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AHLA's Speaking of Health Law
Health Care Corporate Governance: Emerging Governance Topics Meriting Board Attention
Rob Gerberry, Senior Vice President and Chief Legal Officer, Summa Health, speaks with Michael Peregrine, Partner, McDermott Will & Schulte, about several emerging governance concerns that are positioned for center-stage prominence on upcoming board agendas. These extend beyond the usual operational and financial considerations to include those with unique social, ethical, economic, and geopolitical impact.
Watch this episode: https://www.youtube.com/watch?v=jIwV_rYTqeM
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SPEAKER_01:Welcome everyone. This is Rob Gerberry. I'm the Chief Legal Officer of SUMA Health, the president-elect designated of the American Health Law Association. I'd like to welcome you to the latest in our continuing series of podcasts on corporate governance issues affecting healthcare organizations. Today's topic is designed to coincide with the autumn board meeting calendar, in which many of our members will be called upon to provide a governance update for board and committee members. In that regard, several emerging governance concerns are positioned for center stage prominence on upcoming agendas. These extend beyond the usual operational and financial script lines to include those with unique social, ethical, economic, and geopolitical impact. Some are big picture in scope, while others are more immediate in interest. Collectively, these are topics that board members as well as management want to be made more aware of. As a leading governance advisor to the board, the general counsel, likely teaming up with the chief governance officer, is well situated to brief the board on these topics and their impact on the board agenda. As always, we're joined by my HLA colleague and friend Michael Peregrine of McDermott, who is also an HLA fellow and a fellow of the American College of Governance Council. So, Michael, what tells me that you have exactly 10 emerging topics in your pocket to share with our audience today?
SPEAKER_02:Well, Rob, you've hung around me long enough to know that in Michael's world, there's only room for 10 of anything. Not nine, not 11, but 10. But to show uh that I'm flexible as a matter of nature, I'm going to add some honorable mention topics as a special gift for you. So we will probably go a little about 12 today. We'll see if we get to them.
SPEAKER_01:Excellent. So let's start off with something uh of a a lot of us in the chief legal officer position have been hearing about. Directors being worn out by all the demands of their board service, combined with the rapid changes that are impacting our industry. Is that on your list today?
SPEAKER_02:It certainly is, Rob. It's number one. And we call it director fatigue. Yeah, you know, for many years we've been uh those of us in the governance area have been asked by clients, you know, can we get rid of term limits? How do we were how can we focus on keeping directors, allowing them to serve longer terms? Um now it's kind of the opposite. Uh uh the emerging governance challenge doesn't seem to be how many terms we can get directors to serve, it's rather getting them to serve the full length of their first term before they bail. Um board leadership is increasingly being called to address uh director retention challenges. We're getting signs that board members are becoming exhausted by their fiduciary workload. I think there was an article in Fortune about this a month or two ago. The fatigue seems to be coming from a byproduct of service on multiple boards, very complex board agenda, extremely detailed uh briefing books, you know, greater third party scrutiny, and then I think dealing with the constant social, financial, and political change. So I I think there item number one on my list is uh to encourage the board to consider credible solutions to what could be an acute problem of directors just getting worn out. And we really can't afford to lose good directors at this point in time with all the changes facing the industry.
SPEAKER_01:So, Michael, is one of the factors that you see creating director fatigue, you know, that being a board level information overload?
SPEAKER_02:Oh, totally, absolutely, it has to be. And we know that because we produce a lot of the documents that go to the board. I I think that the it's that proverbial drinking from the fire hose problem. You know, in other words, the amount of information needed to brief board members is just simply overwhelming their capacity for preparedness. That, you know, when it when they're getting too much to read and preventing them from being prepared for board meetings, that's a threat to effective governance. There's just so much that they need to know, both about what's going on internally within the organization, and I think now, especially what's going on externally, that many directors are having a hard time keeping up. And this is kind of separate and distinct, but still part and parcel of the fatigue. It's just that there is so much information they're being asked to read and keep up with. I do believe uh much of it is in the last year or so with events. We have to be thinking about solutions. And they can be found in changes how information to share with the board is identified, formatted. I'm a big one-page Ronald Reagan memo type person, edited and made available at the time of information delivery. How do we package information to the board? What works for them, um, and how do we send it to them? How do we timely make it available to them? Um, and then we another solution is also more effective use of committees with board delegated powers. Uh, but let me be clear on this one, Rob, and be very serious. Fewer board meetings isn't the answer because that just simply means consolidating more information, crunching more information into a more confined period. We need to find an answer to information overflow.
SPEAKER_01:I could tell you from my board that met 19 times over the last year as part of our sale transaction, there is definitely information overload that we're providing to them. So, Michael, we've talked before on this podcast about the need for civility in the boardroom. Just yesterday, too, my law students asked me, does respectful discourse still occur? Are you seeing that as part of your top 10?
