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IJPSM
13,2
108
The International Journal of Public
Sector Management,
Vol. 13 No. 2, 2000, pp. 108-124.
# MCB University Press, 0951-3558
Facts, myths and monsters:
understanding the principles
of good governance
D. Wayne Taylor
Michael G. DeGroote School of Business, McMaster University,
Ontario, Canada
Keywords Hospitals, Governance, Health care
Abstract As in many countries today, health services across Canada are being restructured.
Most jurisdictions within Canada are also restructuring and experimenting with the governance
function of health-delivery organizations. However, much of this governance reorganization is
being done in a vacuum. New governance models have appeared lately that defy the first principles
of good corporate governance. Identifies and examines the nine principles of good organizational
governance as well as the five benchmarks of excellence in governance. An example of a
governance ``monster'' ± one of the latest experiments in corporate leadership in Canadian health
care ± is also critiqued. Presents conclusions, lessons and warnings which all health-services
managers ± indeed, all public sector managers ± should heed.
Introduction
There remains little doubt that the legacy of the 1990s will be interpreted as
being a decade of change. If the usual 1:10 ratio for comparing things Canadian
to things American holds true in this case, then approximately 450,000 boards
of all types (governing, advisory, management, ``working'', for-profit, not-for-
profit, governmental) exist in Canada with 150,000 or so of those being boards
of governance (Carver, 1990a). And these boards of governance have not been
immune from the 1990s' legacy of change.
The health-care system of today in many countries, as this millennium nears
its end, in all likelihood will be quite different from the one inherited 25 years
from now. Much of the delivery of health care will change, including governance.
In fact, those who directly, or indirectly, participate in hospital and/or health-care
services governance today already see the process changing. As Lewis (1994)
succinctly observed, ``boardsmanship (has changed) from a prestigious pastime
into a serious endeavour of heavy responsibility''. Health ``governors'', therefore,
have much to learn from management theory and best practices.
Over 100 years of organizational theory building and theory testing by some
of the greatest minds in managerial sciences have resulted in one consistent
finding: as ambiguity increases within and/or across the structure of an
organization, so does the probability of strategic error, fraud, negligence,
anarchy, destructive power struggles, bureaupathetic layering, inaction,
decreased accountability and responsibility taken for decisions, and total
organizational collapse when under economic stress (Weber, 1947; Fayol, 1949;
March and Simon, 1958; Likert, 1961; Mintzberg, 1979; Deming, 1986; Juran,
1989; Drucker, 1990; Senge, 1990; Gillies, 1992; Hamel and Prahalad, 1993).
Observers of health-care governance management have reached similar Understanding
conclusions (Carver, 1990a; Bader, 1991; Shortell et al., 1996). One of the most the principles of
important generally-accepted tenets of governance management is unity ± good governance
whether it be unity of command, unity of direction or unity of accountability.
This paper summarizes the seminal literature on corporate governance,
examines nine principles of good organizational governance, and presents five
benchmarks of excellence in governance. Based upon these examinations, 109
conclusions, lessons and warnings are presented.

Nine principles of good organizational governance

Every management guru and leader in the organizational sciences has his/her
own typology of good governance principles grounded in observation-based
theory. However, careful reading of both the classical and current literature will
reveal for the practitioner and academic alike that all of these principles can be
collapsed into nine general principia. These are presented below.

(1) Knowing what governance is

An evaluation of any principle put into practice is only as good as the definition
used to establish the meaning of the principle in the first place. Therefore, in
this case, it is very important to clearly understand what is meant by
``governance''. The simplest, most generally-accepted definition of governance
is ``the responsibility and accountability for the overall operation'' of an
organization (Bohen, 1995).
``Boards'' of one type or another are almost always charged with this level of
responsibility and accountability. Although every hospital in Canada is
governed and managed by a board of one sort or another, today the ``managing''
part is delegated by the board to a chief executive officer (CEO). The board
remains responsible for:
(1) developing corporate policies and plans;
(2) monitoring and measuring organizational performance against those
policies and plans; and
(3) acting as a voice of the ownership of the hospital.
The CEO is responsible to the board for implementing its policies, plans and
strategic directions. Three nondelegable governance responsibilities, however,
remain with the board:
(1) providing a linkage between the hospital and its moral ownership;
(2) monitoring the performance of the CEO; and
(3) developing an explicit statement of values for the hospital (Carver, 1990a).
For a hospital board there are five key relationships:
(1) the aforementioned and most important, board-CEO relationship;
(2) the board-medical staff relationship;
IJPSM (3) the board-community relationship;
13,2 (4) the board-mission/vision/goals relationship; and
(5) the intra-board relationship among its members.
A more accurate definition for hospital governance, therefore, might be:
Governance is a shared process of top-level organizational leadership, policy making and
110 decision making. Although the governing board has the ultimate accountability, the CEO,
senior management and clinical leaders also are involved in top level functions. Thus
governance is not a ``board only'' activity but rather an interdependent partnership of leaders
(Bader, 1993).

