A recently resolved controversy involving a nationally renowned
charity provides a colorful example for nonprofit health systems of
the potential risks of concentrating governance and operational
authority in a single, charismatic individual, and of the attorney
general’s willingness to investigate what it perceives to be
potentially problematic expenditures by a charity.
The controversy had its roots in
the long time commitment of a highly prominent philanthropist to
the charity, her interest in continuing to serve in a combined
chair/president (i.e., operations leader) role, and the
aggressive manner in which she dealt with other board members
opposed to some of her positions. The controversy was fueled by the
charity’s settlement with a former CFO, who claimed the
philanthropist had fired him for raising allegations that she had
unilaterally authorized (i.e., no board approval) a
$450,000 payment to a former staff member who had experienced
illness. The state attorney general investigated the payment.
According to media reports on a recent
meeting, the charity’s board addressed these
concerns through bylaw amendments and other actions that changed
the philanthropist’s title and role, named a new chief
executive officer and appointed an expanded board leadership group.
The board is also reportedly considering
implementing three year renewable terms for board service to
replace what it referred to as an “open-ended service”
These are themes that are not unusual for many health systems,
large or small. The exercise of concentrated authority by dominant
officers or directors—no matter the extent of their devotion
to mission or best intentions—can create undesirable
operational and governance controversy. They can disable the
effectiveness of the board, cause rifts in the
governance/management relationship and, in certain circumstances,
prompt whistleblower activity and attract the attention of charity
officials. Most health systems separate the board chair and CEO
positions. Yet, it is not out of the realm of experience that some
system boards suffer from other forms of individual officer and
director dominance, e.g. a major donor, an influential
business leader, a prominent physician, or a “legacy”
board member. In these situations, as with the charity in question,
it can be helpful to have in place such protections as bylaw
provisions that require separation of the Chair/CEO positions;
spending authorization protocols; individual board evaluation
procedures and fitness to serve/disruptive director policies.
On November 9, 2016 Andrew Liazos presented at the New York City Bar. He discussed innovative approaches used by public companies during the 2016 proxy season for disclosing executive compensation practices.
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