Printer Friendly

An empirical comparison between the board's strategic role in nonprofit hospitals and in for-profit industrial firms.

As the health care environment becomes more competitive, nonprofit hospitals are under pressure to adopt for-profit business practices. Based on an extensive field study, this research examines the central issue of organizational governance by comparing the strategic roles of nonprofit hospital boards with for-profit industrial boards. The results show that nonprofit hospital boards are generally more involved in the strategic decision process than their for-profit counterparts. If this governance activity is seen as desirable, hospital boards should exercise caution in emulating for-profit board practices.

The health care industry continues to experience dramatic change as reflected by increasing government and industry cost-containment efforts, rapidly advancing technologies, new forms of competition, and questions about the roles of consumers and physicians. In response, hospitals are examining their internal management processes to determine their viability in this dynamic environment. One of the most critical elements of this review is an examination of the governance process (Barrett and Windham 1984; Carper and Litschert 1983; Kovner 1985; Wyatt Company 1986). The relationship between hospital administrators and trustees is under tremendous pressure for change (Weil and Wesbury 1984). Many observers note that trustees are "at the focal point" of the strategic issues confronting today's health delivery systems (Citrin 1985, 1,223).

Several observers have recommended that trustees on nonprofit hospital boards emulate their counterparts on for-profit boards. For instance, Bradford, Caldwell, and Goldsmith (1982, 56) recommended that trustees "take off their social workers hats and put on their business hats" when assessing hospital capital needs. Kovner (1985, 4) stated that "more hospital boards should be organized along the lines of business corporations" to govern more effectively. Kerr (1985, 17) argued that if hospitals are to compete in today's health care environment, "they must change their governing structure to resemble that of traditional business enterprises." Even Vance(1965, 105) suggested that hospital trustees need to "borrow lessons from business organizations" by giving the CEO more power on the hospital board.

On the other hand, Drucker (1989, 91) argued that boards of directors for nonprofit organizations (including, but not limited to hospitals) generally represent a model of corporate governance that their for-profit counterparts should emulate. He suggested that "non-profit directors tend to have a greater personal commitment to the organization's cause." According to Drucker, this higher level of commitment may translate into higher involvement by the directors in the strategic decision-making process of the organization.

Unfortunately, direct empirical study of board involvement in the strategic decision process in nonprofit hospitals is quite limited. One rare exception to this lack of empirical research was a recent study by Delbecq and Gill (1988). In their research, they interviewed 13 hospital CEOs and compared their responses to the comments made by eight CEOs from successful high-technology firms. These authors argued that board operations in the rapidly changing, high-technology environments represented a template for board operations in the rapidly changing hospital industry. They found some interesting structural differences between nonprofit hospital boards and their for-profit counterparts: hospital boards tended to be larger with more board committees, and the CEO was usually a nonvoting member of the board. Further, hospital boards had fewer insiders on the board, used constituent representatives more often as members, and relied more on volunteer members than on a free-for-service arrangement.

Although Delbecq and Gill's study was a useful first step in understanding hospital boards, their research left many unanswered questions. First, they made only structural comparisons, ignoring the complex and critical role of the board in the actual decision-making process. Second, they made only qualitative observations; they did not report specific structural differences. Third, they interviewed only CEOs from multihospital systems. While multihospital systems are growing in number and importance, their study ignored the governance structures and processes of freestanding institutions. In addition, they failed to obtain the perspectives of board members in either setting.

The purpose of this study was to extend our understanding of hospital boards and their role in the strategic decision process. Because the term "strategy" means different things to different people, we restricted its use to a specific definition. In this study, "strategic decisions" were those choices, involving nonroutine commitments of significant resources, potentially affecting the long-term performance of the organization. We reasoned that this narrow definition of strategy was necessary so that comparable decision situations could be examined. For example, this definition excluded "tactical" resource allocation decisions, such as major advertising campaigns, as well as "strategic" decisions that did not involve significant resources, such as CEO succession decisions. As a result, we restricted the decisions situations to nonroutine resource allocation decisions related to major competitive investments, vertical and horizontal integration, internal and external diversification, joint ventures, retrenchment, and divestiture.

