Difficult Times, Restructuring Governance

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“We were up against a wall,” observed one long-time board member of Albany Medical Center, a huge enterprise with an annual budget of $550 million in Albany, New York. In 1995, the medical center was in the midst of severe, continuing fiscal duress. In the words of one trustee, “The crisis began to overshadow everything we did.” In March 1994, the first day of the current board chair James Barba’s tenure, he walked out of the boardroom and was told by the chief financial officer, “I don’t know if we’re going to make payroll this Friday.”

Albany Medical Center was also suffering from a double-barreled crisis in leadership turnover, with the last two CEOs respectively serving three and a half years and four months, and the board chair turning over three times in five years.

Lack of competency and instability in leadership is often accompanied by dysfunction in organizations, as Albany Medical Center soon learned. Powerful staff members began lobbying individual board members to promote their individual agendas. According to one board member, “To press their appetites, needs, desires and wants upon various members of the board, there got to be lobbying of board members for involvement in micro-levels, totally inappropriately and without any context of the institution as a whole. Everyone pursued a little area of interest.”

The multi-dimensional crises facing Albany Medical Center increased the willingness of weary board members to tolerate the risks of implementing entirely new leadership and governance approaches. In response to this turbulence, a semi-official, five-member leadership group of people who also serve as members of the executive committee, and several previous board chairs, had spent many more hours than usual in discussions about governance possibilities. When an idea crystallized to depart from longstanding, conventional nonprofit practice and invite attorney James J. Barba, the current board chair, to serve simultaneously as CEO, the group initiated one-on-one telephone conversations with other members of the board. The callers informed board members about the Executive Committee recommendation to combine the roles of chairman and CEO and listened to their concerns.

Phone calls from the ad hoc leadership group were interpreted by other board members in the spirit in which they were placed, as an opportunity for a two-way conversation. According to one of the board members who received a call, “I had no sense that the executive committee was trying to put something over on us or sell me a solution. Before the final vote was taken, there was an agreement that this was an experiment that would be evaluated in two years.”

Barba had served on various Albany Medical Center boards for 15 years, had deep knowledge of healthcare finances, and was sensitive to the medical center’s culture. As one board member noted, “Jim had made himself into a chair who understood the inner workings, how money flowed, as opposed to a cheerleader. He had already imposed some draconian measures at the center. So we had already seen the kind of decisive action that he was capable of taking. That’s an important element of the trust we already had. He knew the place and we knew him.”

In the Times Union, the dominant regional daily newspaper, another trustee stated, “I don’t think anybody looks forward to that kind of turnover, but with Jim coming in, we’re very fortunate. He has seen the medical center through thick and thin.”

The idea to combine the roles of chairman and CEO had several advocates, including board member Joe Marone, then dean of the School of Management at Rensselaer Polytechnic Institute. Barba decided that he would accept the CEO appointment only if he could continue as board chair. Fully aware that the integrated role, a norm in the corporate world, was a departure in the nonprofit arena, Barba explained that he valued the board chair role in itself.

“I didn’t agree to serve on the board here for 15 years, and ultimately become board chair, to leave that position quickly and become hired help. My relationship with my directors, with my colleagues on the board, was a relationship of equals, of peers, and I did not want that upset. I did not want suddenly to become the employee and have to look at them in a completely different way. It just is something—it was an ill-fitting suit of clothes and I wasn’t going to don it.”

At the decisive Spring 1995 board meeting where the new model was formally adopted, there were no dissenters and little discussion. The board approved this structure as an interim arrangement to be evaluated in two years. Barba was appointed acting president and CEO, and retained his role as board chairman. After the review two years later, the by-laws were officially amended to reflect the integrated role.


Determined to make the newly integrated leadership roles a success, Barba instituted special meetings with board members: “From day one, literally March of 1995, I knew that I had to bifurcate myself in the board’s eyes, that there had to be a forum in which they saw me only as the chief executive officer and could question and hold me accountable. And yet there was a forum, namely the boardroom and board meeting, at which they could see me only as the chair of the board. So I needed a forum to fulfill the former requirement. What I hit upon in the very first month was this series of monthly luncheons and breakfasts, three or four a month.”

After receiving advance notice of the scheduled dates for the following month, about six to eight different members of the 22-member board participate in each of the hour-and-a-half informal meetings at a private club in downtown Albany. Because of self-selection, a different mix of board members occurs at each meeting and the dynamics of the conversations are always changing.

