In this episode of AHLA's monthly series on fraud and abuse issues, Matthew Wetzel, Associate General Counsel, Compliance Officer, GRAIL, and Frank Stevens, Managing Director, Berkeley Research Group (BRG), talk about what lessons can be learned by looking at dysfunctional health care corporate governance. The podcast discusses how governance ideology can affect compliance, the four factors driving the competence of a board’s performance, the relationship between the board and management, and how compliance officers can support functional governance. From AHLA's Fraud and Abuse Practice Group. Sponsored by BRG.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
In this episode of AHLA's monthly series on fraud and abuse issues, Matthew Wetzel, Associate General Counsel, Compliance Officer, GRAIL, and Frank Stevens, Managing Director, Berkeley Research Group (BRG), talk about what lessons can be learned by looking at dysfunctional health care corporate governance. The podcast discusses how governance ideology can affect compliance, the four factors driving the competence of a board’s performance, the relationship between the board and management, and how compliance officers can support functional governance. From AHLA's Fraud and Abuse Practice Group. Sponsored by BRG.
To learn more about AHLA and the educational resources available to the health law community, visit americanhealthlaw.org.
The following message and support for A H L A is provided by Berkeley Research Group, a global consulting firm that helps organizations advance in the areas of disputes and investigations, corporate finance and strategy and operations. BRG helps clients stay ahead of what's next. For more information, visit think brg.com.
Speaker 2:Welcome to another edition of the American Health Law Associations Fraud and Abuse podcast. I'm your host, Matt Wetzel, and today is February 9th, 2021. Today we're joined by Frank Stevens, managing director of b r g based in Los Angeles. Frank, you may not know it, but I want to congratulate you on being our first repeat guest to the Fraud Abuse Podcast. Welcome back.
Speaker 3:Thank you, Matt. Glad to be here.
Speaker 2:Great to have you. Great to have you. And you know, for our listeners today, we're gonna talk about a little bit of a different topic. Uh, today it's corporate governance. How does the interplay between an organization's board and management affect compliance and other mission critical corporate functions? How can governance, as we understand it, impact corporate culture with nearly four decades of working in healthcare, Frank, you bring a unique view of the industry and the issues companies face. That's why we've got you, uh, back twice here. Within a couple of months, you've worked with HMOs, managed care companies, providers, you've advised boards of directors and management, countless organizations on a litany of issues from financial and operational improvement to forensic investigations to regulatory compliance. It's a 360 degree view of healthcare corporate management. You notice that you noted that some of the best lessons are those from, uh, organizations suffering from some sort of dysfunction, whether that's organizational or cultural dysfunction. I just wanna start by asking why we should take, why should we take lessons from dysfunctional organizations? What can we learn?
Speaker 3:Well, I think that's how we, uh, whether you're a successful organization or you're an organization that's in trouble, that's how you learn from your past mistakes. You, you, you try to understand what went wrong. Um, and if you're another company looking at a case history of a, a company that had trouble, you're looking at what went wrong and why. Right? What was the breakdown in a policy, a procedure, a process that resulted in a compliance issue? And that way you can ensure going forward that those kind of issues don't happen to you and don't ever happen again if you happen to be the company that has a compliance problem.
Speaker 2:No, I think that's, I think that's so, uh, that's so true in all of our work. And, you know, when I think about, um, effective corporate governance, uh, you know, I see the roots of this in the tone and culture of the organization's board and management, or maybe even vice versa. But governance, you've noted the word governance. I'm doing air quotes right now, um, seems to be an overused word, and maybe it's too casually bandi about what's the problem with the word governance as it's currently used.
Speaker 3:I, I think for most people, they don't even know what it is. Um, you know, if you ask somebody, what, what, what is the color? Red? They pretty much know what the color red looks like when somebody talks about governance. It, it's, it, it, it is this vague thing to most people as to what is governance, uh, what does it mean to somebody in terms of governance? And I see that when I work with, with management teams and with boards of directors, the word governance is thrown out, and it, it, there's just this blank look on people's faces.
Speaker 2:So it sounds like the first thing we need to do is really have this baseline definition of governance. And, and, and, and how would you define that brain?