The research examined differences in board characteristics and strategic involvement between nonprofit hospitals and for-profit industrial. Specifically, it addressed four research questions. First, do differences exist between the structures of nonprofit hospital boards and a wide variety of for-profit industrial boards? Second, do differences exist between the level of involvement of hospital boards and the involvement of their industrial counterparts? Third, do differences exist between the determinants of hospital board involvement and industrial board involvement? Finally, do differences exist between hospital and for-profit organizations in the relationship between level of board involvement and the subsequent financial performance of the organization?

Theoretical Background

Board involvement referred, in this study, to the intensity of the board's participation in the strategic decision process. Two prominent theoretical perspectives, agency theory and behavioral decision theory, served as the foundation for studying the determinants of board involvement. These two perspectives were selected because they have been successfully applied to other organizational processes and because they emphasize entirely different aspects of board behavior. By employing two different theoretical perspectives, it is possible to describe this complex phenomenon more fully (Kosnik 1987).


Agency theory is concerned with problems that arise from the separation of ownership and control. While this separation has many benefits, such as the rise of professional managers, it also carries some costs. The most notable cost is the potential for self-interested behavior on the part of managers who do not bear the full wealth effects from their activities. Agency theory argues that the board serves as an important monitor of management's self-interested behavior (Jensen and Meckling 1976). This perspective predicts that board behavior is influenced by two sets of determinants.

First, the contextual situation influences board behavior. For example, the board is seen as an important monitor of management's performance (Fama and Jensen 1983). In essence, agency theory argues that the board is an important disciplinarian of poor management performance. Thus, declining profits and sales may lead to greater board involvement. Also, the economic orientation of the organization may influence the governance situation. Because nonprofit organizations are not subject to the discipline of the marketplace, the nonprofit board functions as an important substitute disciplinarian. Thus, it is expected to have greater involvement with the organization.

Second, board behavior may be influenced by the relative power of the board to invoke its will over management (Eisenhardt 1989). This power is typically characterized by (1) the degree of representation of independent outsiders on the board, and (2) the independence of the individual who chairs the board (Kosnik 1987). To assess the effect of these factors, research has focused on two variables: (1) the proportion of insiders on the board, and (2) the type of board leadership. In sum, agency theory predicts that boards with a higher proportion of insiders and/or boards that are led by a chairman who is also the CEO are less involved in strategic decisions.

To summarize, agency theory is concerned with the contextual "triggers" of board involvement and with the power of the board, relative to the top management team, to challenge self-interested behavior. The key issues are formally stated by the following hypothesis:

Hypothesis 1. Nonprofit boards have greater board involvement
 in the strategic decision process that for-profit

Hypothesis 2. Prior financial performance is negatively
 associated with board involvement in the strategic
 decision process.

Hypothesis 3. The proportion of insiders on the board is

negatively associated with board involvement.

Hypothesis 4. When the board is chaired by someone other than
 the CEO, board involvement in the strategic
 decision process is higher than it is when the
 board is chaired by the CEO.


In contrast to agency theory, behavioral decision theory focuses more attention on the processes of group and individual decision making (Wright 1985). This perspective suggests that goals are developed through formal and informal bargaining among participants. These goals evolve over time and change as coalition membership is altered, as the interaction among members changes, and as the goals are fulfilled or not fulfilled (Simon 1957). The primary determinants of group behavior, from this perspective, are the skills and values of the group members and the structural dimensions of their communication habits (Cyert and March 1963).

With respect to the skills and values of the board, two variables may critically influence board involvement in strategic decisions: (1) industry familiarity and (2) strategic expertise. The board's familiarity with the industry refers to the aggregate knowledge of the board concerning the primary industry in which the organization operates. The strategic expertise of the board refers to the board's aggregate expertise in making strategic decisions. Based on behavioral theory, boards with higher levels of industry familiarity and strategic expertise should have higher levels of involvement.

Finally, at least three structural variables may influence board behavior: (1) board size, (2) board decision style, and (3) CEO decision style. Board size refers to the number of members on the board. Behavioral theory predicts that decision involvement decreases as group size increases. Board decision style describes the predominant mode of decision making (i.e., within formal board meetings or through informal channels). The behavioral perspective predicts that informal board styles increase involvement. The CEO's decision style refers to the relative authoritarianism of the chief executive officer. Common sense and behavioral theory argue that CEOs with a more participative decision style should encourage higher levels of board involvement.

In sum, behavioral decision theory focuses on the group's skills, values, and habits. It views the board of directors as a decision-making group with varied levels of experience and different styles of operation. The behavioral hypotheses are formally listed:

Hypothesis 5. Familiarity of the board with the industry is

positively associated with board involvement.