In one of the ten Canadian provinces currently being restructured, the role of
the board of a hospital (or other health service agency) was identified as being
threefold (Sinclair, 1996). First, the board was to provide governance, or
direction. It was to determine the hospital's (or agency's) purpose, goals,
objectives, values and the policies by which it was to function over the long-
term. Second, the board must assure the corporation that its affairs are in good
order, that the long-term future of the institution is protected, and that it is
meeting the needs of the community as well as it can. Finally, the board is
responsible for hiring a competent CEO who will operate the hospital (or
agency) according to the purpose, goals, objectives, values and policies
determined by the board. It is the board's task to monitor the CEO's
effectiveness in achieving that purpose and those goals and objectives, in
preserving those values, in implementing those policies and in discharging the
hospital's ``contract'' with the segment of society it serves.

(2) Achievement of strategic ends

The pressure is mounting on hospitals (and all other health-services agencies)
to be effective, that is, to provide the right service, at the right place, at the right
time, at an affordable cost. The governance structure and organizational
structure of a hospital today must be such that performance objectives (or ends)
can be set, measured and accomplished. Therefore, the organization and all of
its members must be synchronized in terms of values, goals and activities.
Weber (1947) ± the father of organizational science ± suggested that a large
organization must have a structured way to deal with the idiosyncrasies of
individuals so that they do not interfere with the organization's ability to
accomplish its goals and objectives, and specific day-to-day tasks. He
prescribed that each person have a specific place within the organization and
specific tasks to perform. This Weber called bureaucracy.
Bureaucracy took the form of a pyramid subdivided by layers and
compartments within layers. The ideal was to have only three layers within an
organization. By the 1970s and 1980s most large organizations had at least six
layers. But by the 1990s, high performing organizations had ``flattened'' their
pyramids to an average of four layers (Kanter, 1989; Healthcare Competition
Week, 1991).
 Inherent in Weber's bureaucracy was a chain of command in which Understanding
authority and responsibility were delegated downward along singular routes. the principles of
At the apex of the pyramid and the chain of command were the board of good governance
directors and CEO.
Another means by which governance can help assure accomplishment by an
organization of its ends is strategic planning. Modern researchers have
discovered a strong correlation between strategic planning and organizational 111
effectiveness (Carver, 1990a; Bradshaw et al., 1992). The better a board
strategically plans, the better is its organization's performance. If governance is
about overseeing an organization's achievement of its strategic ends, then the
CEO must be held accountable to the board of directors for the achievement of
those same ends. This only works if the board does its job by clearly stating
what it wants, in measurable terms, in a strategic plan (Carver, 1990a).
This strategic planning, however, is not generic and is quite often ``coloured''
by an organization's mission, vision, values and ownership as well as the needs
of the organization's community.

