By Jack Cumming
We don’t often publish material focused on boards, much less on senior living boards in particular. Of course, we know that board members should be chosen for their wisdom in vetting and choosing the corporate leadership, and for the skills they bring that can best support that leadership. Most of the time, though, the board is expected to act collegially while avoiding micromanagement. Recently, we have seen resident inclusion regarded as a positive perspective to add to board deliberations.
The Harvard Corporation
The situation surrounding the Claudine Gay presidency at Harvard, though, has shed new light on these core board responsibilities and on what can constitute successful board wisdom and what can lead to criticism. Articles, like one in the journal Higher Education and another in the New York Times, have called into question the ability of the 12-member board of the Harvard Corporation to properly handle the search process which brought Ms. Gay into the Presidency. Beyond that, the board has been criticized for dodging responsibility as the congressional testimony/plagiarism crisis caught fire in the media and among the public.
According to the Times, Penny Pritzker, the founder of what is now Vi Senior Living and chair of the Harvard board, led the effort to bring Ms. Gay into the presidency and continued to back her until December 27, when Ms. Pritzker reportedly asked Ms. Gay, “Did she think there was a path forward with her as the school’s president?” Anyone in business knows that a question like that from the chair of the board is chilling in its implications.
The apparent board drift as the crisis unfolded and escalated, combined with the lack of clarity of deliberation by the board’s leadership, appears to have complicated the university’s response. Many people believe that Harvard has lost credibility and status as a result. Personally, I suspect that Harvard as an institution is more resilient than that, but reports of the board’s deliberations have not reflected well on it as a governing body.
The Boeing Corporation
Consider the Boeing board, now dealing with rippling crises. Boeing corporate has predictably declared that “safety is our highest priority.” To that assurance, TV viewers were heard to remark among themselves, “You said that the last time a bunch of lives were lost.” Of course, the Boeing board likely first heard that corporate message on their TVs at the same time as everyone else.
After the Lion Air crash on October 29, 2018, Boeing’s CEO did not notify the board of the crash for 10 days. It turns out that Boeing’s internal investigation quickly determined that the Boeing system was likely at fault, but the CEO continued to mislead the board. Instead of accepting responsibility, Boeing’s leadership blamed the Lion Air flight crew for the crash.
What was the board doing during the 10 days of silence? Were no board members aware of the public reporting on the crash? Did the board not think that it had some responsibility to meet — if only by teleconference — to respond as the company’s senior governing body?
The Guardian reported a reform of Boeing’s board after the second crash in Ethiopia, but, as of this writing, there has been no reaction by the “reformed” Boeing board to the fuselage failure of Alaska Airlines Flight 1282. A structural failure of this nature is a top-order crisis for an engineering-critical industry like airplane manufacturing.
Some years ago, with board consent, Boeing moved its headquarters away from its manufacturing and engineering center in Seattle, first to Chicago and more recently to Arlington, Virginia, near the Pentagon. That leads one to wonder if the board’s strategic concerns have been less with engineering integrity and more with financial and sales opportunities. The board’s “Code of Ethical Business Conduct” makes no mention of responsibility for overseeing or auditing the integrity of the company’s products.
There are lessons here for senior living boards. CCRCs often encounter crises. A big one was the pandemic sword of Damocles that hung over the industry for over two years. Another common senior living crisis is financial default due to overleveraging. The usual wisdom about board service is that the members should serve collegially and collectively, bringing their expertise and experience, but not their personal biases, to their oversight.
The board chooses the CEO, and thereafter confers with her or him to support the CEO and to help the CEO, and other senior officers, deal with thorny strategic questions. Other than that, and a few specifics like the audit and executive compensation, the board should stay out of day-to-day operating management matters. The board, however, should be visible in times of crisis and, in the extreme, should replace the CEO if corporate performance does not match the board’s expectations.
Guiding the Business
It’s often been noted that board members who come to nonprofit boards from profitable business enterprises often leave their for-profit, lean operations mentality at the boardroom door. That is unfortunate and can lead to nonprofit flabbiness. Any business committed to mission should not allow excess or ineptitude to detract from its core purpose. Ideally, the board comprises exceptional people who bring skills and experience to the corporation to help guide it strategically and serve as a sounding board for the CEO and other senior officers as requested.
As suggested by the earlier analysis of Harvard and Boeing, the trend in recent years has been for boards to be more active in discussing what is best for the corporation and for acting to ensure that the corporation is responsive to its mission and is pursuing the mission with integrity and competence. That standard for board conduct should be higher for nonprofits, in light of the privileges that inure to tax-exempt qualification, and it is likely that the legal accountability for board performance will continue to increase in the coming years.
Emerging Board Responsibilities
For senior living, that will require that boards meet often enough to provide effective oversight, that they be more than just a discussion forum to endorse actions and direction established by the top officers, that they be consulted frequently on material matters with which the senior officers are coping, that they ensure that the residents and other beneficiaries are receiving the level of services that management claims it is providing, and that they make sure that the corporation acts in compliance with the spirit as well as the legalities of the laws and that it upholds high standards of integrity in all its operations and dealings.
Since the financial and ethical standards promulgated for publicly traded companies by the SEC are often higher than those of private or tax-exempt corporations, the best practice would be to comply with those higher standards regardless of legal mandate. Although the corporation may not have fiduciary responsibility for those in its care, the ethical standards of trust, good faith, and fair dealing dictate that the board ensure that the business fully accepts its moral responsibilities.