SPEAKER_02:Well, it's still occurring, you bet it's number three because civility in the boardroom isn't a new issue, as you say. It's it is an ongoing concern. Uh, and so that's there's an offshoot uh on my list of civility. I call it perspectives tolerance. Uh, in the context of a crowded board agenda and pressure on the board, the chair is going to be challenged to maintain a boardroom culture that supports a couple of things: independence of mind, uh, contrary views, allowing all director voices to be heard, encouraging a culture that encourages the freedom to constructively express contrary views. In other words, I'm I'm not going to be called an idiot by a board member because I uh raise something that comes out of uh left field, and protects against bullying and disrespectful conduct. There are a variety of issues here, but again, tolerance of different perspectives. I'm just hearing from clients far too many situations in which there's an effort, uh, and it can come from a variety of sources, to seek conformity amongst board members as to perspective and to force out those board members who have different views. In other words, uh the concern is at the the chair's perspective, are we are we somehow intentionally or unintentionally seeking out board members who come from a single point of view? Are we so intolerant of other perspectives that we are losing board members who might bring different views, different uh thoughts to the board? Um forceful change to address the signs of an oppressive boardroom dynamic really may be necessary. We've got to avoid it because otherwise the purpose of uh board diversity of thought is really lost, and that's super dangerous.
SPEAKER_01:So, Michael, there's a lot going on right now in the broader economy that health industry boards uh need to keep on their radar. You know, what in your mind are key emerging topics right now that we want to make sure to flag for these autumn board meetings?
SPEAKER_02:Rob, this is number four on my list, and I and I tie it next to the perspective tolerance issue because what I'm about to say might be the kind of thing that would say, Peregrine, you idiot, what are you bringing that stupid issue in front of the board for? Um and number four is on my list something that I would never in the world have envisioned at the beginning of the year. But now I see it as an important development that we need to understand and monitor because healthcare is a highly regulated industry that is dependent in large part on government reimbursement and other funding. And it's the whole thing about what I would call uh government corporate involvement, or what others call state-sponsored capitalism. It's where we see the federal government seeking to become more involved in the business affairs of companies that get subsidies, grants, reimbursement, or special licenses from the government. Um so far it's been manifested through efforts, you know, we've all seen it to influence leadership selection or tenure, to encourage changes in operational processes or policies, or making direct investment in the company or other things. You know, we we've all read the stories. And I'm not saying it's good, it's bad, or indifferent. I have no idea. All I know is it's important that health industry boards are aware of it, they monitor it and they prepare a framework of how they would respond should they be in a situation in which they're working with the government, and all of a sudden the government becomes uh seeks to uh address a relationship that it will allow it to have a greater stake in directing the company's affairs. Is it is it out from left field? Sure, but we can't say it doesn't exist. And I think it's just something that maybe the strategic planning committee of the board just be aware, monitor it, uh, and kind of anticipate what would happen if if we were asked by the government uh that it take a greater uh uh share in how we run our business.
SPEAKER_01:So, Michael, I know we've talked from time to time about uh the board's role and exercising oversight of AI implementation and utilization. Do you have anything in your top 10 related AI?
SPEAKER_02:Absolutely. And of course, I think we're we have slotted to talk about AI oversight as our next podcast series, but a topic with real ascending is uh ascendancy uh to me is the whole thing about workers who find their jobs assumed by AI or similar technology. The people who in the workforce who are you know, the workforce culture where uh individual workers are at any level from the bottom to the top really worried about whether they're gonna lose their job to AI. So, number five on my list is the convergence of governance, human capital, and technology. Because I do think that we're seeing that converge more and more. There's a growing recognition that boards have some responsibility to monitor uh large-scale workforce displacement, especially, but not solely when it's caused by technology. The National Association of Corporate Directors has several white papers that talk about this, and I think they're useful resources. The theme here is that boards of companies that anticipate significant AI use should be encouraged to monitor what its impact's going to be on the stability of the workforce and interrelatedly on its external reputation. This is, you know, as we read the news every day, and we're seeing evidence of displacement in both technology and white-collar workforces arise. It's not just young coders who are impacted. And I think the board, uh, and certainly Pope Leo uh has spoken out on this. The board needs to think not only about its fiduciary responsibility, as the NECD has outlined, but perhaps also a little bit about its moral responsibility. What are its values and how are they applied in the context of workforce displacement by technology? What are the responsive measures that a board might take through its management? Worker education, retraining, specialized job placement, but a consistent application of core corporate values. I think it's an issue that's really emerging, Rob, and boards should have some aspect of this on their agenda.