(3) Board-CEO relationship

Any organization will be effective and high-performing if there is a high level
of mutual confidence and trust throughout the organization, and especially
between the board of directors and CEO (Likert, 1961; Gillies, 1992). According
to Carver (1990a): ``No single relationship in the organization is as important as
that between the board and its CEO. Probably no single relationship is as easily
misconstrued or has such dire political consequences.''
Governance is not the responsibility of a board alone; and definitely is not
the responsibility of a CEO separate from his or her board. It is a solemn
partnership; a leadership team (Carver, 1990a). To preserve the solemnity and
integrity of that partnership, it is crucial that each partner has undivided
loyalty to the greater entity that they govern.
Rather than thinking of organizations as layers or pyramids, think of them
as a number of concentric circles with clients (real and potential) in the
outermost circle and the CEO in the inner circle. The defining element of
concentric circles is that they have a common centre point ± and in the case of
organizations that common centre point is the board of directors (trustees or
governors). The CEO and board of directors form a governance partnership at
the centre of these circles.
Board members and the CEO are equals, colleagues. Yet, it is a conflict of
interest to have the CEO sit as a voting board member, let alone function as
board chair (Carver, 1990a; Gillies, 1992). The board hires, evaluates and fires
the CEO. Should the CEO find it necessary to deviate from board policy then
he/she should inform the board, and the board can approve or disapprove if it
so chooses.
The CEO is responsible for all the parts of an organization coming together
in an acceptable whole, thus enabling the board to govern by dealing
conceptually with only the whole, and personally only with the CEO
IJPSM (Mintzberg, 1987). There is a simple ± albeit crucial ± single interdependency
13,2 between the board and its CEO. The CEO is the only employee of the board.
Only the board by majority vote has authority over the CEO. The board has
only ``one voice''. The CEO is accountable only to the board as a whole for the
organization's performance.
``Except for the board's (own) role and product, organizational performance
112 is synonymous with chief executive performance'' (Carver, 1989). If the board is
responsible for clearly articulating organizational ``ends'' (mission, vision,
values, goals and plans) then the CEO is responsible for seeing that they are
achieved on time, within budget and on target (Pointer, 1995). However, both
organizational and executive performance objectives should be mutually
predetermined by both the board and its CEO so as to ensure that they are
realistic, doable, measurable, and not conflicting one with the other (Harvey,
1978). Monitoring and removing a CEO is as important as selecting him/her in
the first place (Carver, 1990a).
Any governing board has the right to expect from its CEO performance,
honesty and straightforwardness. From time to time, due to exogenous
circumstances, a board can be understanding ± even forgiving ± about
performance, but it should never bend an inch on integrity. On the other hand,
every CEO has the right to expect his/her board to speak with only one voice. A
CEO should be held accountable only to one board, acting in unison, despite the
undercurrents within and around it (Carver, 1990a).

(4) Unity of direction

One of Fayol's (1949) original 14 principles of management concentrated on the
role of governance. Specifically, he observed that the higher performing
organization had only one board of governance, one chief executive and one
strategic plan, mission or vision at any one time. This Fayol called unity of
direction; there was unity or cohesion within and across those elements that
comprised organizational governance. According to his research, anything
more would be a recipe for duality, confusion, disorder, waste and
ineffectiveness.
In essence, the CEO and board should function as a common body, together
pursuing a common end, with common motives, values and purposes to
provide an assurance of stability (Sheldon, 1923). The CEO and his/her
management team will effectively implement board policies and achieve
organizational ends if they believe these policies and ends to be consistent with
management's perceived purpose of the organization, and compatible with
their own personal interests (Barnard, 1938; Guth and Tagiuri, 1965; Vancil,
1986). The authority of a CEO is greatly undermined, however, if such is not the
case. There must be no ambiguity in direction if a CEO/organization is to be
effective.
Today the talk is about strategic alignment. For any organization to be
strategically successful it is crucial that there be a high degree of strategic
alignment, fit or congruence among the organization's mission, vision, values,
goals, strategy, structure, culture, leadership style, resource deployment and Understanding
investment, incentive system, skills sets, and performance measures (Chandler, the principles of
1962; Rumelt, 1974; Hambrick, 1987; Hamel and Prahalad, 1993; Shortell and good governance
O'Brien, 1994). This strategic alignment is the responsibility of the CEO under
the stewardship of the board (Bader, 1996). Key to this alignment being
effective is the outcome ± incentive nexus (Verlan, 1995).
Successful change management (such as that required to navigate hospitals, 113
health agencies, and health systems into the next millennium) requires the
governance partnership of board and CEO to have a common, shared vision of
the future; to have a clear, commonly-held understanding of an organization's
primary commitments; and to know exactly what they want to create, why and
how (Deming, 1986; Juran, 1989; Mintzberg, 1989; Senge, 1990; Ferguson et al.,
1993; Arrington et al., 1995; Verlan, 1995).
Some researchers have written about organizations as being systems of
``shared meanings'' (Mintzberg, 1981; Smircich, 1983; Bennis, 1987). Symbolic
processes such as organizational rituals, slogans, vocabulary and imagery as
well as CEO leadership style all contribute to, and are part of, the development
of shared meanings. These shared meanings give form and coherence to the
experience of an organization's members, which in turn facilitate co-ordinated
action. Again, the governance partnership is the key influence in this process.

