
  and Departments
• Lack of accountability
• Difficulty recruiting people with requisite
  skills to the governing body
• The Uhrig Report

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Boards or bureaucrats does it matter?

• Where a board has limited power to act, its
  ability to provide governance is reduced and its
  existence adds another layer, potentially
  clouding accountabilities. Given the nature of
  government, the circumstances in which a board
  can be given full power to act are going to be
  rare and are most likely to be limited to those
  authorities which are commercial in nature.
• The Uhrig Report

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Boards or bureaucrats does it matter?

• Will local community-controlled boards be the
  answer to problems in Australias health care
  system?
• Is it possible for effective decisions which
  accord with the desires of the community to be
  made by community-controlled boards?

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Boards or bureaucrats does it matter?

• Possibly..
• In Victoria, boards are considered to be working
  well
• It can be an effective model but its not a
  magic bullet which will solve all the problems
  of the health care system
• there is still a bureaucracy, and it has a
  significant role in managing the performance of
  hospitals and their boards
• there is a significant cost (directors of
  metropolitan health boards in Victoria are
  remunerated at semi-commercial rates)
• there is a large training investment
• hospitals still face the problems of balancing
  demand, supply and quality
• some boards have had performance problems,
  necessitating Ministerial/Departmental
  intervention

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Boards or bureaucrats does it matter?

• Other observations about boards of governance of
  public hospitals
• a good bureaucracy can govern effectively the
  key is appropriate delegation of authority and
  effective accountability systems
• the health care system is extremely complex and
  daunting to many lay people who may be asked to
  play a governance role
• many people are wary of the personal risks of
  being a director, particularly in a sector that
  is plagued by high inflation and a history of
  funding challenges
• most states have tried and discarded hospital
  governing boards in favour of direct bureaucratic
  governance

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Boards or bureaucrats does it matter?

• Issues that must be addressed in the design of
  the governance structure
• Will the company be a Corporations Act company
  (with resulting specific legal duties for
  directors)?
• What if there is not a single community voice?
• What if the board is unable to govern the entity
  effectively (financial and clinical governance
  are particular challenges)
• How will the entity be capitalised?
• Will Government guarantee the hospitals
  financial position?

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Boards or bureaucrats does it matter?

• Issues that must be addressed in the design of
  the governance structure (cont.)
• How will the Boards performance be monitored?
• What if Government is not satisfied with what the
  board is doing?
• Will the Minister and/or Departmental secretary
  have rights to direct the Board in the interests
  of the community?
• Will the Minister have step in rights?

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Conclusion

• Good governance of health care is important to
  the community
• Clinical and financial governance are particular
  challenges
• Boards of governance operate well but not
  perfectly in Victoria
• Other states have tried and discarded them

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Conclusion

• Delegations and accountabilities need to be clear
• Due attention needs to be given to selection and
  training of directors
• There is an ongoing monitoring and board
  management role for Government
• Boards are not a magic bullet and attention
  needs to be paid to the governance structure, the
  composition of the board, the accountability of
  the board and the ongoing role of government

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