Hypothesis 6. The strategic expertise of the board is positively

associated with board involvement.

Hypothesis 7. Board size is negatively associated with board


Hypothesis 8. Informal board decision styles yield higher board

involvement than formal board decision styles.

Hypothesis 9. Participative CEO decision styles yield higher
 board involvement than authoritarian CEO
 decision styles.


While it is interesting to learn about differences in board behavior, perhaps the most critical concern is the effect of board behavior on subsequent organizational performance. Agency theory argues that active and involved boards have an incremental effect on the financial performance of the organization. Therefore, the following hypothesis is advanced:

Hypothesis 10. All else being equal, board involvement is
 positively associated with the subsequent financial
 performance of the organization.



The hospital sample was drawn from short-term, nonprofit general medical hospitals in North Carolina with 200 or more beds. These hospitals have essentially the same organizational characteristics as hospitals in the rest of the nation with respect to size, ownership, and technical domain (Graeff 1980). Letters were mailed to 13 CEOs requesting their participation. Twelve of the CEOs agreed to participate in the study, for a 91 percent response rate. This sample shows no significant differences in average size (number of beds, total revenues, total expenses, number of employees) from those of the rest of the state of North Carolina or the national population of nonprofit hospitals greater than 200 beds. Therefore, it appears that this sample may be generalizable to the national population of hospitals of this type.

The industrial sample was randomly drawn from three very different populations of organizations distributed throughout the United States. The first population was new, biotechnology firms. This subsample captured boards in rapidly changing, high-technology environments. The second population included older firms in textile manufacturing. This subsample permitted analysis of boards in highly competitive environments. The third population was large, diversified firms. Because of the wide range of business in diversified firms, this subsample allowed the study of board behavior in organizations where the board is usually less knowledgeable about the business units and their environments. Ten firms agreed to participate in each of these organizational populations. The overall response rate for this sample of 30 industrial organizations was 52 percent. No significant differences were found in organizational size, performance level, or board structure between the responding and nonresponding organizations.


First, personal interview were conducted with the CEOs of the 42 organizations. These interviews ranged from 30 to 120 minutes and averaged 65.8 minutes. Prior to requesting the CEO's permission to corroborate his story with that of others in the organization, we asked him (there were no female CEOs in our study) to identify and describe the activity of the most involved inside director and outside director with the organization's most significant strategic decision over the study period. After obtaining this description, we asked his permission to interview the other directors. In all cases, this permission was granted.

Then, telephone interviews were conducted with the most involved inside director and outside director for each organization. Inside directors were defined as all individuals who (1) worked full-time for the organization in the present or the past, (2) consulted regularly with the organization, or (3) had a direct supplier relationship with the organization. Outside directors were all other individuals. The purpose of these additional interviews was to "triangulate" the responses of several individuals on the board to obtain the clearest and most accurate understanding of board behavior. In 12 of the organizations, however, no inside director served on the board. In these instances, only the CEO and an outside director were interviewed.

Semistructured interviews were conducted with a total of 114 directors. (The interview format can be obtained from the first author). The data, collected over a ten-month period in 1988, focused on the experiences of the participating organizations between 1985 and 1987. In addition to these interview data, extensive archival information was compiled on each board. This information on the board was obtained from public documents and organizational records.


The primary dependent variable, board involvement in the strategic decision process, was operationalized within two phases of decision making: the formulation phase and the evaluation phase. "Formulation involvement" is defined as the intensity of the board's participation in all pre-choice activities that led to a strategic decision. "Evaluation involvement" is defined as the intensity of the board's participation in all post-choice activities that monitor a strategic decision. Because the board is not responsible for the implementation of strategic decisions, this latter phase was ignored. As discussed previously, strategic decisions are defined as nonroutine, major resource allocation choices with the potential to affect the long-term performance of the organization.

Respondents from each organization indicated their extent of board involvement on a seven-point, anchored scale during the 1985-1987 time period. Two to three different board members characterized the general board involvement on this anchored scale for the formulation phase and the evaluation phase. The average interrater reliability of these characterizations was satisfactory for both the formulation phase (r = .73) and the evaluation phase (r = .81) so their responses were averaged to create a triangulated measure of board involvement.