(5) Unity of command

The second ``unity'' principle of good governance is unity of command or the
scalar principle. For any action whatsoever, an employee (including the CEO)
should receive orders from one superior only. Decision-making authority (the
chain of command) should flow in a straight line from the top to the bottom of
an organization. The violation of this principle creates confusion, undermines
authority, threatens stability, breeds irresponsibility and, if long-lasting,
wreaks havoc (Gerth and Mills, 1946; Simon, 1946; Fayol, 1949; Mintzberg,
1979; Anderson, 1984).
As Simon (1946) concluded: ``. . . it is physically impossible for a [person] to
obey two contradictory commands''. Even ambiguity of command will create
hesitance by subordinates, and an awkwardness ± even hatred ± between
supervisor and subordinate (Fayol, 1949). The effect that disunity of command
could have on a board-CEO relationship is tremendous. As Fayol (1949) noted,
``[a] body with two heads is in the social as in the animal sphere a monster, and
has difficulty in surviving''.
On the other hand, a CEO reporting to more than one governing master
usually ends up being more powerful than either master. Governing in such a
situation is rife with unnecessary complexity and difficulty (Gillies, 1992).
There is no legitimate adjudication process available when a CEO's dual or
multiple governing bodies differ in their commands (March and Simon, 1958).
Bifurcation of authority is a recipe for disaster.
IJPSM (6) Unity of accountability/responsibility
13,2 The responsibility principle in organizational theory clearly states that, first,
subordinates are responsible for their performance directly to their superiors/
supervisors and, second, that supervisors are directly responsible for the
performance of those they supervise (Anderson, 1984).
Authority within an organization should always be commensurate with
114 responsibility (Fayol, 1949). Where it is not, decisions are delayed or not made
at all because of the affected individual's refusal to act beyond his/her authority
limits. Needless to say, this would be catastrophic for an organization if the
CEO's authority ± delegated to him/her by the board ± did not match his/her
responsibility. Such is sometimes the case when a board does not fully trust its
CEO. Although the board needs to control the actions of the organization by
controlling the actions of the CEO, the board can still retain control if the
authority delegated to the CEO matches his/her responsibility (Spence, 1979).
Authority is, therefore, a derivative of responsibility. Yet everyone,
including the CEO, must be held accountable for the exercise of authority in
executing his/her responsibilities. If there is duality in the channels of
accountability then responsibility will be bifurcated and authority weakened
(Wolf, 1974).
For hospitals there are four dimensions of accountability. First, there is
``political accountability'' for the hospital's achievement of all externally
imposed mandates within the boundaries set. Second, there is ``commercial
accountability'' for the net value created within the services provided by the
hospital. Third, there is ``clinical accountability'' for patient outcomes, as
opposed to service outputs. Finally, there is ``community accountability'' for the
hospital's role in improving the health status of its catchment population. The
governance structure and culture of a hospital should enable the fulfilment of
each (Alexander et al., 1995; Gamm, 1996; Griffith, 1996; Shortell et al., 1996).
Dual accountability ± or the lack of unity of accountability ± signals the need
for communication and consensus. Taken to an extreme, dual or shared
accountability can precipitate a ``transactions logjam'' where action is replaced
with paralysis. Costs increase, organizational layering grows, and the value
added of decision-making processes is greatly diminished (Peters and
Waterman, 1982).
Anything less than direct, single-line accountability is not effective within
today's dynamic environment, and is incompatible with the challenging
demands facing hospitals and health-care agencies. Unclear accountability
almost guarantees total collapse in an economic crunch. Unity of accountability
is simply good, sound management. Dual/multiple accountability breeds