SPEAKER_01:So, Michael, I was just reading in my downtime an interesting post in the DNO Diary about the lasting impact of the whistleblower hotline provisions in Sarbanes-Oxley. Do you have any compliance-related topics in our top 10?
SPEAKER_02:Well, Rob, I'm delighted that you and I read the same uh uh uh outlier publications. Uh I I I read that post too, and it reminded me that we're kind of losing some of the important corporate responsibility lessons of Sarbanes-Oxley. Uh, you know, that was over 20 years ago, but um it still uh remains important from a variety of perspectives. And number six on my list deals with kinds the issue of hotlines, the hotline concept, the whistleblower outlet that arose out of the concept of Sarbanes. And my focus and for purposes of this uh top 10 is is more about the increasing emphasis on what I call the little things, the compliance minutiae. Uh and I I'm encouraging my clients to think about efforts to protect their officers and directors and the organization from liability that are associated with, well, have we filled out forms correctly? Have we filled them out completely, uh, internally and externally? Uh whether it's a conflict of interest questionnaire or some other kind of required internal disclosure, or it's an external disclosure like a tax return, a professional bio, an appraisal form, evaluation, or even a loan application. Um, you know, the whistleblower hotline is a very easy way for concerned employees to report on what they think to be falsification of such forms. That could have a devastating impact on an officer or director. So number seven on my list is for CLOs to sit down with officers and board members and senior executives and say, hey, look, let's let's take a lesson from the outside world. We need to be really, really careful. Spend a little bit extra time on that questionnaire, on that application. You just never know uh when that comeback may come back to bite you. And even though it may be an unwarranted inquiry, you don't want to go through it.
SPEAKER_01:So, Michael, I know sometimes clients in the healthcare industry view themselves as part of this isolated industry segment uh rather than as part of the global economy. We mentioned earlier, you know, looking beyond our four walls. Is that something you think boards should be concerned with?
SPEAKER_02:Yeah, I think we have to be, Rob. We learned this a little bit during the COVID era. People remember that. Um, but geopolitical volatility is my number seven on my list. I think most healthcare company boards should have an improved understanding about how global events such as military conflict, tariffs and trade relations, natural disasters, human rights crises, and regime change could impact uh domestic business operations and supply chains. Again, we saw in the COVID area how the supply chains just had extraordinarily uh critical impact on healthcare institutions. These kinds of events can rapidly evolve into tangible enterprise risk for the health system that could require the board to reor reorient its agenda for a much closer focus on global trends and events. Now, I I'm not suggesting that that uh board members or senior management read you know international newspapers or or global uh media uh to search every day, but there really needs there there really needs to be a recognition of a value and some kind of board awareness that we're the organization may actually be implicated or uh by uh international impact imp let me just restate that there be impacted by international events or or you know otherwise properly considered as part of the global economy. Where do we get our medications? Where do we get our nurses? Where do we get our researchers? Um where are we selling our or buying our services to? And I think the the answer is Rob that a lot of boards will say, yeah, we we probably are have uh are part of the global economy, and we need to be more alert as an enterprise risk of how things across the globe might affect us. And again, um uh a boardroom visit, I think, from the CFO or the chief technology officer or the supply chain manager might help educate board members on this uh concept.
SPEAKER_01:Great. I know, Michael, you said a few minutes ago that you had a couple of AI-related items in our top 10. We mentioned workforce disruption. What might be the other?
SPEAKER_02:Well, I think my number eight might be a stretch to some. Uh it's what I refer to as the impact of AI self-regulation. You know, I think most of our listeners will recall the recent rollout of the administration's AI action plan. And, you know, the goal of that was to improve the country's competitive status and technology. But part of that plan uh is to identify and eliminate what the plan calls cumbersome federal or state regulations that could impede private sector AI development. In other words, at least I took it this way, there's probably not going to be any national regulatory scheme as it relates to some of the concerns created by AI, perhaps beyond trust and stuff like that. You know, prior regulatory proposals in other administrations focused a lot on the irresponsible use of AI and how that could affect societal harm, you know, fraud, discrimination, bias, disinformation, um, stifle competition, things of that nature. Um, if we're not going to so they created an awareness of the kinds of risks that could arise uh uh from a corporate use of AI. If we're not going to have a formal set of federal code of regulations governing use of AI, the question is, are healthcare companies going to be kind of on their own in terms of an awareness of the types of harms the company could nevertheless be exposed to in third-party litigation or regulatory intervention or reputation? In other words, I guess what I'm trying to say is there's a potential guidance gap here. If we're not going to have uh, for for better or for worse, a national AI regulatory scheme or on a state level because of concerns that it would impede AI development, then I think responsible uh boards are going to want to ask their compliance officers, do we need our do we need to come up with our own internal controls? Do we need to look for industry guidance to have a better compliance program with respect to the the broad universe of risks associated with AI development? Again, I'm not trying to create a problem where one doesn't exist. I do think it's it's worth the internal boardroom discussion. What's the impact if we don't have national AI regulation?