The two board involvement measures were the only new measures employed in this research. All of the ten independent variables capturing determinants of board involvement have been employed in other studies. Prior performance was operationalized as (1) prior sales growth from 1981-1984 and as (2) prior return on assets from 1981-1984. Economic orientation was coded as 0 for a for-profit firm and 1 for a nonprofit organization. Insider domination was measured as the proportion of employees, consultants, and suppliers that were members of the board in 1986 divided by the total number of board members. Board leadership was coded dichotomously as 0 if the CEO chaired the board and 1 if he did not chair the board. Industry familiarity was measured as the number of years of full-time work experience in the organization's primary industry averaged across the entire board.

Strategic expertise was measured by averaging the three board member's rating of the board's relative experience in making strategic decisions. Board size was simply the number of members on the board. Board decision style was coded as either (1) a tendency to make decisions between formal board meetings or (2) a tendency to make decisions in overall board meetings. Finally, CEO decision style was operationalized as an adapted version of V room and Yetton's (1973) leadership scale, which measures "participativeness" on a five-point continuum.

Regarding subsequent financial performance, there is not much consensus on the best measures or on an appropriate lag time. Clearly, boards have both a financial as well as social mandate; however, there is not much agreement on how to measure the social performance of the organization. In contrast, the three most common financial performance measures of organizational performance are sales growth, profitability, and stock return. Because the hospitals are not publicly traded, this study examines the growth and profitability measures relative only to their primary industry averages. Although it would be preferable to study the relationship between board involvement and long-term financial performance, the study period is too recent (1985)-1987) to collect data more than two years beyond the study period. Therefore, only a two-year lagged effect of board involvement was investigated.


To address the four research questions, the overall sample was divided into two subsamples: the 12 nonprofit hospital boards and the 30 for-profit industrial boards. These two subsamples were examined for differences n (1) board structure, (2) level of board involvement, (3) determinants of board involvement, and (4) subsequent performance effects.

Concerning board structure, ten structural dimensions were averaged for the two subsamples and t-tests were computed. t-Tests were also computed for the average level of board involvement for the two subsamples. In order to compare the determinants of board involvement for the two samples, separate stepwise regressions were executed. Finally, after controlling for organizational size and industry effects, partial correlations were used to determine the relationship between board involvement and subsequent economic performance of the organization.



Board structure is defined as the formalized routines for getting board work done. Table 1 compares the structure of the nonprofit hospital boards to the structure of the industrial boards. Clearly, the hospital boards were structured very differently from the industrial boards. Hospital boards were significantly larger, conducted more meetings per year, and employed more committees. In addition, hospital board members had significantly longer terms than their counterparts on industrial boards, and they included fewer CEOs and insiders in their membership. No hospital CEO chaired a board, and hospital outsiders receive no monetary compensation for their services. In contrast, over 75 percent of the CEOs of industrial firms also chaired their boards, and outsiders received an average of $11, 192 per year for their services. [Tabular Data 1 Omitted]

These findings reinforce and extend the previous literature arguing that nonprofit boards are structured in ways differently from those of for-profit boards (Delbecq and Gill 1985; Kerr 1985; Kovner 1985; Unterman and Davis 1982; Wyatt Company 1986). The results, however, suggest that hospital boards are structured to have more effect on the organization than industrial boards. They schedule more board and committee meetings to learn about the organization and its environment, and they are more autonomous of management. Further, an argument can be made that outsiders on hospital boards are more committed to the organizational because of the lack of extrinsic reward for their services. As one outsider on a hospital board put it: "You cannot figure out way people give up two to three nights a week and take grief on a volunteer basis until you have done it for yourself."


Formulation Involvement. Table 2 compares the two groups regarding the extent of board involvement in formulating strategic decisions. The overall average hospital board score was 4.46, which was significantly higher than the industrial board score of 3.43 (p < 0.5). In general, nonprofit hospital boards were more highly involved than their industrials counterparts in the formulation of strategic proposals. One trustee on a nonprofit hospital board stated, "We have never given full responsibility for strategic decision making to top management... they are too smart for that because we are their bosses." This comment was substantially different from typical comments heard from members of for-profit boards. For example, one outsider on a diversified firm sad, "Our board generally leaves most of the strategic details to management and occasionally they make a contribution, but it is pretty rare." Another CEO of a textile firm put it more bluntly, "I have used the board as personal advisors. I prefer to lead them rather than have them lead me."
Table 2: Comparison of Extent of Board Involvement in the
Formulation of Strategic Decisions
 Percent Nonprofit Percent For-Profit
 Hospital Boards Industrial Boards
Formulation Involvement (N = 12) (N = 30)(*)
No involvement 0 0
Merely ratifies 0 0
Probes and ratifies 0 50
Revises and ratifies 33 27
Helps to formulate 67 10
Jointly formulates 0 7
Separately formulates 0 0
Mean 4.46 3.43
Standard Deviation 0.52 0.94
(*)Total is above 100 percent due to rounding.