ambiguity, confusion, conflicts, withdrawal, alienation, and even anarchy ±
phenomena which health managers today need less of, not more (Davis and
Lawrence, 1978; Joyce, 1986; Rakich et al., 1992).
For the board-CEO relationship, unity of accountability is why the board
must speak with one voice. A CEO accountable to more than one person on a
board ± or even more than one board ± will receive contradictory directions Understanding
since each individual or board has its own goals, flavoured by its own values, the principles of
and its own means by which to attain them (Rakich et al., 1992). good governance
(7) Ownership needs
A hospital board's ultimate accountability is to the organization's ownership.
This is fairly straightforward in the case of church-owned, government-owned, 115
or military hospitals where there is, in fact, an owner. Many public hospitals
with their own boards, however, are owned by ``corporations'' ± made up of
either just the boards themselves, or board members and non-board members.
Non-board members are either board members-in-waiting or members who
purchase a membership. In the cases where ownership is by a ``corporation''
other than denominational or governmental, the board's accountability, by
default, is to the hospital's mission and values (Drucker, 1990; Bader, 1991).
However, in most Canadian provinces today, public hospitals (if not all
hospitals) are ``owned'' and governed by some form of regional authority.
Ownership in these circumstances is no clearer than in the one public hospital-
one board situation, and the default accountability usually applies.
Of the governing board's three main functions (formulating corporate
policies, monitoring operations according to plans, and acting as a voice of
ownership) its role as a voice of ownership is the least explicit ± and is often
overlooked in non-denominational, non-government-owned hospitals (Bohen,
1995). According to Taylor et al. (1996) the ``new work'' for non-profit boards is
governance not management, survival not routine, and finding out ``what really
matters''. To find out what really matters requires a board and its CEO to get to
know their organization's key stakeholders. They need to understand what
matters to the constituents they serve. Governors and CEOs need to
communicate in a strategic fashion with their owners and communities in order
to satisfy the new demands of governance.
In terms of ``what really matters'', generally speaking, two things are key for
boards of governance: due diligence and corporate intangibles (Rodat, 1996).
Due diligence refers to the careful examination of current finances, long-term
debts, contractual obligations, and pending litigation. Due diligence is
important for all organizations whether for-profit or not-for-profit,
denominational or non-denominational. Intangibles, however, are different.
They refer to corporate culture, reputation, integrity, relationships and above
all, values.
According to Carver (1990a) the governing board of a hospital, or any other
organization, is the guardian of organizational intangibles. These intangibles ±
especially mission and values ± are what ultimately set denominational
hospitals apart from the others. Although there are some universally-accepted
values embraced by almost all hospitals, denominational hospitals do have
some organization-specific values (Duncan et al., 1995). But lofty words are not
enough. Legitimately, to be different, denominational hospitals need to practise
and live their distinct mission and values (Rodat, 1996). And to do this the
IJPSM owners of these hospitals need governors and a CEO, as their agents or
13,2 stewards, to be singularly dedicated to their mission and values ± and no others
(Carver, 1990a; Duncan et al., 1995).
As the board can be forgiving of a CEO with respect to performance but
should never bend on integrity, so can owners be forgiving in the realm of due
diligence (although this is not to be encouraged) but should never tolerate their
116 mission or values being subverted. Testing every organizational activity
against mission and values is the standard check of organizational direction
(Carver, 1990a). In fact, it is this ultimate ownership need of mission and values
being sacrosanct that drives all three unity principles examined above ± and
gives governance its mandate.

