Many healthcare organizations undertake merger, acquisition, or partnership plans for a number of reasons. The following survey results published in HealthLeaders illustrate the rationale from most to least common.

If you have considered/are considering a merger, acquisition, or partnership with another organization, what were/are main reason(s)?1

Support Success chart 1

A merger to form a new organization or “NewCo” requires a new governance model that can deliver on these common financial objectives of mergers, acquisitions, and partnerships.

Which of the following are among the financial objectives of your overall merger, acquisition, and / or partnership planning or activity?1

Support Success chart 2

Mergers are complicated

Organizational integrations marry plans, people, and processes of two respected organizations to establish a new organization, or NewCo. This figure illustrates important dimensions of a NewCo Governance Model.

Support Success chart 3

NewCo, like most health systems in the U.S., faces the challenge of guiding and growing its operations and assets within a new governance model. The model should accomplish at least eight principles—which we further refine with NewCo leadership to ensure a governance development process that meets the unique and evolving realities and needs of NewCo:

Principle 1
NewCo board decisions and decision-making processes are to be guided by NewCo’s system vision, mission, and values.

Principle 2
Board work should be of the highest integrity and keep the needs of “patients first” as a criteria for the governance work.

Principle 3
Board decision processes must be transparent and understandable to NewCo’s many internal and external stakeholders.

Principle 4
Board decisions should be sensitive to the unique NewCo hospital, physician, and evolving ACO needs, and optimize local community connections; however, the board must strive to maximize the long-term sustainability of NewCo’s collective service roles and the long term vitality of the system.

Principle 5
Board size should be large enough to accommodate the diversity of competencies and perspectives required to execute and refine NewCo’s new strategic and financial plans, but small enough to allow board members to engage in active discussions, make timely and high quality decisions and collaborate together as a unified team of volunteer community leaders.

Principle 6
Board membership is a serious responsibility and opportunity for community service. Board members must commit to continuous governance development and personal effectiveness enhancement.

Principle 7
Board membership ultimately should be based on competency, more than representational factors. Board members need a variety of professional competencies and personal attributes.

Professional competencies consist of: knowledge of health industry, strategic planning, quality management, community development, information technologies, finance, building community relations and trust, medicine and public health, law, insurance and political relations.

Personal attributes desired include: commitment to community service; support of NewCo mission, vision and values; personal integrity; candor; openness; honesty; a sense of humor; an understanding and appreciation of the power and importance of gender, demographics, and cultural diversity; and a positive understanding of the difference between management and governance.

Principle 8
Great governance requires great governance infrastructure that supports information that is accurate, complete and timely; educational opportunities on health sector trends and board best practices; board self-assessments for continuous enhancement of board and board member effectiveness; and effective communications among all boards, board members, and senior manager and physician colleagues.

At Gallagher, our work with many of this nation’s leading health systems has shown us that key trends in governance model refinement eventually embrace:

  • Fewer boards and better coordination and communication among the governance bodies and processes
  • Smaller boards, and greater reliance on competency based membership that is diverse, experienced and proactive
  • Fewer but more effective committees, often to include some expert members that may not be board members
  • Fewer but more effective board meetings
  • Better and more accessible board decision-making information, and
  • More formal and effective methods of accountability and transparency within, and external to, the system

To move through the discovery, design, and development phases for a new governance model, we often are asked by NewCo’s legal team to help ensure that a number of deliverables are made available in a collaborative process facilitated by our experienced governance enhancement team. The process engages dozens of board, physician, and executive leaders of the merging organization using four stages of work:

STAGE 1:

Forge consensus among system leaders for NewCo Governance Vision and Design Parameters. This stage of work includes a full Discovery Phase and the initial work of a Design Phase.

STAGE 2:
Establish enthusiasm and commitment to the Definitive Governance Model Design. This incorporates all of the Design Phase and yields a consensus description of all structures and processes needed for the regulatory reviews and approvals of the NewCo Governance Model; additional details outlined below.

STAGE 3:
Develop the Final Strategy and Structure for the NewCo Governance Model. This work encompasses all of the Development Phase and will yield functioning structures, processes and systems needed to operationalize the NewCo Governance Model.

STAGE 4:
Implement additional Governance Enhancement Initiatives to accelerate and broaden the effectiveness of the new governance model. (Following operationalization of NewCo). This work includes a series of optional programs and systems designed to strengthen the impact and enthusiasm among multiple stakeholders for the NewCo Governance Model, and the ultimate success of the merger.

NewCo Governance Model Deliverables and Process Components 

Our merger and governance model design process organizes consultative support in the following stages of work.