Evaluation Involvement. Table 3 compares the extent of board involvement in the evaluation of strategic decisions. The overall average hospital board score was 3.60, which was higher than the average industrial score of 3.17. The difference between the two averages, however, was not statistically significant; that is, hospital boards do not appear to review prior strategic decisions more intensively than industrial boards. Many board members repeated the theme that the board needs to trust management to provide the necessary evaluations of prior strategic decisions. The following comment illustrates this theme: "Directors need to evaluate projects based on an implicit trust of management. If that trust fails, everything goes to hell."
Table 3: Comparison of Extent of Board Involvement in the
Evaluation of Strategic Decisions
 Percent Nonprofit Percent For-Profit
 Hospital Boards Industrial Boards
Evaluation Involvement (N = 12) (N = 30)
No involvement 0 0
Accepts report 0 7
Probes and accepts 59 73
Specifies and accepts 33 17
Specifies and probes 8 0
Specifies and repeatedly 0 3
Collects own data 0 0
Collects own data 0 0
Mean 3.60 3.17
Standard Deviation 0.67 0.74

In summary, the first hypothesis -- that nonprofit hospital boards are more involved in strategy than their for-profit counterparts -- was strongly supported in this study. In general, the nonprofit boards were more involved both in the formulation phase and the evaluation phase. In addition, these differences were statistically significant in the formulation phase.


Formulation Determinants. Table 4 compares the predictors of board involvement in the formulation phase between the two samples. As discussed previously, these determinants were drawn from the agency and behavioral perspectives.
Table 4: Comparison of Predictors of Board Involvement in
the Formulation of Strategic Decisions
 Nonprofit For-Profit
 Hospital Boards Industrial Boards
Formulation Predictor (N = 12) (N = 30)
Prior sales trend
Prior profitability
Insider domination
Board leadership
Industry familiarity +0.564(**)
Strategic expertise -0.088(***)
Board size
Board decision style
CEO decision style +1.194(***)
Model R-squared n.a. 0.398
Model F-statistic n.a. 5.720(*)
(*)p < 001.
(**)p < .01.
(***)p < .05.

No hypothesized determinant of board involvement in the formulation phase achieved significance for hospital boards. In comparison, three determinants of the board's formulation activity were significant for the industrial boards: (1) board size had a significant, negative relationship with overall board involvement, (2) the strategic expertise of the board was positively associated with overall board involvement, and (3) the CEO's decision style was positively associated overall board involvement. All of these relationships were in the directions hypothesized by behavioral decision theory.

The absence of significant results within the hospital sample suggests that the nonprofit status of hospital boards may be the primary determinant of their level of formulation activity. This is consistent with agency theory, which predicts that the board is a more important monitoring mechanism in the absence of stock market discipline (Fama and Jensen 1983). Also, the data suggest that board involvement in the industrial boards is more idiosyncratic than in hospital boards. Among industrial boards, board behavior may depend more on the board structure (i.e., board size) and the character (i.e., style and expertise) of the individuals on the board than among hospital boards.

Evaluation Determinants. Table 5 presents the results of the regression analysis for the two subsamples with respect to determinants of board involvement in the evaluation of strategic decisions. In this case, board size is negatively related to overall board involvement in both subsamples. As one CEO stated, "If you want an ineffective board, have a large one like those at banks or universities."
Table 5: Comparison of Predictors of Board Involvement in
the Evaluation of Strategic Decisions
 Nonprofit For-Profit
 Hospital Boards Industrial Boards
Evaluation Predictor (N = 12) (N = 30)
Prior sales trend -0.004(***)
Prior profitability
Insider domination
Board leadership
Industry familiarity
Strategic expertise +0.452(**)
Board size -0.117(*) -0.062(***)
Board decision style -0.547(***)
CEO decision style +0.543(***)
Model R-squared 0.885 0.486
Model F-statistic 7.670(***) 8.190(*)
(*)p < .001.
(**)p < .01.
(***)p < .05.

