Governance changes a sign of the times
Friday December 7, 2007 -- Jason Thompson
After noticing governance changes in the private sector six or seven years ago, largely precipitated by the failure of companies such as Enron and WorldCom, the board of directors at the Healthcare Insurance Reciprocal of Canada (HIROC) decided it was time to formalize their own governance model.

Rather than start with a few ideas from other organizations, Ron Haines, F.C.A. and currently chair of the HIROC board, says the decision was made to draw up a governance model from scratch — one that made sense for HIROC.

“Periodically there’s a movement in the business world to upgrade governance and improve the oversight of the board over the operations of the company,” says Haines, who has a passion for governance.

At HIROC, the first step in accomplishing this was the establishment of a governance task force, which later evolved into a standing committee of the board to ensure governance wasn’t a task-oriented activity but rather a continuing process.

The turning point was the creation and adoption of HIROC’s First Principles of Governance. They consist of seven principles outlining the function and accountability of the board, chair of the board, committee chairs and the CEO. The principles are reviewed annually and are included in every board meeting binder for reference.

Haines explains that the creation of a standing committee was the first of many changes to the board’s governance model in recent years.

Another major shift for the board is a better understanding of its own functions — the board of directors is there not to manage the company, but to provide oversight and support for the chief executive officer (CEO).

Every year, each board member is asked to sign a certificate formally acknowledging his or her role and responsibility as a board member.

“We’re doing a much better job of oversight than we did,” Haines says. “I think the board has a better understanding of what its responsibilities are and how they are to carry them out . . . that alone is a good thing.”

Haines says the board has also come a long way in its involvement in HIROC’s strategic planning.

For example, when the board asks the CEO to update the strategic plan for the company for the next several years, the CEO is able to access input from the board which is used to construct the plan.

Not too long ago, Haines believes the CEO would have said he didn’t receive meaningful input from the board in developing a strategic plan. Today, Haines says the CEO appreciates the support he’s given by the board.

Although the governance model has improved the functioning of the board, Haines says it’s always being considered for revision.

“That’s one of the things the governance committee looks at on an ongoing basis is whether there is some better way to do things or whether there has been a development in the governance world we should adopt,” Haines says.

In order to effectively function as a board and live up to its mandate to provide oversight of operations and support for the CEO, a number of changes, some greater than others, have gone into HIROC’s formalized governance model.

When the board’s standing committee on governance was struck years ago, one of their first recommendations was the expansion of the annual board management retreat from a one-day to a two-day event.

A governance consultant was also engaged to advise board members about what a good governance model would entail.

The next step was to determine what type of board make-up would fit best for HIROC.

The HIROC board as it exists today is a hybrid model of a representative board and a knowledge-based board.

For an insurance reciprocal like HIROC, Haines says the hybrid board structure is advantageous because not only does it allow for subscriber representation, it also recognizes the need for certain skill sets to be present around the board table.

For instance, the HIROC board decided it was important to include accountants, lawyers and people with knowledge of patient safety around the table.

This way if the board requires any insight from an accounting, legal or patient safety perspective, people with those skill sets are already sitting around the table.

In order to ensure the skill sets desired by the board are always maintained, the board now keeps an inventory of skill sets. In case someone steps down or retires, the board is able to dig into their inventory and fill the position without missing a beat.

For example, if a corporate lawyer sitting on the board decides he wants to retire, the nomination committee will know what skills need to be replaced.

To provide the board flexibility, two special seats have also been created at the board level.

“There might be some people (with specific skill sets) who we come across who we’d really like to have on the board but they’re not involved with one of our subscribers,” Haines says, using the example of an actuary.

“It would be nice when dealing with the company’s actuary to have someone on the board with that skill set as well,” he says.

Those spots on the HIROC board have yet to be filled, but they’re there if needed, giving the board some flexibility.

Haines has seen several companies with representative boards who have created these seats to be able to accommodate people they might like to include at the board but who aren’t aligned with a stakeholder.

The board member selection process has been over-hauled as well.

Prior to the new governance model, the HIROC board issued annual requests to subscribers asking them to nominate someone within their organization for election to the board.

Now, instead of asking for general nominations, the board asks for people with specific skill sets that may be required in a particular year.

As board positions become available, Haines credits the improved nomination process with helping the board do a better job of filling those seats with individuals who possess the skill sets to help HIROC achieve its strategic.

“It’s about kicking the nomination process up a notch,” he says.

Similar to any organization, if the board is going to be effective in providing oversight and guidance to the CEO, it has to be made up of the right people.

Under their current governance model, sitting on the HIROC board is no longer a volunteer position and board members are compensated for their time. Haines says this can improve the recruitment effort.

For some board members, such as a corporate lawyer who may live in Newfoundland and Labrador, compensation should be helpful to entice them to invest their time.

For those types of professionals, billable time is the only asset they’ve got, which is lost by having to travel to and attend board meetings.

Because of the governance requirements, being a member of the HIROC board demands more of a person’s time and energy than ever before. As a result of the increase in workload, Haines says it made sense to compensate board members, chairs and vice-chairs, which is standard practice for many organizations.

The board as a whole and individual members are now evaluated on a bi-annual basis.

A board evaluation involves the members answering questions with regard to the board’s performance as a whole. The evaluations are sent on a confidential basis to an independent firm that tabulates the responses and summarizes the results for presentation to the board.

For instance, if 10 of 14 people said they weren’t comfortable with the performance of one of the board’s committees, it would be an indication there was a problem which could then be addressed.

For board member performance evaluations, generic questions, such as ‘do you think a particular member is prepared for the board or committee meetings,’ are answered by board members in the same confidential manner.

The evaluations are set up so that the board and individual peer evaluations take place in alternating years.