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Health Care Corporate Governance: Top 2025 Trends

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Rob Gerberry, Senior Vice President and Chief Legal Officer, Summa Health, speaks with Michael Peregrine, Partner, McDermott Will & Emery, about the governance trends that health care boards should anticipate in 2025. These trends fall into three categories: those that arise from the change of administrations in Washington, DC, those that are relatively new and emerging on the governance canvas, and those that reflect an evolving perspective on traditional governance trends.

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Speaker 1:

Coming in January, 2025, ALA's, popular Health Law Daily email newsletter will also be available as a daily podcast exclusively for a HLA premium members. Listen to all the current health law news from the major media outlets on this new podcast. To subscribe and add this private podcast, feed to your podcast app, go to American health law.org/daily podcast .

Speaker 2:

Welcome everyone. This is Rob Berry . I'm the Chief legal officer of Summa Health and a member of the A HLA Board of Directors. I'd like to welcome you to the latest in our continuing series of key corporate governance issues affecting healthcare organizations. Today's topic is one of annual interest to our membership and their clients projections on the trends in corporate governance that healthcare company boards are likely to count , uh, encounter in the coming year. Of course, there's always a great deal of sub subjectivity and guesswork as we work to develop these evolving projections. On the other hand, boards typically understand the nature of trends lists and find value in them to the extent that helps them prepare for their upcoming board year. And of course, as the leading governance advisor of the board, the general counsel chief legal officer is well positioned to brief board members on the trend list and their PO possible implications for their company. So today's podcast seeks position our members to have a useful and informed conversation with their boards on what to expect and plan for in 2025 from a governance perspective. As always, we're joined by my HLA colleague and friend Michael Peregrine of McDermott Will , who's also a HLA fellow and a fellow of the American College of Governance. So Michael, it's the holiday season as we tape this, and you're bringing to us the gift of one of your top 10 lists. This one's on governance trends.

Speaker 3:

Absolutely, rod, it's the , it's the perfect gift for every HLA member, I'm sure. Uh , but this year I couldn't fit it into a top 10 format. So we're offering a holiday bonus of five or so extra trend points. It's another one of those benefits of a HLA membership to be sure.

Speaker 2:

Well, there are many benefits to HLA membership, and Michael , we appreciate you giving us an additional one. So, in looking at the list, it seems that some of the trends fall into three different distinct categories, those that arise somewhat naturally from a change of administration in Washington, those that are relatively new and emerging on the governance canvas, and those that reflect an evolving perspective on traditional governance trends. Do you think I have that right?

Speaker 3:

Well, Rob , that's , uh, pretty perceptive for a Cleveland Browns fan. I think you're right. Which one of the three categories would you like to start with?

Speaker 2:

I'd like to start on should we listen to a Chicago White sex fan today during this podcast? But I guess we can move past that one as well. Right.

Speaker 3:

Well, we have a new Hall of Fame member in Dick Allen , so I'm just in a happy mood January this week.

Speaker 2:

It is the holidays. We should celebrate both of our kids . That's

Speaker 3:

Right, <laugh>.

Speaker 2:

So let's start with trends that are prompted by the change of administration in dc And with that, let me add the disclaimer that by sharing these trends, you know, neither Michael or myself are trying to make a political statement , uh, whatsoever.

Speaker 3:

Absolutely, Rob. And it's not merely a caveat. These are important trends of which the board should be made aware and given. You know, what we all sense is the still strong partisan feelings that seem to exist out there. We don't want the educational message to be diminished by concerns on the part of board members or management that they're the byproduct of any kind of bias. We're just playing this straight down the middle.

Speaker 2:

Yep , indeed. So, Michael, what do you have on change of administration related trends?