In addition, the board decision style and the CEO decision style are also related to involvement among the hospital boards, but not among the industrial boards. Board Decision Style refers to the tendency of the board either to decide on strategy within formal, overall board meetings or, more informally, between board meetings. The results show that boards that evaluate prior strategic decisions between board meetings are more highly involved than those hospital boards that limit evaluation to formal board meetings. One outsider on a highly involved board commented, "Our board evaluates prior strategic decisions mainly in committee meetings and contacts between formally scheduled meetings. You see, we all live close by so we can call impromptu meetings very easily. As a result, we tend to evaluate prior strategic investments more thoroughly than in other organizations."

Furthermore, the CEO's decision style in the hospital sample is positively related to the board's evaluation activity. CEO decision style refers to the amount of participation the CEO encourages in making a strategic decision. The positive association reveals that more participative CEO styles are associated with higher levels of boards involvement in evaluating prior strategic decisions. One outsider on a highly involved hospital board explained, "Our CEO is strong in people skills, but weak in analytical skills. He recognizes that he is more effective as a team leader than as an autocrat."

For the industrial boards, strategic expertise is again positively related to the board's evaluation activity. A new determinant, however, the prior sales trend of the organization, is negatively related to board involvement in the evaluation phase. This finding suggests that industrial boards tend to get more involved in evaluating prior strategic decisions if the organization's sales trend is unsatisfactory. Evidently, "management mistakes" are gauged by boards from shrinking sales volume. Interestingly, this relationship does not hold for prior profitability.

In sum, the significant relationships were all in the hypothesized directions, but only four to eight hypotheses were supported by the data. Once again, the determinants of board involvement in the evaluation phase appear to differ between the nonprofit hospital subsample and the for-profit industrial subsample.


Table 6 reports the associations between board involvement and subsequent financial performance for the two subsamples. Interestingly, a positive relationships was found between board involvement in the formulation and evaluation phases and in subsequent profitability, but not in subsequent sales growth for the hospital subsample. In contrast, no association was found between board involvement and financial performance among industrial boards. Therefore, the financial performance hypothesis was partially supported for the hospitals, but not for the industrial firms. [Tabular Data 6 Omitted]


In a recent article in the Harvard Business Review, Peter Drucker (1989) argues that nonprofit boards should not be rendered impotent the way so many industrial boards have been. Using anecdotal evidence, he observes that nonprofit board members, in general, are more committed to the organization than their for-profit counterparts and that this commitment translates into a more effective board. This empirical study supports Drucker's observations and offers some explicit descriptions about the determinants and effects of board activity.

Striking differences exist between nonprofit hospital boards and their industrial counterparts. They have very different structures, and the hospital boards appear to have a greater involvement in the strategic process. This higher level of board involvement may be driven by the nonprofit orientation of hospital boards, as opposed to specific structural and process determinants among industrial boards.

Interestingly, board involvement in the formulation and evaluation phases of strategic decisions was also found to have a positive association with subsequent profitability of the hospital. Although causality cannot be assumed, this result suggests that high-involvement boards may be beneficial to hospitals. Once again, this appears to support the agency perspective. In addition to the monitoring function, trustees may be bringing to their function a broader base of skills and a more objective appraisal of strategic alternatives than are found on industrial boards.

As the hospital field becomes more competitive, many observers are calling for nonprofit hospital boards to adopt for-profit practices such as compensating outside directors (Delbecq and Gill 1988; Kovner 1985), installing more inside directors on the board (Delbecq and Gill 1988), and limiting the number of committees serving the board (Delbecq and Gill 1988; Kovner 1985). The most common suggestion, however, is to give the CEO more power than he or she currently has (Delbecq and Gill 1988; Kovner 1985). If high levels of board involvement are desirable, as the involvement-performance association may suggest, this well-intended prescription may be misleading for hospital boards. In fact, relatively small and active hospital boards may serve as a model for industrial boards. Public policy makers or shareholders, or both, may look to nonprofit hospital governance practices if they desire greater board activity.

This research offers in support of the relative potency of nonprofit hospital governance as compared to industrial governance with respect to the board's strategic role. Future research should examine these relationships on a larger number of organizations and examine the long-term performance effects of different approaches to governance. In addition, board also may influence the social performance of the organization (Kohls 1985). Nevertheless, nonprofit hospital boards should exercise caution before strictly following the strategic decision-making practices of their for-profit counterparts.


