Clinical Governance Explained

Corporate governance - the low-down

Talk to most healthcare professionals about corporate governance and you will immediately see the shutters coming down! Whilst it can be seen as a rather uninteresting subject, corporate governance is in fact a very straight forward concept that is important for everyone involved in healthcare to understand. Have you ever wondered why your organisation actually has a Board of Directors or a Governing Body and what they do? Let me explain.

What is Corporate Governance?

The effective application and oversight of corporate governance by NHS Trust Boards and Governing Bodies is really very important although perhaps unseen by most staff. The Audit Commission definition of 2002: Corporate Governance in Health Organisations, states that it is about systems and processes by which health bodies lead, direct and control their functions, in order to achieve organisational objectives and by which they relate to their partners and wider community.

In achieving objectives, a key focus must always be distinguishing the ends from the means and the directors or chief officers are the only people at local level who have the authority to require a focus on the required end state and to hold themselves and their organisations accountable for delivery. When boards successfully define ends they are defining their organisation’s real bottom line; the criteria against which everything they do will ultimately be judged. When boards define ends they are also providing meaningful leadership, and whilst they need to ensure that everything about the organisation is managed within the scope of good governance, this must never be at the expense of, or losing sight of the organisation’s overall purpose.

Corporate governance is also about balancing the needs and interests of the many stakeholders within an organisation, again to ensure the achievement of its objectives. In the private sector these are primarily the shareholders, members, management and board of directors. In the public sector and NHS in particular, the range of stakeholders is much wider and whist not including shareholders, encompasses clinicians, other employees, healthcare providers, healthcare commissioners and most importantly, the community at large.

Corporate v Clinical Governance

Most clinicians will be familiar with clinical governance as an approach to maintain and improve the quality of patient care within a health system. It has some parallels with the less widely understood concept of corporate governance in that it addresses the structures, systems and processes that assure the quality, accountability and proper management of an organisation's operation and delivery of clinical services. However, whilst clinical governance applies only to health and social care organisations, and only those aspects of such organisations that relate to the delivery of care to patients and their carers, it is not concerned with the other business processes of the organisation. Corporate governance however, refers broadly to the rules, processes, or laws by which organisations are operated, regulated and controlled and risks are managed. Within healthcare the concept of ‘integrated governance’ has emerged which refers jointly to the corporate governance and clinical governance duties of an organisation.

Corporate governance refers broadly to the rules, processes, or laws by which organisations are operated, regulated and controlled and risks are managed.

The History of Corporate Governance

It is useful to look back to the origins of corporate governance and why the concept came about. In the immediate aftermath of the Wall Street Crash of 1929, legal scholars pondered on the changing role of the modern corporation in society and their consequent impact on everyone’s lives. Before this, company corporate boards were allowed to govern as they saw fit, with little or no oversight. The consequence of the Crash was the ensuing global Great Depression. The Depression had dramatic impacts for the population as a whole, with increases in unemployment and consequent homelessness. Many couples delayed marriage, the divorce rate dropped sharply and birth rates dropped below the replacement level for the first time in history. Families suffered a dramatic loss of income and the health of the unemployed suffered significantly too.

Expansion after World War II and the emergence of multinational corporations saw the establishment of the managerial class who had dominant control over many large organisations' business affairs, but still without sufficient accountability or monitoring by the boards of directors.  Due to the global economic effects of non-existent or poor corporate governance, by the late 1970’s the concept had become the subject of significant debate around the world. In the first half of the 1990’s corporate governance, or a lack of it, again received considerable press attention due to a wave of CEO dismissals by their boards. In 1997, the East Asian Financial Crisis saw the economies of Thailand, Indonesia, South Korea, Malaysia and the Philippines severely affected, highlighting the weakness and lack of control over their institutions. In the early 2000’s, the massive bankruptcies of Enron and WorldCom in the United States led to increased governmental interest in corporate governance which there, resulted in the advent of the Sarbanes-Oxley legislation in 2002.

It is now clear more than ever, that the need for effective corporate governance remains of paramount importance. Importantly too, it is an absolutely fundamental process for public sector organisations in order to ensure that monies from the public purse are spent appropriately.

Why We Need Good Governance

Given the most recent global recession of 2008, from which we are only now recovering, together with the Bankers and MP’s expenses scandals, one may question if anything at all has been learnt over the years. You don’t have to look too far in the NHS either to see the consequences of poor governance arrangements. Organisations with good corporate governance have the capacity to maintain high-quality services and to deliver improvement. Poor corporate governance has contributed to serious service and financial failures. A fundamental breakdown in corporate governance was at the heart of the Francis Report following the Mid Staffordshire NHS Trust public enquiry. In his introduction to the report, Robert Francis QC makes the point that the failure at Mid Staffordshire was “primarily caused by a serious failure on the part of a provider Trust Board.  It did not listen sufficiently to its patients and staff or ensure the correction of deficiencies brought to the Trust’s attention. Above all, it failed to tackle an insidious negative culture involving a tolerance of poor standards and a disengagement from managerial and leadership responsibilities.” Regretfully, this is not the only example of poor corporate governance in healthcare and may not be the last.

There is thus broad agreement about the principles underlying good governance in the public sector that we all need to understand. The population expects public bodies to be well run and openly accountable and this has to be achieved through Boards or Governing Bodies:

• ensuring that statutory obligations are met
• ensuring the effective stewardship of public funds
• maximising the effectiveness of the organisation
• being a model of excellence in corporate governance by adopting the highest standards of business conduct through adherence to the seven Nolan principles underpinning public office: selflessness, integrity, objectivity, accountability, openness, honesty and leadership
• ensuring leadership that establishes a vision for organisations
• having a culture based on openness and honesty, in which decisions and behaviours can be challenged and accountability is clear
• promoting an external focus on the needs of service users and the public

Conclusion

Corporate governance is essential in ensuring effective management of an organisation. When there is a major governance failure, whether it’s due to an ethical or financial problem, poor risk management or ineffective decision-making, the effects can be far-reaching, often beyond the organisation itself with adverse consequences for us all. Emphasised in the Economist’s ‘Essentials for Board Directors’, poor corporate governance has ruined companies, resulted in directors being sent to jail, destroyed global financial markets and threatened companies and governments. It is important to remember though that whilst there is inevitably a focus on the consequences of poor governance, the predominance of good governance is about visionaries, brilliant ideas and charismatic leaders, about men and women who build great companies and organisations by doing things or providing products and services that improve all of our lives.

It is now clear more than ever, that the need for effective corporate governance remains of paramount importance. Importantly too, it is an absolutely fundamental process for public sector organisations in order to ensure that monies from the public purse are spent appropriately.