Speaker 3:

Uh, well, I, I , we're fortunate 'cause we have some breaking news today, which I'll mention in a bit. That's always good when we are late and our timing of these podcasts, Rob, we pick up stuff we wouldn't have been able to if we'd done this actually on time. But I , I think in this first category, there are at least six trends that I think we could talk for, for quite a bit of time on each one of them. And I , I'm gonna in this podcast and deference to our timeframe, we like to keep do , I'm gonna just hit the highlights, but I think in the first category, there's an overarching trend and, and that is boards just need to keep their head on a swivel. Uh, they need to prepare for volatility in the government, in the economy, and the global stage . And again, I'm not trying to make a political statement here, but , um, there's a lot of change that's coming in the new administration. Uh, there's likely to be , uh, a lot of ups and downs and upheavals , uh, that that will come now and after the , uh, inauguration date with new policies. And so boards generally just need to kind kinda loosen up the , the , the , uh, safety belt in their seats a little bit and just be alert to the fact that this is a period of change. And what that means when it's a period of change is they need to lean in a little bit closer to management and be a little bit more available to management in terms of offering advice and counsel. And this relates not only to , uh, new policies of the new administration, but I think to the economy , uh, generally and how it affects , uh, the , the organization from, from things such as , uh, tax rates to tariffs to immigration, which could affect , uh, workforce culture. And then there's also issues on the global stage is if , uh, that supply chain issues arising from tariffs and otherwise, all of these things I think , uh, are, are relevant to , um, what a board is really needs to consider in in a situation like this. And again, the question is we're we're , we're not asking the boards to be experts here in dividing , uh, what's coming outta the government. We're asking them to be be alert, to be aware. And frankly, I think the general council can be a huge help , uh, in keeping the board up to date on what's necessary for their education. And I think that goes to the second point , uh, too , uh, we need the board to have some kind of general awareness of the likely changes in healthcare policy that might be coming down the road to affect the hospital industry. The ones that are most likely to be , uh, affecting our industry are , you know, I guess the , if you have the future or the Affordable Care Act , uh, Medicaid enrollment issues, Medicare payment changes, price transparency , uh, the three 40 prescription drug discount plan and innovation. And , and one other area where I think , uh, not to get, again, to , not to get into the political, but I think the board needs to be aware with, with the proposed changes in leadership to all of the national health policy research , uh, and disease control organizations , uh, as we all know from the headlines, the leaders of many of these , uh, or new proposed leaders, if many of these organizations have views on vaccine efficacy, that that's different from those that are held by their predecessors. And my advice to , uh, boards is that that's just something that they need to watch with management , uh, is , uh, leadership of a healthcare organization to, to be aware of the implications as management advises them on the future of vaccine application as it might affect, you know, what another pandemic it . We, they just need to stay ahead of that game . Uh, then a couple of real practical issues , uh, I think it's gonna be re important for the boards to reevaluate and monitor their corporate compliance program. Uh, given the likely direction of the new administration on , uh, uh, civil and criminal enforcement policies , uh, it appears that while the Biden administration was, as you know, very heavily focused on corporate fraud issues, individual accountability and , uh, voluntary disclosure and things of this nature, it's not clear that the new administration will be focusing in on that, but maybe , maybe zeroing in on more traditional areas of law enforcement. In that situation. It's up to the board to work with management to make sure that the compliance plan remains robust, remains strong, remains a well-resourced policy because we, we don't want people to think that , uh, that the , the organization and its compliance program have left their collective guards down. And now , uh, we can be more aggressive and more risk-taking quite the opposite. So I think that there's a focus on where our compliance program program goes. Along the same lines , uh, we, we have, as the , as we tape this, we have now seen the new , the president-elect announce new leadership for both the , uh, antitrust division of the Department of Justice and the FTC. And so , uh, boards are going to want to reevaluate the growth strategies given government antitrust policy changes , uh, given the fact that it's possible, if not likely, that the FTC in particular may pull back on its , um, approach to , uh, healthcare mergers and to competition and labor issues that, that they've been aggressive on in the last four years. Little too early to tell, but again , uh, uh, the general counsel , but wanna be working with the board to approach a, a kind of a measured , uh, evaluation of where the government's antitrust enforcement will be with the new changes. Um, two other things I think that are relevant, we're likely to see with, like we see in any administration, especially when businessmen and women , uh, leave major corporations , uh, uh, and major , uh, ventures and come to government , uh, there's always gonna be a lot of discussion , uh, in the press about conflicts of interest and things of that nature arising from , uh, people, new people entering into government. And I think because those , uh, stories will be in the news on a regular basis, it , it's likely to cast an additional light on corporate conflicts of interest policies as well. So I think it will , there'll be a value in , in updating , uh, existing corporate conflicts of interest policies just generally because hey, it'll be discussed in the media a lot. And the final issue , uh, is that especially from the perspective of , uh, trying to be responsible and responsive to all of the organization's constituents , uh, some boards and , uh, are going to want to be taking a, a more public position on some of the issues of the day that affect their workforce. Uh, we call that a social voice. And I think it's important for boards to have some kind of policy on whether or not it's appropriate to exercise a social voice and to pursue what we call corporate citizenship opportunities , uh, in, in the new year. And if so , uh, who, who is the primary spokesman of the , is it the board chair? Is it the CEO ? Uh , I that's, that's , uh, not insignificant issue. So those are the trends, Rob, I see under the change in administration topic. And, you know, they're fairly significant.

