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Demonstrating performance to your board

September 27, 2013
by Dennis Grantham, Contributing Editor
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A fast-moving presentation at the Behavioral Healthcare Leadership Summit at NCAD 2013 recapped essentials of board governance before discussing the types and sources of data that behavioral health executives ought to provide to optimize a board's governance activities.

"Boards exist to ensure that an organization is accountable to meeting the needs of the community or cause that the organization serves," said Denny Morrison, PhD, a former behavioral health CEO who hosted the session on behalf of Netsmart, where he now serves as Chief Clinical Officer. Boards function as an organization's "owner," with total accountability and authority until they choose to delegate or give it away to one or more employees.

Often, a behavioral health CEO is the board's only employee. The CEO is the top executive, with powers that, though broad, may be exercised only within limitations set by the board.  Citing a governance model by John Carver, Morrison explained that a critical board responsibility is to set a boundary between its role and that of the CEO. The board must set expectations for the CEO, then track the CEO's accountability to those expectations. Other than the CEO, a board does not interact with other organization managers with two possible exceptions. Boards may interact with a compliance officer and HR officer on matters specific to the CEO's performance.

Setting and maintaining a clear boundary between expectation and execution is a critically important board responsibility, Morrison emphasized. Execution is a management responsibility, ultimately accountable to the CEO. This means that the board must focus on the what of its expectations - explaining what the CEO must do to achieve success. It must not interfere or drift into how a CEO and management team achieves it.

Quoting Carver, Morrison stated, "A board should do all that it must do, not all that it can do."  Board members must avoid doing what they so often do in their non-board careers: they must not become managers.

Defining and measuring performance

Then, Morrison settled into the details of what types of performance management measures would enable the board to fulfill its governance role, specifically to ensure proper CEO and organizational performance. He defined performance as "a reasonable interpretation of the board's objectives." As gatekeepers of all organization performance data, the CEO and management team must strike a careful balance in providing data to the board. Too much causes overload or misunderstanding, while too little may be perceived as "trying to paint a rosy picture," Morrison continued.

Inevitably, he said, providing meaningful data to board members "involves getting the board tuned into relevance of certain organizational and business information and then, getting them to say so." The process of definition can be a challenging, but being as clear as possible in both the choice of data and its presentation is essential. 

Good board data are: 
  • Regular in frequency

  • Clearly explained and free of jargon

  • Relevant and balanced

  • Presented graphically when possible, with appropriate explanations

  • Open to detailed questions and answers

Good data, he added, generally incorporate two key features. "You all know the bell curve, with the majority of results clustered in the center, then fewer at each extreme? The key with boards is to define the most relevant types of data and then, within each, define what the "center" is - the usual results or data. Effective board discussions often present and review typical or usual results, but focus special attention on "the outliers," the results that aren't within acceptable limits, said Morrison. Often, boards will choose to review such outliers for several meetings until they appear to be addressed. Many types of financial data are reviewed in this manner:
  • Current ratio

  • Net op margin

  • Cash on hand

  • Days in A/R

  • Bad debt

  • MGA as a percent of total expense

  • Unit costs  (Key consideration:  how to allocate "overhead" or indirect costs)

  • Revenue mix

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