One of today’s pressing challenges for medium to large private medical groups is the all-shareholder board. In a group of 10 or fewer physicians, an all-shareholder board may be ideal; however, in larger groups ranging from 15 to more than 100 physicians, an all-shareholder board has several disadvantages.
Having a group of 10 physicians, all of whom are shareholders, may make the physicians in the group feel like owners, and getting all 10 physicians together for decision-making might provide a good opportunity for members to routinely meet to make decisions and be involved with the organization. Usually, if one person is absent, the others will either talk to that person before the meeting to make sure they agree, or the meeting will be rescheduled so everyone can attend. Decision-making in these circumstances is neither efficient nor effective.
Now imagine that you have a group of 100 physicians, all of whom are shareholders, and the board acts as more of an advisory group. Many of these organizations allow an elected or selected board to make minor decisions, but other more important decisions — involving either a dollar threshold or those with staffing implications, mergers, acquisitions, insurance changes, etc. — will need to involve all shareholders and a vote. Regardless of whether a majority or simple majority is needed for approval, the fact that all shareholders must be brought together, educated and allowed to vote is a process that takes a great deal of time and is fraught with peril.
Most private practice medical groups have one of four traditional governance structures: a single leader who is often the owner and makes every decision; a system where all physicians must be involved in every issue; a system where every decision requires unanimity; or no system at all.
XYZ Medical Group was a 150-person, all-shareholder multispecialty group practice. It started out 25 years ago as a merger between two independent internal medicine physicians. Over the past 25 years, they have assembled a premier medical group, which has 70% of the primary care market share in a two-hospital town. When the group was created and during its growth, an all-shareholder board was attractive in recruiting and retaining physicians. Most physicians liked to gather to discuss business and vote on important matters. Over the years, the shareholders elected a board with limited power and authority. All acquisitions, including adding providers, needed to be brought to all the shareholders for a vote. Anything that was not budgeted that cost more than $10,000 also needed all shareholders to vote.
Recently, a parcel of land became available next to the primary medical office building. This was desirable real estate since the practice was landlocked and wanted to expand. The developer only gave the practice a 30-day window to decide whether to purchase the land. Since the land cost $150,000, the board of directors was not empowered to make the decision. The group’s administrator had to reach out to all 150 shareholders, who were now located in three counties, to educate them about why they needed to buy the land and discuss where the money would come from, as well as deal with a host of other issues, including facilitating a meeting where the administrator and board could host a Q&A so that when the vote was cast, they could get a majority in favor of purchasing the land.
When creating a board, pay careful attention to the size of the board. The size can greatly affect how the board makes decisions.
The board quickly realized that an all-shareholder board was too difficult to operate and had become both inefficient and ineffective. Over the next two years, the group went through the very difficult task of educating all the shareholders to move to a more formal board of directors that was empowered to make decisions on behalf of the entire organization. The group spent more than a year creating bylaws that all shareholders could agree to, which included changing the decision-making process and the process for selecting a board of directors with specific duties and responsibilities, as well as establishing formal committees of the board.
This was a time-consuming process but the group needed to get to a place where it could be more responsive in today’s healthcare marketplace.
Structure is important While all organizational governance systems have pros and cons, there are ways to structure a group to run as smoothly as possible while also engaging all physicians in the group without requiring each of them to vote on every single issue.
For most medium to large medical groups (10 physicians or more), establishing a formal board of directors provides the most effective way to accomplish the organization’s goals. One of the most difficult but important tasks for a board is to represent the needs of the entire group and to act in good faith on behalf of all members. A major limitation to the all-shareholder board tends to be that decisions are made based on an individual’s best interests or only the individual’s specialty. In an all-shareholder board, individuals spend most of their time negotiating their own needs often to the detriment of the entire group.
When creating a board, pay careful attention to the size of the board. The size can greatly affect how the board makes decisions. This is one of the most challenging issues in establishing a board of directors. You should fight the desire to have every specialty represented on the board, since doing so may produce a 25-person board. Try to keep the board to 11 or fewer members with no more than two ex officio members, one of which is usually the group’s administrator. Having a smaller board will allow you to be effective while a large board would be impossible to navigate.
When moving from an all-shareholder board to a more formal board of directors, many current shareholders will be concerned with delineating the key duties and responsibilities of the board members and clarifying which decisions will require shareholder input, as well as what that input looks like.
The board has several key responsibilities. These include supporting the group’s mission and setting the vision; establishing the group’s short- and long-term strategies; overseeing the success of the group; establishing criteria for good citizenship, such as dealing with problematic members of the group; evaluating management, such as hiring the CEO and assessing the board’s own performance; determining the group’s success criteria; and communicating with all group members, including shareholders, nonshareholders, managers and employees.
The process of electing a board for the first time is both time- and resource-intensive. Because of this, many groups have an easier time selecting board members before moving to a more formal election process. They often choose physician members who are either performing a similar role for the organization or who have the time, dedication and respect from other physicians to serve.
When moving to a formal board structure, it is important to create a fair system of nominations and elections. It can take some time to implement an election process, which is why starting with the current group of leaders is often preferred.
Once you are ready for elections, make sure that these elections are conducted by secret ballot. Clear duties and responsibilities must be established for each officer including term limits. Be careful in setting term limits since one of the most common problems in medical group governance is finding enough physicians who are ready, willing and able to serve.
There will be plenty of times when all the board members do not agree with a board decision. Likewise, there will always be shareholders who do not agree with the board’s decisions. This is unavoidable and is to be expected. The real test of the board is for members to speak in support of the board’s decisions, even if they and others disagree with the decision. Experienced and effective board members understand the difference between agreeing with a decision and supporting it. Being an effective board member means that each member must ensure the board is following a good decision-making process.
Board members should continuously ask the following questions of themselves to judge if they are ready to support the board’s decisions:
- Was the issue fully explored and based on the best available knowledge?
- Did I carefully review all information prior to deciding?
- Is the decision consistent with the group’s mission, vision and values?
- Is the decision consistent and related to the group’s short- or long-term strategies?
- Were a wide range of alternatives explored?
- Did we listen to people who had a different point of view?
- Do we have a good process for handling disagreements?