Speaker 2:

Michael, I appreciate those insights and having come through my board week of last week, you know , I share with our board, we're, we're doing our best job to forecast at this point, but certainly nothing's of certainty as far as what's moving forward. And I think it's critical as we plan for 2025 to leave time on our board agendas and our committee agendas, time for updates on those emerging trends where they may play out and to educate our boards and governing bodies , uh, on their impact. So Michael, next maybe as we look at the relatively new and emerging trends on the governance campus, what would you share there?

Speaker 3:

Well, I think I've got five trends there, and these are, these would be the leading trends if we weren't in , uh, a year with the new administration. Some of these are topics, Rob, we've discussed over the last year in our A HLA podcast series, for example , uh, right at the top of the list will be making sure that , uh, there's a plan for how the board will exercise oversight of organizational ai. And that's, I think, the topic you and I discussed in our last podcast. That's, you know, that's absolutely top of the list. Something that's kind of creeping up on the radar screen for me though, is also to kind of get back to the question of , uh, of director independence. What does that mean? Uh, what kind of policies do we have and how, how is it exercised in terms of board conversations and transactions? And that's , that's the whole issue. Separate from conflicts of interest of , uh, how many members are of the board are so close to management that they would be perceived as not having independence. Uh, I we're , we're seeing this as an issue being raised by, in the for-profit world by some of the investment advisory groups. And I , I just see there's an increased interest on , on , uh, the level of independence on healthcare boards as well. Then we have the issue that you and I have talked about in about prior podcast, and that's the question of , uh, it's a continuing challenge. What's the proper role of the board? What's the proper role of management? I don't think that's been sorted out well enough for a lot of boards as well as the , the lines of authority. We do this without authority . You know, management has these powers on its own. Management has certain powers that it has to inform the , uh, board on their exercise. And management has certain powers that they can't exercise without board approval. But the , the lines of authority that continues to be an important issue. Uh, the investment advisory groups are, again, leading the charge on refreshment policies. Lots and lots and lots of discussion , uh, out there on term limits , uh, retirement , uh, mandatory retirement ages, the whole question of overboarding. Uh, all of these issues I think are gonna be front and center all year long in the corporate governance world. And then I think perhaps for our , uh, listeners who are worth not-for-profit healthcare systems, I think there will be a continuing pressure, at least it's a carry over from , uh, con the congressional experience and , uh, and from the, the , the public voice, lots and lots of dialogue about are we truly charitable? Uh , are , are , is tax on status a worthwhile tax benefit for hospitals? Uh , are we truly operating in a not-for-profit world? That issue does not go away and will be an important board concern, but for not-for-profit health systems.