Barrette, D., and S.R. Windham. "Hospital Boards and Adaptability to Competitive Environments." Health Care Management Review (Fall 1984: 11-20. Bradford, C., G. Caldwell, and J. Goldsmith. "The Hospital Capital Crisis: Issues for Trustees." Harvard Business Review 54, no. 5 (1982): 56-68. Carper, W. B., and R. J. Litschert. "Strategic Power Relationships in Contemporary Profit and Nonprofit Hospitals." Academy of Management Journal 26, no. 2 (1983): 311-20. Citrin, T. "Trustees at the Focal Point." New England Journal of Medicine 313, no. 19 (1985): 1223-26. Cyert, R. M., and J. G. March. A Behavioral Theory of the Firm. Englewood Cliffs, NJ: Prentice-Hall, 1963. Delbecq, A. L., and S. L. Gill. "Developing Strategic Direction for Governing Boards." Hospital & Health Services Administration 33, no. 1 (1988): 25-35. Drucker, P. F. "What Business Can Learn from Nonprofits." Harvard Business Review (July/August 1989): 88-93. Eisenhardt, K. M. "Agency Theory: An Assessment and Review." Academy of Management Review 14, no. 1 (1989): 57-74. Fama, E., and M. C. Jensen. "Separation of Ownership and Control." Journal of Law and Economics 26 (1983): 301-25. Graeff, C. L. "Some Methodological Issues Concerning Comparative Hospital Studies." Academy of Management Review 5, no. 4 (1980): 539-48. Jensen, M. C., and W. M. Meckling. "Theory of the Firm: Managerial Behavior, Agency Costs, and Ownership Structure." Journal of Financial Economics 3, no. 3 (1976): 305-60. Kerr, F. H. "Have Boards Refocused Governance Functions?" Trustee 38, no. 11 (1985): 17-20, 25. Kohls, J. "Corporate Board Structure, Social Reporting and Social Performance." In Research in Corporate Social Performance and Policy Vol. 7. Edited by L. E. Preston. Greenwich, CT: JAI Press, 1985. Kosnik, R. H. "Greenmail: A Study of Board Performance in Corporate Governance." Administrative Science Quarterly 32 (June 1987): 163-85. Kovner, A. R. "Improving the Effectiveness of Hospital Governing Boards." Frontiers of Health Services Management 2, no. 1 (9185): 4-33. Simon, H. A. Administrative Behavior, New York: MacMillan Publishing Company, 1957. Unterman, I., and R. H. Davis. "The Strategy Gap in Not-for Profits." Harvard Business Review 58, no. 3 (1982): 30-40. Vance, S. "Do Boards of Trustees Need Surgery?" The Modern Hospital 104, no. 6 (1965): 105-10. Vroom, V., and P. W. Yetton. Leadership and Decision-Making. Pittsburgh, PA: University of Pittsburgh Press, 1973. Weil, P. A., and S. A. Wesbury. "The Shifting Roles of CEOs and Trustees." Trustee 37, no. 7 (1984): 25-29. Wright, G. ed. Behavioral Decision Making. New York: Plenum Press, 1985. Wyatt Company. Practices of Boards of Directors/Trustees in the Health Care Industry. Fort Lee, NJ: Executive Compensation Service, 1986. William Q. Judge and Carl P. Zeithaml This research was supported by grants from the Kenan Institute for Private Enterprise at the University of North Carolina at Chapter Hill and the Irwin Foundation. William Q. Judge, Ph.D. is Assistant Professor in the College of Business Administration, University of Tennessee; Carl P. Zeithmal, Ph.D. is Associate Dean for Academic Affairs in the School of Business Administration, University of North Carolina at Chapel Hill.
COPYRIGHT 1992 Health Research and Educational Trust
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992 Gale, Cengage Learning. All rights reserved.

Article Details
Printer friendly Cite/link Email Feedback
Author:Judge, William Q.; Zeithaml, Carl P.
Publication:Health Services Research
Date:Apr 1, 1992
Previous Article:Physician response to the United Mine Workers' cost-sharing program: the other side of the coin.
Next Article:Volume responses to exogenous changes in Medicare's payment policies.

Terms of use | Copyright © 2016 Farlex, Inc. | Feedback | For webmasters