How Hospital CFOs Can Work More Effectively With Their Boards of Directors

April 4, 2016 2:55 pm

Good governance begins with trust, transparency, cultivating key relationships, and good financial education opportunities for all board members.

As the healthcare landscape continues to change, it stands to reason that the role of CFO is evolving, too. But CFOs’ traditional duties—financial oversight throughout the organization and maintaining accountability to the Board of Directors—remain as important as ever. In fact, hospital and health system CFOs will find that developing a collaborative, trust-filled relationship with their boards of directors is arguably more important than ever as healthcare is delivered and funded in increasingly complex ways.

David Friend, MD, chief transformation officer and managing director at the BDO Center for Healthcare Excellence & Innovation, encourages CFOs to examine these five aspects of board relations to help ensure the smoothest possible governance.

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The CFO’s relationship with the audit committee chair is key. Despite all the disruption in health care, the traditional relationships and lines of communication between CFOs and their boards of directors remain in place. The board delegates its authority to the CFO through its audit committee, which means the audit committee chair should be on a CFO’s speed dial. “Common sense would suggest that the CFO wants to have good, ongoing dialogue with the chair throughout the year, not just before board meetings or at audit time,” Friend says. “A good CFO is talking to that audit chair at least every week or two and discussing ideas, trends, and issues before they become a problem. It should be a close, positive collaboration.”

Such regular contact allows for constant evaluation of vulnerabilities that evolve with issues such as expansion of business affiliate networks or the implementation of new technologies to help extend the reach of care into the community. It also creates a regular way to touch base on external issues. For example, the ransomware hack that shut down Hollywood Presbyterian Medical Center, Los Angeles, earlier in the year should have prompted a discreet discussion between every board and its CFO.

Embrace the role of financial information translator. Board members often have widely varying levels of financial acumen and experience, and it’s up to CFOs to level that playing field. CFOs should assume that board members possess only general financial knowledge: “Board members are supposed to show good judgment and ask tough questions,” Friend says. “A ‘civilian’ should be able to sit on that audit committee and participate fully, and it’s the CFO’s job to achieve that via absolute clarity and transparency in reporting.” He likens it to serving on a jury: Jurors are not expected to be lawyers themselves, but they should be able to understand key points and draw reasonable conclusions based on the lawyers’ arguments.

For example, the Centers for Medicare & Medicaid Services move to bundled payments will change the way hospitals record revenue, price their services, and accept insurance risk. These realities are creating financial cross currents that can appear to be clear one minute and confusing the next. The hospital CFO needs to be prepared to translate these issues for the board so that they can be in a position to understand and accept the risk that institutions are taking.

Be prepared to educate both new and experienced board members.Just as many new board members will arrive with only general knowledge, even those with strong financial backgrounds will have limited knowledge of your hospital or health system when they join. That’s why Friend strongly suggests that CFOs should take the time to set up a system to make sure that all new board members receive prompt onboarding that is standardized and consistent, yet flexible enough to accommodate individual needs. “It’s a lot of work to do onboarding right, but it really pays off if the hospital hits a rough patch,” he explains. “If I’m the CFO, I have to have the mindset that every member on that board of directors is knowledgeable about my organization and its performance, or else I haven’t done my job.” He also recommends providing ongoing educational opportunities for board members on a regular basis to increase engagement and improve performance, whether through formal education and credentialing programs or regular, less-formal conversations with stakeholders across the enterprise.

Much of this work needs to happen before new board members start. It can be helpful to have an experienced board member reach out to new colleagues before they start their terms to introduce them to the culture and current issues and to oversee onboarding processes, Friend says. In doing so, the new member has a better grounding in the organization’s specific culture, goals, and challenges and can more quickly contribute their expertise, ask probing questions that challenge protocols and add value, and be direct about recommendations.

Most hospital boards have a process for continual education, but not all are using their own internal resources to their full extent. Informal education sessions with “guest speakers” who have a deep knowledge of risk areas (e.g., CIOs) can help board members keep up with the continual learning required to stay on top of changing risks.

Manage your members. No one likes to feel blindsided or put into situations in which they lack sufficient knowledge to make informed decisions, especially board members who bear a hospital’s fiduciary responsibility. CFOs should continually assess and anticipate board members’ informational needs. Friend refers to this as “pre-wiring” board meetings. “You want to know what the votes are before you walk in. You never want to go into a meeting and end up with a no vote,” he says. “Your job is to address those issues in advance until you’re confident the vote will be yes.”

That means cultivating an open, collegial atmosphere in the boardroom so that board members have plenty of opportunities to ask questions and explain their positions. Friend notes that the same board members who tend to respond defensively or even aggressively may act quite differently when CFOs offer pre-emptive, yet tactful, explanations. Giving board members all the details prior to meetings also allows them to avoid displaying their unfamiliarity with an issue in a public meeting—a situation that can lead to defensive or aggressive responses from board members. “When board members experience confusion, the quality of the meeting can decline very rapidly,” he says. “It becomes too easy to get caught in a negative feedback loop of distrust and frustration.”

Be transparent so that board members are never surprised. This is closely related to the idea of managing your board members, but it may involve CFOs managing their actions as much as they try to manage their boards. Friend emphasizes the necessity of being open with boards at all times so that an atmosphere of trust can blossom. “To the extent that a CFO gets defensive and feels that the board shouldn’t look over his or her shoulder, that’s a serious problem,” he says. “That’s what they’re there for. Don’t wait until problems occur to try to build relationships and develop trust, because then it’s too late.”

Similarly, CFOs should never surprise audit committees with bad news. “If there are problems, the CFO should be talking to the audit committee chair immediately,” Friend says. “If bad press is coming, they want to know about it in advance from the CFO. They also want to hear from the CFO about what the organization’s response will be and what steps the CFO will take to prevent future similar problems.” He notes that boards have become increasingly sensitive to concerns about being misled, particularly in the past five to six years as corporate governance failures and scandals have emerged with numbing regularity.

Expect the quest for good governance to be ongoing, even as the role of CFOs comes under additional scrutiny from board members, shareholders and regulators. Good governance is ultimately a positive because it drives the organization to increase efficiency and, ideally, to improve quality.

On a personal level, the quest for good governance can add richness to an already diverse job. “People take it for granted that good governance is occurring until an organization winds up in the paper coping with a scandal,” Friend notes. “Clearly, it doesn’t have to be this way. Every hospital or health system needs a person who drives the governance process. It’s enormously difficult, of course, but a good CFO makes it look easy.”

Darcy Lewis is a Chicago writer who covers healthcare business and clinical topics.

Interviewed for this article: David Friend, MD, is chief transformation officer and managing director, BDO Center for Healthcare Excellence & Innovation, and a member of HFMA’s Metropolitan New York Chapter.


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