SPEAKER_01:So, Michael, in our last podcast, you and I had a fascinating discussion, I think at least you and me, uh around the fiduciary duty of candor. Does that make your list?
SPEAKER_02:Yeah, it does. It's it's number 10. And I think, Rob, as we said uh in our last board podcast, board members are going to benefit, I think, from a refresher course on the fiduciary duty of candor. Uh, you know, as we talked about, directors can't knowingly lie or omit information when speaking with their fellow directors uh or to others to whom they owe a duty as to information that's relevant and material to the company. You know, Rob, as you and I were talked about, it's really the duty to shoot square with your fellow board members and others to whom you might be in a fiduciary relationship. And as we talked about, and I think it's really important to remind that Delaware case that uh where the court publicly shamed the fiduciary for failing to disclose highly relevant information. I I want my board members to know that while this may be a highly unusual remedy, it's out there. And there is something called a candidate requirement. And you know, you don't need to worry about monetary penalties if a court has the power to trash your reputation. So I think it's on the list.
SPEAKER_01:And speaking of our uh corporate reputations, we had a discussion in a prior podcast about um brand and that being such a core asset that organizations don't want to see impaired right now. Anything that you'd suggest there as far as that being part of our top 10?
SPEAKER_02:Yeah, I think it's really useful. We talked a little bit about this, Rob, back at the beginning of the year in the darkest of winter, but the um the uh relations firm Edelman comes out with an annual report uh uh on organizational trust. And and this year they spoke to the twin concepts of trust and reputation as corporate assets. And that that's and I think that's it's important for board members to realize that these are separate concepts, they're somewhat related, uh, but they are both viewed as assets of the organization. And I think they're intangible assets, but it it's important for board members to know how trust and uh and reputation are impacted by issues that confront organizations, uh issues uh and the extent to which that the public perceives business, including healthcare organizations, as providing this the default solution on issues that the government does not address. In other words, and I don't want to get into a policy gobbledygook, but it's I think important that the Edelin survey kind of commends the boards an appreciation of for the difference between reputation and risk, what they both mean, how both are earned, preserved, and lost.
SPEAKER_01:So as we come down the home stretch of this podcast, I'm looking for some David Letterman drumsticks to say, let's move to the honorable mention section of this uh series. What would you add to that list?
SPEAKER_02:Well, you know, you've got the beard, but not quite as long as Letterman does, I think, at uh these days. Um but there are two topics that um actually there could be three that fall into that category for the fall board agenda. Um, first is one uh that I I I we we've had this discussion before. I think it's really for the board to apply some kind of constructive skepticism to proposals aimed at enhancing the mechanism of governance. And by that I mean stuff like the proposed use of AI to generate meeting minutes, as well as to support governance operations like evaluations, internal controls management, legal and regulatory updates, executive comp and workforce strategy. I mean, we we see many fine companies proposing products that are going to help boards in these areas, and all I'm saying is uh let's kind of tap the brakes a little bit on whether that works or not or whether it creates more problems. It particularly concerns me with respect to using AI to generate meeting minutes and board evaluations. Another honorable mention, Rob, is the new action by the FTC concerning non-compete in the healthcare industry. Um the FTC chair recently wrote a letter to large healthcare employers, you know, warning them about non-competes and restrictive covenants uh that could be considered overly restricted. So we've still got that issue, even though there's a change in administration. And it's so it continues to be, it's a compliance risk that needs to be dusted off and can't reconsidered by the board and its compliance committee. And to that end, uh very recently uh the FTC just announced another uh situation where uh uh it uh was resolved an overlapping board uh uh concern between with board members between companies that the FTC viewed as competing. And it's a reminder that again in the new administration, uh the FTC it continues to carry over that focus on uh antitrust prohibitions against individuals serving on boards of competing organizations. So all of those are important uh and I think fall into uh are worthy of an honorable mention listing.
SPEAKER_01:Well, Michael, I'm sad to say that after only two games, there is no mention of Notre Dame football anymore in a top 10 or an honorable mention list, is there?
SPEAKER_02:Half faith, Rev, half faith. When do they play? Navy and Army and and uh all the junior colleges, those are still coming up on Notre Dame's schedule.
SPEAKER_01:Well, to our audience, we thank you for always uh participating with us in these discussions. We'll be back again next month with a discussion of guidelines for board oversight of AI implementation. And in other ways, board may interact with these new technologies uh that they're being uh implemented within their organizations. Until then, it's Rob Gerbery and from Michael Peregrine saying thanks again for listening and go Irish.
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