Trust is fine, but checks are better: The role of supervisory boards in healthcare

White Papers | June, 2016

By Patrick A. Haberland

In recent years supervisory boards in healthcare have been in the spotlight increasingly often. As an important strategic and controlling organ they are supposed to prevent mismanagement, provide managerial input and guarantee the financial prosperity of hospitals and clinics. But unlike supervisory boards in other sectors, alongside the considerations of profitability and business success, they are faced with the additional challenge of taking patient benefit into account. Given the nature of this double responsibility, public discussion about the professionalization of supervisory boards in healthcare has recently become a much debated topic. But what does the current role of supervisory boards in healthcare really look like?

To bring this discussion from the realm of anecdote onto a higher level, it is necessary to provide an objective analysis of the way supervisory boards in the healthcare sector view themselves. This article describes the results of an extensive in-depth interview study involving 26 supervisory boards, with an emphasis on university and municipal clinics. The interviews took place using a semi standardised interview structure, with interviewees guaranteed anonymity concerning the evaluation of their statements by the academic study institute HR|Impulsgeber. Illustration 1 shows the overall context of the investigation. The topic of the following reflections are building blocks 1 and 3, which focus on the role of both parties involved in the two-tier management system. The resulting insights into the relationship between supervisory board and company management provide the basis for deriving the fields of action identified in the ensuing section.

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Illustration 1: The building blocks of the 19 in-depth interviews

The relation of management intensity to controlling intensity

The relation of management intensity to controlling intensity deals with the extent to which company management and/or the supervisory board has a say in important decisions. Cooperation between the two can correspond to four basic models:

  1. The “potential loser” model. In this case neither company management nor the supervisory board shows strong management intensity. Time is taken over formulating resolutions, decisions are postponed until the outcome decides itself (or results in a fiasco). In such a case the empowerment of both sides is urgently necessary. Our interview results did not include any instance of an organisation which corresponds to this model.

  2. Company management as the decision-maker. Here, company management displays high management intensity as opposed to the supervisory board. In this case, the supervisory board functions in a controlling manner rather than as a strategic input-giver with claims to leadership. 56% of our interviewees stated that they would assign this role to their supervisory board in the context of normal day-to-day business.

  3. A synthesis of supervisory board and company management. If the management intensity of both institutions is high, this forms the best basis for joint decision-making. Other studies show that a strong supervisory board can have a positive effect on business results – providing there is clear communication with company management. This conclusion can be reinforced by the results of conflict reserach: groups arrive at better decisions when they constructively discuss differing viewpoints, even if they are at odds on substantive issues. However, cooperation can become negative when controversial perspectives form the starting-point for attacks on a personal level. The aim should be the cooperative resolution of problems on an equal level, with each side accepting the role and responsibilities of the other. 44% of our interviewees saw this model as being embodied in their own organisation.

  4. The supervisory board as decision-maker. In this case, the supervisory board‘s management intensity is high and the company leaderships is low. Interestingly, none of the interviewees saw this model as being represented by their own organisation in the context of normal day-to-day business, although all interviewees said that they could imagine the supervisory board playing such a role in crisis situations. In such cases the board’s role is seen as consisting of taking over the decision-maker’s role and of attempting to regain public trust. The supervisory board’s readiness to make public criticisms of company management is restricted to extreme situations involving large-scale dereliction of duty of a kind which indicates personal character weaknesses (e.g. misappropriation). In general, public criticism is regarded as an “ultima ratio“, a last-resort step once internal procedures have proven unsuccessful. The supervisory board as decision-maker is thus a management model which is limited to exceptional situations in which the supervisory board plays a crucial role.

In summary, a divided picture can be made out. More than half of the supervisory boards studied see themselves primarily in a passive controlling function, however, the remainder see themselves, in terms of decision-making, as being on an equal footing with company management. 

