Does your board have and enforce term limits for directors? Is adhering to term limits viewed as an opportunity to refresh, reexamine and strengthen the board with new talent? Or is it something that can be extended if there “just aren’t qualified or interested candidates” available or willing to serve?
More than half (64%) of boards limit the number of consecutive terms a director may serve, and the median maximum number of terms is three, according to the Governance Institute’s 2021 Biennial Survey of Hospitals and Healthcare Systems. The report also shows that the median term length remains three years, or four years for government-sponsored hospitals.
In PricewaterhouseCoopers' September 2021 report, Taking Board Governance from Good to Great: Now Is the Time to Act, Tim Ryan, U.S. chairman and senior partner, recommends boards, “Embrace shorter board tenures. Set an expectation that at least some directors will leave after five or seven years. This can encourage fresh thinking about renewing boards.” The report also cites an observation from executive search firm Spencer Stuart that “the pace of change and development today is so fast that perspectives can become stale.”
Tracking and Expanding Trustee Competencies
Many boards view term limits as an opportunity to attract a broader range of candidates with skills in evolving areas. These include technology, cybersecurity, population health, mergers and affiliations, change management and social media. In addition, individuals are sought who will broaden the board’s diversity and better reflect community demographics, gender, ethnicity, socioeconomic status and other valued characteristics.
Every board should have an annually updated trustee competency matrix that identifies the skills and capabilities of each board member. Updates should include board member characteristics, as well as new capability categories reflecting changes in the industry, new trends and other elements that impact hospital performance. Boards should use the competency matrix to identify potential skill gaps among its members and as screening criteria to recruit new candidates.
Perspectives on Term Limits
Four board chairs who represent hospitals and health systems of different sizes and geographic locations weighed in on the ideal length of board term limits. Although three out of four agreed that term limits should be set and enforced, three acknowledged that challenges with board recruitment in rural areas may warrant some flexibility.
Having and enforcing term limits is an essential element to maintaining a robust, engaged board, according to Steven T. Valentine, board chair of two Los Angeles-area hospitals, CommonSpirit Northridge Hospital Medical Center and Orthopaedic Institute for Children, an alliance with UCLA Health. “We always want to maintain continuity with our boards, and this is especially important if there is turnover in senior management,” he says. “We have staggered terms and anticipate and plan for turnover in our trustees. We need new ideas and skills that fill specific evolving needs and want to avoid getting in a rut, which may happen if someone is on the board too long.”
Nevertheless, Valentine acknowledges that it’s sometimes difficult to see trustees leave at the end of their tenure, especially because of the investment of time, energy and money to keep them educated and informed about the complex healthcare field. When orienting a new trustee, Valentine ensures they are clear about expectations regarding attendance, participation and the number of meetings required, and he stresses that trustees must be prepared to actively contribute.
Jennifer Danic, former board chair at Cameron Memorial Community Hospital, Angola, Ind., recently “retired” from the board at the end of her third three-year term, even though the opportunity to extend her time was offered. Danic acknowledges that “stepping aside left a hole, but it is a hole that someone else stepped into seamlessly and will bring a different perspective and skill set that is important and different from mine … Sometimes the longer a trustee is at the board table, the greater the tendency to get into management and operations rather than stay in the governance realm,” she says.
However, Danic laments that board recruitment can be difficult, especially in rural areas. “It often takes several years for trustees new to healthcare to understand the industry and key elements of hospital operations and to make meaningful contributions to deliberations.” Acknowledging that it can be difficult to have conversations with trustees about retiring from the board, Danic says she has learned to be “more open, clear and specific on ‘day one’ with new board members [about] setting expectations, explaining parameters, duration of service and why there are term limits on board tenure … constant evolution of board leadership and membership elevates the effectiveness of governance, which ultimately benefits the hospital in the long run.”
“There isn’t one best model that fits every organization; there is a balance that needs to be struck,” says Richard Evnen, former chair of the Bryan Medical Center, Lincoln, Neb., and former chair of the American Hospital Association Committee on Governance. This is especially true for rural hospitals. Evnen believes term limits create opportunities to recruit trustees with skills to address newly identified needs as changes occur in the field, and he supports the movement toward recruiting people from outside of the local market. He also believes “having clear term limits avoids potential hard feelings, especially when some trustees with significant years of service are asked to rotate off the board.”
However, in acknowledging that it is increasingly more difficult to find “good” people who are willing to serve as trustees, Evnen states, “The downside of term limits is the potential loss of ‘institutional memory,’ and change can sometimes be destabilizing when particularly good trustees term out.”
Like Danic and Evnen, Ronald Stovash, board chair at Mon Health System, Morgantown, W.Va., believes that finding trustees in rural areas can be challenging. The “pool for qualified trustees is small in rural areas … make finding capable people difficult,” he says. Several of the hospitals in the Mon Health System have had trustees with tenures of 20 years or more. For this reason, Stovash thinks term limits may not be needed as much in rural areas as they are in other settings. “The most important thing is not about limiting time as a trustee as it is to make sure the hospital has a balance of the right board members with expertise and willingness to effectively serve.”
The orientation time needed for a new board member is also a consideration for Stovash. “It might take two to three years because of the complexity of healthcare,” he says, adding “and institutional knowledge and experience are essential to maintaining a vibrant and engaged board regardless of tenure.” “If you have the right people, it won’t be necessary to change them out to get new perspectives; they will be able to adapt and adjust,” he adds.
Term Limits Essential to Effective Governance
The key to making term limits work in the best interests of the board, as well as for individual trustees, is to use them as a means to an end and not simply an end in and of themselves. By establishing the core first and dealing with exceptions as needed, clearly defined and understood term limits can be a cornerstone of effective governance to ensure continuity, enable rejuvenation through resiliency, and create sustainability and success into the future.
Guy M. Masters is president of Masters Healthcare Consulting and a Governance Institute adviser (email@example.com).