Speaker 3:Well, you know, I went to the dictionary and it's always a great place to go. Um, and, and, and the definition is a set of beliefs or principles, especially those on which an organization is based, right? So a management team or a board of directors, or a board of trustees, you know, they wanna apply these briefs, beliefs and principles, um, in conducting board activities, including oversight of management, operations, financial condition compliance, and decisions brought before them by management.
Speaker 2:So it sounds like, uh, you know, we've got sort of a, a, a need for a definition here. And we've had, um, you know, we have stakeholders who don't necessarily have a clear definition or maybe varied definitions, you know, and thinking about this, um, podcast, Frank, you know, I kind of turned to the H H S O I G, uh, guidance documents and CIAs, uh, that are out there, DOJ deferred prosecution agreements. Oftentimes what we see in this guidance, um, are the nuts and bolts of compliance, and perhaps the nuts and bolts of governance, how technically functions are supposed to fit together. But you're talking about something broader. You're talking about ideology. What would you, how would you define a board's ideology around governance, and how can that impact functions like compliance?
Speaker 3:Um, sure. In in plain language, uh, ideology is the playbook that board members use in their role of oversight of management and the organization. It's, the principles of the organization are used to define the amount and detail of reporting requested from management used in evaluation of issues brought to them by management, and in creating the oversight process to monitor management's actions to ensure the organization remains faithful to its values and principles.
Speaker 2:And when we, when we talk about, um, a playbook, I mean, you know, to me that says that that's a written set of, uh, uh, of rules. Would you suggest that, uh, you know, this sort of governance ideology is something that's written? Is this in a written document somewhere?
Speaker 3:Uh, uh, yes, man, I think, I think it should be in a written document. But more importantly, I think it's something that needs to be integrated into training of boards, board members. And I think it's something that should be reminded to the board at each board meeting. So there's never this loss or focus of why am I here and what are the, what's the playbook I'm gonna use to make my decisions and evaluate things brought to me by management?
Speaker 2:So when we talked, uh, earlier, Frank, uh, you know, we, we were talking a little bit about ideology and governance. You mentioned, uh, the idea of competence. So to me, competence means you have an individual, a board member, or maybe an organization that has the skills, the mental capacity, the physical capacity to successfully complete the job required. Can a dysfunctional organization be led by incompetent leaders or an incompetent board?
Speaker 3:Sure. I think it happens all the time. Um, I, I, when I think about, um, competence, I define it as the effectiveness of a board to apply the organization's principles and values, um, um, in, in their roles. And I think there's, at at least four key factors from my experience, that really drive the competence, uh, of a board's performance.
Speaker 2:And let's talk about those four factors, Frank. I think this is a really interesting concept that our listeners will be, uh, will, uh, will appreciate. So the first factor you talk about sort of recruiting the board. Can you tell us a little bit about that?
Speaker 3:Sure. Um, you know, I think the recruitment of a, of a balanced board of individuals with different expertise, all with the mutual focus of helping the organization be successful. Now, I think that's so critical that especially in not-for-profits, where, you know, they're typically not paid board members, that you're looking for someone who really is focused on the success of the organization and doesn't go on the board with a focus of, well, this is prestigious to me in the community because I'm on the board. It really needs to be somebody who's focused, um, on the success of the board. Because as you know, know, each board member brings not only their expertise and knowledge, but their common sense to discussions and decisions. And I really believe the recruitment of a board members in a best case scenario, should be by the board itself and not a function of management.
Speaker 2:And, and, and tell me about that a little bit, Frank. I mean, you know, I, I, I appreciate what you're saying here on, you know, the sort of mission focus of each board member, but why, why do you think that the board should recruit other board members versus the man versus a company's management?
Speaker 3:You know, Matt, in my experience, you know, one of the, the problem areas that I've observed over and over again is that management can recruit, uh, board members that are their buddies, so to speak. Mm-hmm.<affirmative> mm-hmm.<affirmative>. Um, and that undermines the independence, um, and will, and, and the dynamics of that relationship between the board and management. Um, I think there's a national natural, uh, phenomenon of, you know, wanting to be friends or have that friendly relationship, but there's a, there's a line that has to be maintained of independence. And so I don't like it when management recruits the board members, because there's always a concern that manifests recruiting people who are going to be their friends on the board and vote, vote the way they want the board to vote.