This divergence can be viewed in part as a result of the particular skills profiles of the supervisory boards. While some supervisory boards possess experts in the field of healthcare and/or financial affairs, other boards have less expertise in these areas and so tend to defer to company management when it comes to the relevant decision-making. Moreover, although interviewees were united in regarding supervisory boards as playing an important role in crisis situations, it should be noted that such situations would very likely be avoidable if a (professionally competent) supervisory board were previously involved.

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Illustration 2: Management Intensity v Control Intensity

Relation to company management and main responsibilities

As well as the division of managerial roles between company management and the supervisory board, our study was also intended to illustrate the supervisory board’s relation to company management and its main responsibilities. Overall a very positive picture of the relation between the two institutions could be discerned. Cooperation was consistently described as being constructive and characterised by mutual trust; while the board of directors do the driving, the supervisory board provide the directions.  

However, concerning the supervisory board’s main responsibilities opinions diverged. Whereas some interview participants saw themselves as having a clear strategic function, others saw their role as primarily that of giving approval. This ambivalence is also reflected in the salaries of supervisory boards in the healthcare sector. Entrepreneurial figures, who combine business acumen with professional and financial skills, while acting in the interest of public good, are in demand.

For the professionalisation of supervisory boards in the healthcare field, work needs to be done from two directions. On the one hand, supervisory board members should be carefully chosen with regard to their specific skills and expertise, while on the other their salaries should be made comparable to those offered in other professional areas. If healthcare institutions are to be truly economically effective, a precondition of this is their ability to appoint correspondingly qualified and appropriately paid supervisory board members.

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Illustration 3 & 4: Management Intensity v Control Intensity

How do Supervisory Boards in German Healthcare compare to that of other countries

According to Robin Singleton, Managing Partner and global leader of DHR International's Healthcare Practice, just as is the case in the European healthcare environment, in North America the relationship between Executive Leadership and the Board is based on mutual trust and respect.  However, the amount of actual “controlling” that boards tend to exhibit in North America is generally a bit less.  Ms. Singleton states, “The main focus in the states for supervisory boards tends to be providing general advice and input on the overall strategic planning process. The board and leadership tend to work toward transparency but in a very collaborative fashion.”

In the UK, the NHS Foundation Trust’s Board of Governors act in a similar capacity as the German healthcare supervisory boards. The role of the Boards of Governors is to steer and monitor the management of the trust’s Board of Directors, ensuring they achieve their objectives while safeguarding the interest of the patients. Simon Mansfield, Managing Partner at DHR International and a Governor for Moorfields Eye Hospital NHS Foundation Trust, states that “the role of the Board of Directors lies heavily in making strategic management and financial decisions, whereas the Governors focus is to ensure patients safety and care is always put first. The function of the Board of Governors therefore has a larger controlling intensity than management function.” He adds, “Seeing the trusts performance through the prism of the patients’ experience throws a different cast and broader dimension onto the overall functioning of the service”

Be it the Board of Governors in one of the UK’s NHS Foundation Trust or the supervisory board of the US or German healthcare system, the common theme is that, despite differing controlling vs managing intensity levels, all are reliant on the mutual cooperation, trust and the respect of the organisational leadership.

Conclusion

The results of the study clearly show that a fundamental discussion of the role of supervisory boards in the healthcare sector is urgently necessary. At the moment we are facing divergent demands: extensive healthcare service provision on the one hand and the need for effective economic measures on the other. A first step to tackle this problem would be the conscious positioning of supervisory boards in healthcare midway between a controlling and a managerial function so that institutions, when appointing supervisory board members, could make use of their specific expertise and skills profiles as a basis for decision-making. Furthermore, academic studies show that the greater the influence of supervisory boards on strategic goal-planning in the healthcare field, the better the institution’s business results and productivity. Here, however, the supervisory board should possess sufficient analytical competence. This means that in future great importance will be put on the selection of supervisory board members and on the opportunities for further board member training.


The full study is available at:

DHR_Intl_-_Study_-_The_role_of_supervisory_boards_in_German_healthcare.pdf