(8) Self-improvement
If hospitals truly aim to embrace the principles of total quality management (as
many say they do) then continuous improvement, as an organizational
philosophy, needs to permeate those hospitals from the top of the pyramid to
the bottom, from the innermost point of the inner circle to the rim of the
outermost circle. For most hospital boards there are some obvious starting
places for continuous self-improvement.
Meeting too often is a trap. It creates unnecessary work for staff, thus
driving up the costs of doing business (see principle 9 below); it leads board
members into operational details which are not their concern; it takes senior
management away from their task of implementing board policies (Carver,
1990a; Rovner, 1996). If organizational ends do not justify a meeting, then it
should not be held.
Selecting board members on any basis other than competence or merit is
selling short the value of governance. Hospital board members need to be
adept at business management, financial analysis and strategic planning.
Knowledge of health care would be nice, but most competent board members
are also quick students. Having a fully ``representative'' board defeats the
purpose of governance (Delbecq and Gill, 1988). Such a board will not focus
on strategic issues but will drag CEOs into their killing field of vested
interests. There are other means of soliciting representational input such as
surveys, focus groups, town hall meetings and the Kaizen model of
continuous quality improvement.
Politics need to be controlled within the halls of governance too. Defined
as ``compromise on minor objectives in order to reach an ultimate goal'' top-
level politics can have both a positive and negative effect on an
organization's ability to achieve its mission and to perform optimally
(Anderson, 1984). On the one hand, it is one way of getting things done
expeditiously. On the other hand, politics can lead to factions, unhealthy
competition and jealousies within an organization, hinder effective decision
making, inhibit creativity, and breed risk adversity and conflict avoidance
among senior managers.
(9) Understanding the cost of governance Understanding
Most boards today are unaware that they are not only ``governance centres'' but the principles of
``cost centres'' as well (Carver, 1990b). There are five basic costs of governance: good governance
(1) board members' personal opportunity costs;
(2) direct board meeting expenses;
(3) the costs of staff supporting board activities; 117
(4) the costs associated with errors made by boards; and
(5) the costs of ineffectively structured governance-management-organization
relationships.
An effective governing body today will consciously try to minimize all of these
costs, and avoid some of them altogether.
Almost all public hospital directors/trustees in Canada are volunteers. Their
time is willingly volunteered in the service of their hospital and community.
Yet, for most people, time costs money. Even the most effective and efficient
governing board imposes opportunity costs upon its members. The ineffective
and inefficient board that meets unnecessarily, accomplishes little, and/or bogs
down in operational detail, imposes huge costs on its volunteer governors and
is very wasteful of their time.
For all hospital board functions there are direct material expenses.
Photocopying, couriers, coffee, education and so on, all cost money. These costs
can become significant if a hospital has a large board with many committees
and sub-committees meeting on a frequent basis.
The single, largest, ongoing cost of governance is staff time spent in board
support activities. Clerical support for meetings and minutes is the most
obvious and probably the least expensive. Much of the time of most senior,
highest-paid managers of a hospital is spent researching answers to board
questions, writing routine reports, following-up on board initiatives, and so on.
One rule-of-thumb, empirically-developed, to measure this particular cost of
governance is that the average hospital will spend approximately $50,000 on
these ticket items for every $1 million in its operating budget. So, for a typical
$50 million community hospital, these staff costs could total $2.5 million
(Carver, 1990a).
Boards will never be perfect. Errors will be made from time to time even by
the best boards. Yet, these errors cost money too. Errors in judgement can be
minimized, though, by a board making sure its actions are consistent with its
mission, vision and policies; by asking questions and deliberating fully all
strategic issues and options; by ensuring that only competent people are elected
as directors or trustees; and by focusing on ends and outcomes, not means.
Finally, when any one combination of the three ``unity'' principles of good
governance (see principles 4, 5 and 6 above) are violated huge costs (or ``x-
inefficiencies'') can be expected resulting from the ambiguity and dysfunction
created (Anderson, 1984). When unity is disbanded the costs of co-ordination,
outside of the hierarchy or concentric circles, skyrocket. More time, resources,
IJPSM managers and layers (or circles) of bureaucracy are required for decision
13,2 making. As a result, there will be greater redundancy, waste and loss of
productivity. This all costs money.