According to one board member, the meetings allow for more informal and frank discussion of the general state of affairs at the center. Conversations are open, and often include behind-the-scenes information. “We get some pretty frank assessments,” the board member said. “Nobody holds back.” In raising questions about whether poor financial results in the previous month are a revenue or expenditure problem, for instance, trustees might ask Barba to pinpoint exactly where he sees the problem.

The off-campus informality of these meetings is explicitly valued by both the CEO and most individual board members, precisely because it avoids the kind of constrained discussion that often characterizes boardroom communication. In the words of the chief executive, “My sense is that on most not-for-profit boards, rank-and-file members don’t get to express things—concerns, ideas, ask questions—because the boardroom is a highly stylized theater and there is a convention about what one says. And if one breaks the convention, that director or trustee can find himself or herself outside the fold, an irritant to others on the board.”

Talking about board meetings in a different conversational context, a trustee made a similar observation: “I’m disappointed over the level of discussion and questioning, [as to] whether the CEO/chair is challenged. When you are taking on the culture, the CEO, the role is an exhausting one. When you stop supporting the CEO, people look at you like you’re disloyal.”

The frankness that several trustees described as characteristic of these informal governance gatherings also avoids the guesswork between board members and chief executive that often preoccupies both parties and distracts them from more important work.

Still, one trustee suggested that the upscale site of the meetings, combined with the power of an individual occupying both CEO and board chair roles, may mean that dissension is muted and serious concerns may be politely voiced but not vigorously pursued. Assessing the impact of governance innovation, CEO Barba and various trustees noted a number of consequences that resulted from merging leadership roles. A trustee noted that Barba’s assumption of both roles gave him the power to reverse some of the faculty lobbying of individual board members that had characterized staff-board relations in the past. “He had the standing to transcend the power of the barons,” the trustee said.

Another trustee observed that not only was the problem of leadership turnover resolved, but “More attention was paid by management to issues at a strategic rather than an operating level.” Combining CEO and board roles enables a leader to accumulate the knowledge required to focus on strategic questions and to sensitize other organizational managers to the need for strategic thinking as well.

When asked about the lessons that other nonprofits could draw from this case, one trustee responded, “I think this is a model that ought to be considered in crisis circumstances. I think it has worked in that respect. I think the ingredients to make this model successful are the right individual to fill both roles and a crisis that is clearly understood by all the players. I think if you are just talking about bad times and vagaries, this will not work. And I think there should be a method to evaluate the model from time to time, which includes the involvement of the person holding both roles.”

Several trustees emphasized the importance of identifying the uniquely qualified person who can fulfill both roles. “I mean you need someone with stature on both management and trustee sides of the table,” one said. “I think you need uncommon political skills.”

The nontraditional blended leadership role at Albany Medical Center has been reviewed several times over the last few years and its efficacy reaffirmed. Anticipating his retirement from the center, CEO Barba appointed an ad hoc board task force on governance. For task-force members, the chair invited five or six former trustees, including one former board chair and a cross-section of other members, of whom one or two were newcomers. The provocative questions designed to structure the governance review process required task force members to address fundamental strategic issues. (See sidebar “Questions for Governance Task Force” below.)

The investment that Barba has made in governance innovation is a major reason for appointing a task force charged with governance review. “I remain today, to this minute, extremely sensitive to the uniqueness and originality of the model,” he said. At the same time, at least one trustee is simultaneously aware of the different context in which the medical center is now functioning: “The model was born out of circumstances that I think combined to make them unique and the [task force] is reviewing it in an environment that I think is also unique, which is the fallout from the corporate governance scandal….The challenge is going to be to not let the environment drive you to a bad decision.”

It remains to be seen whether the nontraditional, formal governance structure of integrated leadership roles and the practice of informal, off-campus governance conversations will continue. As noted by the trustee who commented on the unique crisis circumstances that set the stage for this experiment, ensuring trustee leadership independence from the CEO is now a major theme in the debate about needed U.S. corporate governance reforms. The task force completed a report that is currently in the hands of the board’s executive committee. As one member observed, “Neither the board nor Jim himself has taken this model for granted. It was periodically under discussion and even now is back on the table again.”

  • Do the conditions that led us to adopt our current governance model still exist?
  • Is our current governance model likely to survive a change in management or significant turnover in board membership?
  • Are there any advantages to considering a change in the current model and, if so, how compelling are those advantages?
  • Does a review of governance processes of similar organizations produce any best practices that should be considered by AMC?
  • If a change in governance model should occur, how does it happen, over what time period, and what staging is needed to assure stability and continuity?