Speaker 2:Absolutely. Absolutely. And you mentioned independence, uh, uh, as between the board and, and the manage and, and management. Um, but you know, there's other in, uh, areas of independence that the board needs to be considerate about as well. So conflicts of interest, for example. How can, um, how can the board have a better understanding of what their responsibilities are? Uh, and is that a part of your, you know, sort of assessment as to a, a, an effective, uh, governance structure?
Speaker 3:Yes, man, I, I think that's a second key factor. Um, and that, and that is, I, I, I've observed failures or, um, a a lack of intensity in board training. Um, you know, I think it's very important that, that a board receives in-depth training, um, that not only explicitly imparts the principles and missions of the company, but also covers the conflict of interest, what the compliance requirements of governance, uh, programs should be. Um, healthcare being one of the most highly regulated industries requires that board members have a very well-rounded understanding of the compliance risks of the organizations. Um, further, this training program is key to establishing the foundation of the group dynamics of the, the board and how that board will function. Um, it, it's all too often that when I observe, um, a, a board functionality, that there's, there's a lack of empowerment felt by each board member. Um, and that's, that's a critical failure, right? Um, board members should understand that regardless of their background, their knowledge, education, employment, race, religion, they are all equal in authority and power as any other board member.
Speaker 2:And y you know, it's interesting you say this. Um, so it sounds like the dysfunctional model would, uh, demonstrate a lack of empowerment among the individuals, but a, uh, a, a functional board or a functional governance structure, each individual board member sort of shows up as an equal. I mean, would you say that's, that's a, a good assessment of, uh, uh, of your argument here?
Speaker 3:I, I think that's critical. I, if, if board members do not attend the board meetings in feeling as if there is equal to anybody else, then in effect they're marginalized. Um, and, and in looking at the challenges of, of what I'll call dysfunctional boards, it, it goes to, uh, back in the days you used to talk about group dynamics, but it's really important in a board in terms of how board members interact in discussing issues, um, in establishing requirements of management, in establishing oversight processes and in decision making. Um, I think that's the third critical factor of, of an effective board program. And I think there's a hurdle to overcome when an individual takes on a mantle of a board member versus their role as an employee or member of management an organization. And let me give you an example. Wh when we go into work every day, there's already a, a pecking order at our employer. You know, we know who the C E O is, the coo, the C F O compliance officer. So there's a pecking order, and, and depending on the style of the employer, individual opinion may not be considered unless the individual is a senior leader, that they won't really have a vote. But when you go on a board, everything's different as a board member. Each member is equal to any other member. You know, titles on the board such as chair, vice chairs, secretary, et cetera, are functional roles to facilitate board meetings. However, these titles should not bring a level of authority that exceeds the authority of any individual board member.
Speaker 2:And I imagine too, with that sort of, um, you know, COE equivalent among board members, that when you have management recruiting the board, and like you said, you know, sort of, you know, somebody may be placing their buddies or their friends on the board, that could create a discrepancy in that power dynamic among, among board members. Would you, would you agree with that?
Speaker 3:Absolutely. Absolutely. And that, and, and, and I think that, you know, the fourth issue I have when it comes to boards, I is really around that whole management relationship. Um, and, and this is a thorny topic, um, a a lot of people won't like this comment, but, but I think from an independence standpoint, management should not sit on the board. Mm-hmm.<affirmative> mm-hmm.<affirmative>. Um, I, I think to maintain that independence of the board as the organization that management comes to, to review, uh, to provide reporting, you know, boards should feel comfortable in saying, you know, we're we invited management here, you give us your report, but then we're gonna meet by ourselves and talk about it. Right? And that, that whole group dynamic, so you've got the group dynamic of the board, and then that, that group dynamic changes when management's in the room. And especially if management sits as a board member,
Speaker 2:It almost seems to me Frank, that, um, you know, when you have those situations, you've got, you know, management sitting on the board or management selecting, you know, certain board members. She almost create like a super board that's, you know, kind of secret and informal in nature. Uh, and, and, and, you know, thereby kind of, you know, detracting from the, you know, from every other board member's, you know, position of authority and responsibility and maybe even ability to fulfill their fiduciary duties.