Five benchmarks of excellence in governance

Much has been written in total quality management and business process
118 reengineering circles about organizations benchmarking themselves against
the best in their field ± the high-performers and their best practices. In the
realm of organizational governance there are five generic benchmarks against
which hospitals can measure themselves.

(1) Clearly articulated mission and vision

According to the 1989 Independent Sector Study (Arrington et al., 1995):
a well-governed organization has a clearly articulated mission that drives the commitments
and work of the governance group and staff, and that serves as the benchmark against which
the organization evaluates its achievements and adjusts its behaviour over time.

This implies that a well-governed organization also has a clearly measurable

vision, set of goals and objectives, and/or strategic plan that is quantifiable and
time-specific.
Well-governed organizations can actually determine exactly when they have
achieved their ends ± and the responsibility for their achievement is clearly
identified as being that of the CEO. Boards of excellence make and support
decisions almost exclusively on the basis of their mission/vision/ends (or
whatever they call their purpose for being). Boards and CEOs of top-
performing organizations understand and pursue their mission and core
businesses with single-minded intensity. They are focused all the time on their
outcomes and clients, and are driven by their values or philosophy (Bader,
1991).

(2) Achievement-oriented culture

A well-governed institution or agency ``. . . is led by an individual or individuals
who create a culture that enables and motivates the achievement of the
mission'' (Arrington et al., 1995). Missions of well-governed organizations are
crafted in such a way as to set high expectations for achievement. Key to this
benchmark is a board's selection and evaluation (using selected, quantifiable,
performance indicators straight out of the mission or vision statement) of a
highly competent CEO who will lead-by-example this achievement-oriented
culture.

(3) Leadership partnership

Organizations that demonstrate excellence in governance always have a
committed and involved board of directors which vigorously interacts with the
CEO and other top-level leaders in shared governance. In doing so, these boards
also act as a bridge to the ownership and/or larger community to which they
ultimately are accountable (Arrington et al., 1995). In benchmark hospitals, the Understanding
board and CEO include as their partners the leadership of the medical staff as the principles of
well. Together they act as the stewards of the hospital's mission (Bader, 1991). good governance

(4) Focus on improvement

High-performing organizations with excellent governance share a fourth
characteristic ± a governance, management and operational paradigm focused 119
on continuous improvement. Not only do benchmark organizations continually
assess and improve their work processes, but the governing entities of these
organizations drive it ± and even continually assess and improve their own
governing processes. In this way, these boards of excellence contribute to the
advancement of their organization's performance in achieving designated ends
(Arrington et al., 1995).

(5) Boards are a workable size

``Where the opportunity for leadership is greatest the job design for leadership
is poorest'' (Carver, 1990a). Boards function best in executing their
responsibilities if they are a workable size. Those boards which excel in their
governance duties usually have seven to 15 members (Bader, 1991). Boards
larger or smaller than that are generally ineffective.
In health systems of one type or another where there are several boards, the
health system works best if its governance sub-system remains lean with each
board averaging seven to ten members. The smaller the individual boards are
within a system, the higher the probability that they will remain focused on the
system and their role in it rather than organization-specific issues (Bader, 1991).