STAGE 1:

Forge consensus among system leaders for NewCo Governance Model Vision and Design Parameters<

  1. Establish NewCo Governance Model Design Working Group ("GWG")
    • Clarify criteria for a Governance Working Group (GWG) with membership from the merging health systems
    • Merger partners appoint members to GWG
    • GWG contracts with Gallagher Governance Model Design Advisory Team
    • Orientation Meeting for GWG to Review its Charge and Work Plan
    • Define “Master Roadmap for Governance Model Design” (This paper can help shape a first draft of this Roadmap)
    • Establish Initial Communication Plan to stakeholders on the GWG process and timetable
    • Schedule GWG Meetings Calendar
    • Conduct GWG meeting for 4 hours to orient GWG and review our Consultant’s work plan. This often can be followed by a social dinner to enable all players to become further acquainted with all GWG members on a more personal basis
    • GWG receives “Guidance from Attorneys” about process and timetable needed for Regulatory approvals and Closing of Merger Agreements
  2. Consultant Team Infrastructure & Review of Current Governance Arrangements
    • Meetings with Board Support Staff at the merging parties
    • Establish Offices in the campus of merging parties
    • Request and review all corporate by-laws
    • Request and review organizational charts of all entities and managers
    • Need a Master Directory of all Board Members and email addresses for the Boards
    • Review all recent Board Self-Assessment
    • Reports Conduct a “Board Time Audit” for All Boards of the merging parties
    • Review most recent Strategic Plans of the parties
    • Review most recent “Community Health Needs Assessments”
    • Sample board agendas and meeting packets for the last year for each organization
    • Review most recent Audited Financial Reports and 990 IRS forms
    • Interview CEOs and Board Chairpersons to develop a Governance Model strengths, weaknesses, opportunities, threats (SWOT) Interview Legal Counsels on Governance Model SWOT
    • Conduct web-based survey of all GWG members and senior executive teams of the organizations regarding insights into SWOT of the merger and SWOT of the New Governance Model
    • Review “Data Room” established to hold all assembled Governance-related Materials
    • Work with GWG to prioritize possible NewCo Governance Model Deliverables for impact and urgency

    Help GWG to form a NewCo “Council of Board Chairpersons” as a sounding board for the NewCo Governance Working Group (only if there are multiple subsidiary boards in the merging entities)

  3. Strategic Vision and Values Retreat for GWG
    • This full-day retreat should occur within one to two months of the process launch and would review and refine key principles, goals, and design parameters for the NewCo Governance Model as outlined above. GWG and NewCo leaders would be interviewed to lead up to the Visioning Retreat. Issues to explore in the interviews regarding the NewCo Governance Model SWOT Analysis often include:
      • Key Elements of the NewCo Vision 2025 (some of this work has often already been accomplished and could be updated with inputs from work by other strategy and planning consultants)
      • Ratings of the possible benefits from an enhanced NewCo governance model
      • Ratings of possible obstacles to be minimized in the design stage for great governance of NewCo
      • Ratings of potential performance measures for a superior governance model & effective board work that enhances the time and talents of the NewCo governance participants
      • Offer ideas to enhance and enable effectiveness of the NewCo Governance Model

    The Gallagher Governance Support Team typically brings options for the key design elements of the NewCo Governance Model to the retreat based on their extensive assessments and studies in Task 2 above.

STAGE 2:

Establish enthusiasm and commitment to the Definitive Governance Model Design. This work is designed to build on the design elements established from the retreat above. The final scope and budget for this work are usually refined with the GWG as a result of the conclusions reached in the Visioning Retreat.