Speaker 2:

That's great. So by my Cleveland Brown math , we've had six trends. We've had five. Does that mean we have a bonus round of more?

Speaker 3:

Oh, we have a big bonus round. That's exactly right. Again, once again, that HLE benefit kicks in. You know, I don't ever, like, I don't have never like to use 11 trends or 13 trends. It's either five or 10. Uh, but this time , uh, we're going to 15. So , uh, the third category contains 10 trends. It is the bonus round. Um , and , uh, well , these are the kinds of trends which I think relate to traditional bread and butter, corporate governance issues that we're seeing , uh, emerge again, and this will be familiar to a lot of board governance committees , uh, we've talked about on this podcast before. But again, I believe in 2025, we're going to see continued expectation of a higher level of engagement by board members. This is the director commitment policy issue. Uh, we're seeing an increasing number of organizations, which are being very frank and very upfront with their board members on whether on the extent of commitment that they're expected to provide to the organization. And I'm not meaning financial commitment, like the old, you know , you gotta con contribute $10,000 a year to stay on the board. This means what is your commitment to time, energy, and effort? And , uh, it's, it's tied in with the overboarding issue . So I think that that's going to be an overarching issue. What's the engagement that , uh, the healthcare corporate boards should expect of their board members? A second issue is one, which I think is a , is a sleeping concern to a lot of organizations that have understandably and appropriately created categories of board members, whether they're constituent directors or, you know, fall into that advisory or emeritus or honorary director category. You know, we've all, we've all done that. We've all used it. I think it's gonna be increasingly important , uh, to clarify to the extent it hasn't been done before. What duties and responsibilities go with those rules ? Voting, duty of care, duty of oversight, loyalty, confidentiality, appropriation, conflict of interest. That's not a simple discussion. Leaving the IT vague with respect to these categories is gonna increasingly lead to problems. And so I think this will be an important development going forward. Uh , another topic is as, as board service, again, CONT continues to be a seller's market. In other words, it being hard to attract and retain directors. Uh, and the fact that we're gonna be asking those directors to do a lot, that we're having a premium on a board committee practice. So I think a trend you're going to see in 2025, or folks, like people in your position, Rob working with their governance committee to kind of clean up how, how many BO committees do we have? What, what is , uh, what's their authority? Are they standing? Are they ad hoc? Are they voting? Are they advisory? Uh, do we have the right scope and charter? How often do they meet? What's they're reporting? Uh , vertical and horizontal reporting, the relationship, all those things, because we're putting more and more emphasis on the role of the board committee , uh, in terms of board governance. Uh , another trend, which I think a lot of board members will appreciate is it's about time that we put into , uh, practice , uh, uh, a review of all of our d and o related policies , insurance identification, advancement and related protective policies and coverage. And at the same time, kind of review again, other defenses that are designed to assist the board. What does it mean to be , uh, uh, satisfying the business judgment rule? Uh, what is appropriate reliance on advisors and , uh, uh, committee members and management, things of that nature , uh, basic nuts and bolts that will, I think are increasingly important to revisit. Uh, uh, another issue on our bonus round, I think is so something that was brought up in 2023 by the National Association of Corporate , uh, directors. And that's the whole question of board collegiality. The , the conduct and relationship , uh, among and between individual board members, which ties into the whole question of , uh, is our boardroom environment , uh, uh, con conducive to full and free communication? It's not that everybody's gotta love everybody, but does everybody respect each other? Who are the bullies on the board? What ha are people pulling their punches? Or do we have, again, an atmosphere where everybody's comfortable in speaking their mind and getting the , because that's just so fundamental to effective governance. Uh , another topic that's gonna come back in 2025, I think is going , and I think it's gonna be a product in part, Rob, because of litigation , uh, on the , in , in the director world, is how much director education is provided to the board. Uh , and through what conduits, is it only in board meetings or is the board accessing information through other , uh, management led , uh, uh, portals and conduits and programs that are outside the boardroom? And that's going to be critical. Um, a a couple of other final ones is , uh, the board is, I think, going to be well advised to pursue in 2025 a , a greater oversight of coordination between key risk officers. In other words , um, this isn't a management responsibility alone. The board needs to make sure that the right hand and left hand are talking to each other. This coordination amongst the various , uh, corporate officers who deal with risk , it's not just the general counsel , it's not just the compliance officer, it's also the chief , uh, information officer, chief tech , uh, technology officer, and, and the , uh, HR director amongst others. All the , all the senior executive officers who touch a subject area , uh, that has some risk. Uh, they have a fiduciary responsibility to do so under Delaware law. And so I think the board will wanna make sure that everybody's talking to each other on their risk portfolio. Um, and , and then two final topics which , uh, are , are evergreen in terms of importance. One is the ongoing need to support thorough full board and individual director evaluation and assessment protocols. I think boards that in 2025 that do not have some type of approach to director evaluation are going to be outliers. Uh , uh, someone along the same vein, I think that boards are going to need to find that they're called upon to make, making an increased effort to, to recruit and retain , uh, qualified directors, especially those who are willing to accept a higher workload, which is gonna be incumbent on them that they're working in the healthcare industry. So that's the, that's the lightning round or bonus round, Rob. But again, these are 10 topics. They're traditional, they're not new. My point is , uh, they will again, be appearing or should be appearing on the board agenda in 2025. So

