The Role of the Trustee, Are you Ready? CHHSM Annual Meeting March 5, 2006 Amy A. HaymanEdwin Eng...

The Role of the Trustee, Are you Ready?

CHHSM Annual Meeting

March 5, 2006

Amy A. Hayman Edwin EngSenior Vice President Vice [email protected] [email protected]

Leadership Roles and Responsibilities

Table of Contents

The obligations of a not for profit Board member– Fiduciary obligations

– How to act as a Trustee

Role of a Good Board Member

How should a Board member learn

How to Assure Good Stewardship of Financial Resources


The Leadership Obligations of a Not For Profit Board Member

Understand fiduciary obligations

Know the role of a good Board member

Know the goals of the Organization

Know how the Organization operates

Know how to become educated on key issues

Independence


Some nonprofit boards have moved to strengthen the board:

Staff oversight

Assurance of quality standards

Oversight of management (especially CEO)

Development of long range plans

Financial focus– Operating budgets

– Capital plans


While These Changes Have Resulted in Stronger Organizations . . .


Unfortunately . . . They Are Not Enough

Nonprofit health care now more like a business

Multi-site Systems complicate fiduciary duty

Creditors may litigate if they suffer losses

AGs more likely to second-guess trustees

– If non-profit, trustee protected unless display ‘willful misconduct’


Understand Fiduciary Obligations Duty of Care - A trustee must perform duties:

– In good faith

– In the best interests of the Organization

– With such care as an ordinary person would use

Duty of Loyalty – Exercise their power in the interest of the Organization relating to:– Conflicts of Interest – do not use position to personal advantage

– Corporate opportunity

– Confidentiality

Duty of Mission – Must work to achieve mission of Organization

– Challenges in difficult times to balance mission against need to act quickly

– Must have process that considers reasonable alternatives consistent with the mission

– If trouble arises, non-profits face scrutiny from AGs and creditors


Best Practices for Trustees: Adopt Business Model Governance Structures & Reporting

Workable board size & committees (including Finance, Investment & Audit)

Get board members with needed business expertise

Educate about obligations, liability, and reporting requirements

Independent board members assert responsibility to challenge management: periodic direct access to outside advisors.

Regular monthly financial reporting

Conflict of interest policies


Best Practices for Trustees: Manage Assets & Liabilities, Not Just Operations

Assess financial risk already in balance sheet

Develop financing, risk & investment guidelines and objectives

Treasury expertise in large systems or outsourced advice

Monitor & oversee


Best Practices for Trustees: Oversee Financial Stability & Take Action in Time of Trouble

Regular Review

Compare Costs & Cash to Competing Facilities

Detailed Financial & Audit Reviews by Trustees with Business Experience

Request Management Analysis & Recommendations

Periodic Outside Review


Warning Signs

Increase in AR or AP

Decrease in Operating Margin

Decrease in Cash

Decrease in Occupancy

Problems Measuring & Reporting Financial & Operating Performance


Warning Signs (cont.)

Negative Variance to Budget

Inability to Respond to Regulatory Actions

Turnover of Staff, Legal or Accounting Advisors

Rating Agency Downgrade or Negative Outlook

Violation of Covenants

Lack of Financial Independence (e.g. preferred loans to management)

Management Recommends New Ventures when Internal Operations Not Controlled


The Role of a Good Board Member Be active: attend and participate in meetings

– Accept increased accountability

Analyze key decisions of management team– Focus on major decisions– Avoid diminishing CEO’s role

Know when to trust management and when to consult with outside experts for information without management in attendance– Attorneys, Auditors, Consultants, Bankers

Stay up-to-date with continuing education activities

Know the goals of your organization– Make sure the goals are defined and that you understand– Make sure your actions enhance your organization’s goals

Be aware of how your facility operates


Can the Board Rely Upon Management?

Most of the time: absolutely yes– Most management teams operate with high integrity and

intelligence

– Most can be trusted • To provide appropriate information and • To act responsibly on behalf of the organization


When to Seek Outside Advice

In good times– There are times when management’s judgment,

regardless of its motivation or prior history, needs to be analyzed

• Most members of a Board and managers dislike this process and try to avoid it

• These are the times when Board needs to assert its role as the ultimate fiduciary of the organization


When to Seek Outside Advice

In bad times– Poor decisions and reckless behavior will threaten the overall

organization and the individual liability of the members of the Board

– When an organization gets out of balance:• No questioning of management• No use of independent experts• Culture of passivity• Lack of input from staff

– In time this may result in:• Poor strategy• Bad decisions• Poor operational results• Potential for greater problems


When to Seek Outside Advice Board members need independent advice on:

– Management performance and compensation

– Measurement of performance

– Revenue cycle problems• Resident turnover, inability to collect cash

– Operational efficiency• Program, number of employees, supply costs

– Regulatory compliance

– Initiation of new technologies

– Audit and management letter

– Change in business model• Acquisitions• Acceptance of Increased risk

– Start ups, expansions, repositioning• Entering new lines of business

– indirectly or not at all related to core mission


Financial Stewardship

Financial Stewardship – “The responsibility of managing resources wisely and executing these responsibilities with integrity and ethical conduct”

Resources include:– Time

– Money

– People

– Property

Responsibilities include:– Spending wisely as if money were your own

– Purchasing wisely

– Being accountable for your actions, property and time

– Encouraging others to be good stewards


Financial Stewardship Role of Financial Stewardship is paramount within overall governance as it

underpins both performance and compliance objectives

What Board member must do

– Provide stewardship to ensure organization’s ongoing health and viability and compliance with legislative requirements

– Board and management need to take a long range view of stewardship

How Board member provides financial stewardship– Establish appropriate governance structures– Provide leadership and vision to achieve objectives– Select, support and monitor CEO– Validate compensation plans – Ensure fair, effective and compliant employee relations– Ensure effective strategy, planning and budgeting; ensure adequate resources; monitor

progress– Establish control mechanisms– Manage risk– Comply with financial reporting requirements– Enhance organization’s image

The Role of the Trustee, Are you Ready? CHHSM Annual Meeting March 5, 2006 Amy A. HaymanEdwin Eng...

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