  1. Stakeholder Governance SWOT Analysis
    • Stakeholders to Engaged in SWOT Review are often:
      • Local and system Boards of the merging parties
      • Foundation Boards
      • Medical School Strategic Alliances
      • Physicians
      • Nurses
      • VNAs
      • Middle Managers
      • Payers
      • Donors
      • State Legislators
      • State Regulators
      • Employees
      • Labor Unions
      • Chambers of Commerce and Economic Development Groups
      • Others as needed
    • Processes to engage stakeholders to conduct Governance Model SWOT Analysis:
      • Conduct follow-up Interviews with GWG Members
      • Conduct Interviews of Key Local Board Leaders
      • Focus groups of Physicians
      • Focus Groups of Managers
      • Design Web-Based Survey
      • Conduct Web-Based Survey
      • Prepare SWOT Report for GWG Review
    • Issues to Explore in SWOT Analysis (there would be similar survey and interview guides as used with the GWG in Stage 1 above):
      • Key Elements of Vision 2025
      • Rate benefits from refined governance model
      • Rate possible obstacles to minimize for great governance
      • Rate measures of superior governance & board work
      • Offer ideas to enhance and enable effectiveness of new governance model
    • Merger Advisers to Engage and Coordinate:
    • Attorneys
    • Accountants & Auditors
    • Strategic Planning Consultants
    • Branding consultants
    • Marketing and PR staff
    • Compensation Consultants
    • Revenue Maximization and Cost Reduction Advisers
    • HR Benefits Designers
    • IT systems
    • Labor Relations
    • Insurance & Risk Managers
    • ACO Partners
    • Others as needed:
  2. Board Code of Conduct
  3. Board Conflicts of Interest Policy
  4. Competency Mapping required among NewCo board members
  5. Number of Boards to implement and govern NewCo after merger
  6. Numbers of Members in all Boards
  7. Board roles
    • System
    • Hospitals
    • Foundations
    • Subsidaries
  8. Governance of any Captive Insurance Subsidiaries
  9. NewCo “Governance Authority Matrix” that shows the relative responsibilities among boards, their committees, possible advisory councils and senior executives of NewCo. (An illustrative Governance Authority Matrix is attached for review. This would of course be refined and adapted as needed for your NewCo)
  10. Board Member Position Descriptions
  11. Board Composition Appointsments Process
  12. Roles and Membership of Possible Non-Board Advisory Members serving on committees & councils
  13. Board Term Limits
  14. Board Committees Structure: (This is a very important scope of the design work)
    • Numbers & Types of Committees, for example:
      • Quality & Safety
      • Executive Committee
      • Finance
      • Investment
      • Governance & Nominating
      • Executive Comp
      • Compliance & Audit
      • Strategy
      • Community Health & Benefits
      • Committee Charges
      • Committee Annual Work Plans
      • Committee Members
      • Committee Chairpersons
      • Model Committee Agendas
      • Synchronized Committee Calendars
  15. Design Onboarding Program for all board members at all levels of NewCo
  16. Design future Board Education Programming
  17. Design for NewCo Governance Support Staff within NewCo Corporate Offices
  18. Study value and need for a possible NewCo "Governance Academy" for ongoing education of Internal and External Community Leaders
  19. Board NewCO "Leadership Continuity Plan"
  20. Executive Leadership Continuity Plan:
    • Review Leadership Spans of Control
    • Map executive career and retirement plans
    • Assess and Define Competency Profiles for all direct reports to CEOs of merging parties for board confidence of stability and continuity of leadership during operationalization of NewCo operations
    • Explore Executive Stability and Retention Bonus Plans
  21. CEO Performance Review Process
  22. Executive Compensation Policy
  23. Physician Compensation Policy
  24. NewCo Board Member Expense & Consideration Policy
  25. NewCo Directors & Officers Insurance Program
  26. NewCo Board Meeting Agendas
  27. NewCo Board Meeting Calendar
  28. NewCo Board Performance Assessment System
  29. NewCo Board Balanced Score Card and Board Portal Systems
  30. Governance Communications Plan & Materials
    • Monthly GWG Progress Briefs
    • Periodic Email Updates to Stakeholders
    • Update Governance Web Site for Public

STAGE 3:

Develop the Final Strategy and Structure for the NewCo Governance Model. This work encompasses all of the Development Phase and should yield functioning structures, processes and systems needed to operationalize the NewCo Governance Model. All of the above elements of the NewCo Governance Model are developed and made ready for implementation. The exact scope, timetable, and budget for this Stage of Work would be finalized at the close of Stage 2 work.

  1. Develop Strategic “Governance Enhancement Plan 2020”
  2. Develop Final NewCo Governance Model:
    • Develop Governance Model materials and manuals
    • Final Review of Governance Model with GWG and attorneys
    • Support GWG to Review NewCo Governance Model with many targeted Stakeholders
    • Publish Final NewCo Governance Model in Web based “Board Portal” format for ease of use and updating over time
  3. Develop Final Implementation Plan for New Governance Model with NewCo Board and legal counsel
  4. Support Implementation of New Governance Model throughout the first 18 months of the merger

STAGE 4:

Implement additional Governance Enhancement Initiatives to accelerate and broaden the effectiveness of the new governance model. (Following operationalization of NewCo.)

This work can include a series of optional supplemental programs and systems designed to strengthen the impact and enthusiasm among multiple stakeholders for the NewCo Governance Model and the ultimate success of the merger.

  1. Implement a NewCo “Governance Academy” as an organizational champion for excellent governance work among internal and external groups engaged with NewCo in health system strengthening, and in health status improvement
  2. Design a NewCo “Board Recognition and Reward Program” for the NewCo Board to highlight, celebrate, and encourage positive team work and superior performance across all units, teams, clinics, physician practices, and subsidiary entities in NewCo
  3. Design and Develop NewCo “Center for Innovation"
  4. Design and Develop NewCo “Physician Leadership Academy”
    • Study Medical Staff Bylaws
    • Explore possible study of Medical Directorships
    • Conduct Physician Compensation Risk Audit
    • Explore Possible Project to Review and Enhance Governance of the Physician Enterprise in NewCo
  5. Design and Develop NewCo “Nurse Managers Academy”
  6. Design and Develop NewCo “Population Health Advisory Council”

The Gallagher Governance Support Team prepares detailed work plans and budgets for each element as requested by NewCo leadership near the end of Stage 3.

Calendar for Facilitation Work Plan: Our project team can begin work to accomplish the above goals and initiatives within a six- to seven-month calendar for the first three stages. The fourth stage would occur at the conclusion of Stage 3. We believe these concentrated work plans enable sufficient time to meet with all key stakeholders to assess and develop an enhanced NewCo governance model to help our clients navigate the implementation of a successful merger.

[1] Source: HealthLeaders Media Intelligence Report: Strategic Partnerships: Survival in Healthcare, April 2016; http//bit.ly/2cjdshX.