Speaker 2:

Michael, as I hear you highlight those trends, I really agree with your comment. It is a seller's market. When you think about nonprofit boards trying to recruit volunteers to these workloads , uh, it's a heavy lift.

Speaker 3:

Totally. And that's why I'm always a huge supporter of director compensation. Rob, I , you know, but you , I I , i got, you gotta link it with director evaluation. I don't, I think having one without the other is , is not a helpful solution.

Speaker 2:

So when we think about all that helpful guidance for the board, for their nominating their governance committees, you also highlighted though that management needs to be aware of these trends. How do you seek management input on this and make sure they're aligned with some of these trends?

Speaker 3:

Uh , well, you know, this goes back to my point. This is the NACD's point there , just, there really needs to be an increased alignment between the board and management on you do this, we do this, and here's the area where we combine together. And, and , uh, these kinds of governance trends really have to be , uh, uh, a , a reflection on that kind of col collegiality and understanding of , uh, of roles and relationships. Absolutely. Management has to , um, have input in all this. We wanna hear their input. They, they might disagree with a lot of it, some of these points they're gonna say, that's our call. And I think the board's gonna have to come back and say, well, yeah, maybe, but not so much. And a lot of these situations, it's ultimately the board's call to set certain policies or at least to set the direction of the organization. Um, so I think that , uh, to achieve the kind of c-suite and boardroom piece that is necessary , uh, the governance and nominating committee as they, or whatever other committee as they address this, needs to seek , uh, management input , uh, and direction. But with the understanding that this is not intended as micromanagement or make work , these are the kinds of issues with which the board needs to be involved. So I think a little spade work with management really has to go first before we tackle some of these trends.

Speaker 2:

Great. Well, Michael, thank you again for sharing all these insights this holiday season. I know my stocking is now full of governance takeaways as I think about 2025. We'll be back for our next podcast , uh, discussion where we'll dig into the provisions around a state-of-the-art approach to conflict of interest, identification, and resolution. So Michael, I hope you and your family have a great holidays. Thanks for all you've done for our membership there this year for HLA.

Speaker 3:

Thank you, Rob, for the opportunity. And , uh, happy holidays to all our listeners and fellow members. We appreciate your involvement and your support of this programming.

Speaker 1:

Thank you for listening. If you enjoy this episode, be sure to subscribe to a HLA speaking of health law wherever you get your podcasts. To learn more about a HLA and the educational resources available to the health law community, visit American health law.org.