Speaker 3:Absolutely. And, and I've observed that over and over again. Um, you know, kind of the wink, wink, let's talk about it in the hallway, um, leaving out board members. And so when that kind of group dynamic occurs, then all the board members who are not part of the, of, of, of the, of the club are marginalized. They, they're undermined in their role. And even though they have, they may have showed up and say, I've got the authority, they suddenly feel, well, I, I guess I'm not equal to everybody else because I'm not, I'm not part of the club. There's conversations going on that I don't get to hear.
Speaker 2:It's almost as if you've got the varsity squad and the junior varsity squad.
Speaker 3:Right.
Speaker 2:Uh, let me ask, you know, one final question here, Frank. I mean, as, as we've been talking here, you know, in my own personal role as compliance officer, I, you know, I think about how, uh, practical issues come up during the day and, you know, perhaps those of us who've, you know, sit in these chairs, uh, you know, tend to be a little bit more in the w you know, worriers and, uh, you know, concerned that everything is, is, uh, is buttoned up in terms of our governance structure. Why do you, you think compliance officers in, in particular should pay attention to the four factors you've outlined, and how can we help support really good functional governments?
Speaker 3:Yeah, man, I, I think the compliance officer's role is so important in any organization, whether health plan, you know, pharmaceutical provider, what I observe so often, and, and, and I should say most often is that board of directors or board of trustees compliance is a missing aspect, right? There isn't really that training, as we talked about earlier. And I think the compliance officer can play a key role in, in the training, in reinforcing, uh, and honestly, the compliance officer should be a resource. You know, if, if, if the board can't hire its own attorney who can discuss compliance with them, then the compliance officer or the company has to have a role where the board can turn to them and say, you know, we're concerned is our compliance function here. I think the compliance officer, um, and again, it goes back to, we'll go back to the bigger picture of how, um, the organization functions. Compliance should be so critical to every organization, and that compliance officer should have a defined role in working with the board and making sure the board understands, you know, what compliance issues are, but also in using their voice in the organization to ensure that the four factors we talked about for a successful, uh, and incompetent board team, that, that these things are followed and that there isn't this sudden suddenly the, the board starts moving in a different direction. Whether it's because management starts recruiting board members, um, whether, uh, people are, are marginalized because of, you know, education or, or, or whether there's this functionality of the dynamics of the board where it's now wink, wink, the good old boys club and everybody else is left out. I think, I think compliance has been left out historically, and I think compliance officers, and I know it's a challenge in an organization in terms of what the org organization embraces compliance, but I believe the compliance officer officer is such a key player in ensuring that not only management functions correctly, but that the board understands compliance and, and is a resource to the board to make sure in when they have questions, they can go to that compliance officer.
Speaker 2:I think that's very well said. And you know, as you were talking there, Frank, I keep thinking that the compliance officer's role is, you know, part referee, part cop, part diplomat, and now kind of part politician too, trying to work through, um, you know, perhaps some sticky management and board relationship issues.
Speaker 3:Absolutely. Absolutely. It's a very difficult job, but when you look around and see the, the, the catastrophic issues that can occur as a result of non-compliance, it, it's such an important role in the organization and in the board.
Speaker 2:Well, that's certainly as a, as a compliance officer myself, I, I certainly understand, um, you know, those practical issues. And Frank, it's so great to hear your perspectives here and, and to understand a little bit better about how board dynamics and four dynamics with management can impact the compliance role and the ability of the company to have an effective compliance program. Frank Stevens from B r g, thanks so much for your time. Thanks for joining us again on the A H L A podcast.
Speaker 3:Thank you, Matt. Always a pleasure.
Speaker 2:Well, we look forward to having you back in the near future, and thanks of course to our listeners for joining us for the latest edition of the A H L A Fraud Abuse Podcast. If you're interested, please subscribe and download this podcast wherever you get your podcast, and we'll be back next month with another edition.