Fayol's social monster

There are numerous governance models and organizational structures from
which to choose, all of which could reflect and comply with the above-noted
nine principles of good governance. However, caution should be exercised by
all who dabble in organizational structuring, restructuring and boardsmanship
in order to avoid falling into the trap of ignoring any or all of these principles.
Of particular concern today are proposals being made in the Canadian health
sector that insist that a single chief executive officer should (and presumably
could) report to two or three boards of directors. This concept is not new, but is
seldom seen, and for good reason. In the classical management literature, Fayol
(1949) referred to a multiboard-single CEO model as being a ``social monster'' ±
as in a two, or three-headed monster of nature (see principle 5 above).
It has been suggested that one CEO could be responsible simultaneously
for preserving and advancing the unique missions of two or three different
health-care institutions, each governed by its own board of directors, with one
or two being church-owned. The board of each institution ultimately would be
responsible for the stewardship of its respective identity, values and mission.
IJPSM But in strategically, financially and tactically operationalizing the missions of
13,2 the institutions for which he/she was responsible, the CEO would be (as is
appropriate) an equal partner in that stewardship.
Immediately, it is obvious that this model of governance violates the
governance principles of unity of command, unity of direction, unity of
accountability/responsibility and ownership needs. If any degree of
120 disagreement, jealousy, conflict or even hostility exists among the institutions
in question, then the achievement of institutional, board and/or collective
strategic ends certainly will be ``satisficed'' ± that is, one's end (or set of ends)
sacrificed in order to satisfy the needs/wants/desires of another (Ivancevich et
al., 1977).
When institutions identified for a multiboard-single CEO form of
governance include both denominational and non-denominational hospitals,
the probability of one's mission being satisficed for another's is quite real.
Where one hospital has a clearly defined owner and set of obligations to that
owner, and the other hospital does not, it is difficult to conceive that one CEO
could fulfil completely his/her responsibilities to both. It may be fanciful to
idealize that such could be the case, but in reality it simply does not work out
that way (Simon, 1946). As an agent of ownership, a CEO must be
unwaveringly committed to the owners' mission and values ± an impossibility
if a CEO is the agent for two or three sets of owners each with their own distinct
mission and values (Carver, 1990a). In a multiboard-CEO governance
arrangement, the sacred board-CEO relationship is in serious jeopardy.
Fayol's social monster creates a decision-making environment in which
there is a high probability for governance outcomes to be ones of inaction. In
any multi-accountability situation such as this, there is also an equally high
probability of the CEO either dominating the board-CEO relationship to the
almost exclusion of board members, or being so confused and disfranchised as
to become a totally ineffective leader (Wolf, 1974).
The need for continual co-ordination and combination between CEO and
boards, among boards, and between boards and their owners/constituencies
will drive up the transaction costs of governance well beyond any economies
envisaged being derived from such a model (Peters and Waterman, 1982).
As the first benchmark of excellence in governance examined above stated: a
well-governed organization has a clearly articulated mission that drives its
work, and provides the measures for evaluating performance and identifying
improvements. Conceivably, in a multiboard-single CEO situation, two or three
clearly articulated and distinctly unique missions, the implementation of each
being the ultimate responsibility of one executive, are a recipe for confusion,
suboptimal performance and frustration. A CEO in such a situation is set up for
failure.
If boards of excellence make and support decisions almost exclusively on the
basis of their mission and their CEOs pursue them with single-minded
intensity, then a single CEO responsible for pursuing two or three missions
simultaneously and with equal vigour ± one of which may be denominational ± Understanding
will subconsciously (or worse still, premeditatively) choose to champion one the principles of
over the others. Human nature is such. good governance
Further, if a denominational hospital's governance framework is such that it
ensures that the board's focus is on values, a high performing CEO for such a
hospital will not only be able to divine today's values but operationalize them
as they should be (Carver, 1990a). This is an improbable task if a single CEO is 121
responsible for mutually exclusive sets of values for several distinct and
separately governed hospitals.

Conclusion
In selecting, developing and implementing a particular model of governance
any organization ± hospitals, health-service agencies, health systems and
regional authorities included ± is best advised to recognize and abide by the
nine general principles of good governance. It is important that governing
bodies clearly understand what their role is and is not, and that their primary
responsibility is overseeing and ensuring the achievement of their
organization's mission and strategic ends, which have been clearly articulated
and are shared by all. The board-CEO relationship is integral to success and
must be viewed as a partnership. The unity principles of direction, command
and accountability/responsibility must not be violated if success is desired.
Ambiguity in the chain of command, lines of accountability, or direction
charted for an organization almost guarantees the increased likelihood
of strategic error, negligence, fraud, mismanagement, below-average
performance, waste, a detachment from reality, and responsibility not being
taken by anyone for any of the foregoing. Understanding the needs of the
ownership/community, embracing self-improvement, and fully understanding
both the direct and indirect costs of governance and striving to make it efficient
and effective, are also required for any governance structure to meet, and
possibly even exceed, expectations. The violation of any one of these principles
cannot be tolerated if hospitals are to be governed well in the new millennium.
Many governance models conceptually abide with the principles of good
governance. Fayol's ``Social Monster'' ± the multiboard-single CEO ± model
clearly does not. It violates the three principles of unity, the board-CEO
relationship and the ownership principle ± and possibly some of the others as
well. In situations where denominational ownership/identity/philosophy issues
are important to the community, Fayol's ``Social Monster'' is to be avoided.
Likewise, this model of governance should never be contemplated where the
integrity of an organization's mission, vision, and values is not to be violated or
compromised. In order to fulfil their obligation to their owners, denominational
hospitals ± by definition ± require their own separate boards of governance and
chief executive officers. Efficiencies can and should be realized through the
rationalization of clinical services and the centralization of support services,
while values and missions are left unaffected; and the only way to guarantee
IJPSM that values and missions are not affected negatively is through separate
13,2 governance structures which comply with the nine principles examined above,
and hopefully, measure up well against the five benchmarks of excellence.
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