HMNMH Conflict of Compound Interest

There has been an exorbitant amount of outrage pinned against the salary and bonuses received by corporate executives, but blaming has ignored the real source for anger: the Board of Directors. These individuals not only set salaries and hire (and fire) a Chief Executive Officer, but ultimately make policy and direct future goals which are paramount to a successful organization. Most of us have no concept nor understanding what it is like to sit as a member on a Board of Directors, but when chosen to be one of these leaders, how prepared are we in assuming this role?

An initial reaction is to make a beeline for the nearest copy of “How to be on a Board of Directors for Dummies”, yet what we bring to the table is our innate understanding and experiences of life. Having personally sat on multiple Boards and chaired a few, there is a learning curve where skills and insight are honed and evolve over time. Not having sat on a Wall Street Board, I will limit my discussion to the experience of non-profit Boards, such as we have at Henry Mayo Hospital (HMNMH).

Diversity of opinion is critical in having a well-rounded hospital Board, so appointing individuals not only knowledgeable in healthcare, but well-versed in finance, real estate, construction, and community needs is important. This seems to fit the profile we see on the HMNMH Board of Directors.

Our Board of Directors are not paid for their services. Therefore their valuable time is contributed for the selfless sake of our community healthcare. Should they donate professional services on their own time and expense without expectation of anything in return, we ennoble and respect their altruistic efforts. But should their personal profession intertwine financially with that of the hospital, State laws for non-profit 501(c)3 organizations prevent conflict of interest.

The term 501(c)3 refers to the IRS Revenue Code which mandates the rules and laws non-profit corporations must follow. State law under the auspices of the California Attorney General requires “no more than 49% of the directors may be ‘interested persons’.” Like any law, wide interpretation may be wielded blurring legal clarity. It makes sense though you would not want someone with special interest to takeover a non-profit entity for their own personal profit-making interest.

So a question that beckons an answer is can all Board of Director members be free of conflict of interest? As a physician, I know some hospital contracted doctors who are well-qualified in their medical and business expertise, but would be disqualified on serving if not for the 49% exception. Because they are a Board member, they must recuse themselves should the voting concern their business. This is simple, fair, and common sense.

Should hospital money be deposited in the bank of Board members, construction contracts be given to Board members, or medical office building real estate leasing be brokered to Board members, recusing themselves and not voting on any of their business related issues is simple, fair, and common sense.

Although Board members might seem to be absolved of their conflict of interest through voting recusal, in reality there is a clear appearance of impropriety. Could a Board member vote on other hospital issues be swayed and influenced from fear their deposits, contracts, or leasing be threatened? The answer is simple, fair, and common sense…of course! This is the indelible crux of our problem.

There are many bankers, contractors, and real estate brokers in our valley that would be willing to give their input and expertise in improving our community healthcare without expecting any financial benefit in return. These are the altruistic Santa Claritans we should honor and put on a pedestal, who rise above the appearance of impropriety while removing the intertwined financial relationship of Board members with the hospital.

Our community should fear the undue influence on Board member votes, as this is leading our hospital down a misguided path. Their votes resulted in outrageous executive salaries with hidden bonuses the public is not privy to. Self-serving interest has taken over our hospital and threatens it’s viability. The hospital Board of Directors must be held accountable, and if you do not question nor scrutinize this Board, you probably read a copy of “How to be a Dummy for the Board of Directors!”

Gene Dorio, M.D.- Guest Commentary

Gene Dorio, M.D., is a local physician. His commentary represents his own opinions and not necessarily the views of any organization he may be affiliated with including the Medical Executive Committee and Medical Staff of Henry Mayo Hospital, or those of the West Ranch Beacon.