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Longboat Key Thursday, Feb. 18, 2021 2 weeks ago

Strife on the SMH board

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When a member of the Sarasota Hospital Board challenged the majority, he became persona-non-grata. The board’s response raises curiosity: Is it a board for taxpayers or management?
by: Matt Walsh Editor & CEO

When you think about all the wonderful and valuable community assets in Greater Sarasota and Bradenton, you would probably find universal agreement that Sarasota Memorial Healthcare System is among the top three on the list. For sure among the top five.

And likewise, there would be widespread agreement that under the directions, first, of former CEO Gwen MacKenzie and for the past six years, in particular, CEO David Verinder, Sarasota Memorial Hospital and its affiliates have matured into the top tier of Florida’s best-run health care institutions, as well as in many instances in the nation.

Certainly, the financial results and accolades speak to this.

No one person, of course, is entirely responsible for SMHCS’s growth and achievements. In an institution this size, it takes teams of talented people committed to the mission. Nevertheless, this is also true: Success indeed starts with the leadership at the top. Rare is the successful business enterprise that doesn’t have a principled, charismatic, intelligent, visionary CEO, a CEO who has the ability to imbue his or her staff with the values, commitment and standards to make a great organization.

Crucial to that CEO’s talents is an ability to build a strong team of leaders who can spread the culture.

But often, there is another ingredient just as crucial to an organization’s success. In the case of many businesses and organizations, the buck stops at the board of directors. Its members are the ultimate guide and check and balance on the CEO and everything that the organization does.

And if the directors are serving properly as fiduciaries protecting and representing stockholders, or in this case taxpayers, one of their important jobs is to challenge the CEO and the organization’s leadership; to question decisions, assumptions and strategies; to test leadership to rise to a higher level.

In contrast, if the directors merely become cheerleaders, friends and advocates for all that senior management does, rarely asking tough questions, inevitably this can become a recipe for danger, lax oversight and, at worst, destruction.

We cite all of this in light of revelations that became public last week regarding two issues involving the Sarasota County Hospital Board — issues that would be of great importance to any company’s board of directors:

  • The transfer of funds from the company to a related company, which in turn used some of that money to fund a political action committee; and
  • Whether the CEO should be granted what amounts to a 10-year employment contract.

One board member, Tramm Hudson — former longtime Sarasota banker, former chair of the Republican Party of Sarasota County and recently reelected to his second term on the hospital board — has been the lone challenger to both decisions and in the process has become something of a pariah in what heretofore has appeared to be a board of collegial consensus.

Hudson essentially went rogue over the past month. Unable to win board support for his position, he took his case to the press, in this instance the Sarasota Herald-Tribune. And last week, the Herald-Tribune brought to public attention the two controversies that have been recorded in the public minutes of multiple hospital board and committee meetings.

 

$50,000 maneuvers

It’s a complicated yarn. Following political money is often that way.

But the seed for tensions on the Sarasota County Hospital Board took root in October 2019. According to hospital board documents, SMHCS CEO Verinder discussed with Hudson, then chair of SMHCS’s Audit Committee, the idea of using a not-for-profit condominium association owned by the hospital “as a possible unrestricted donor” to Save Our Community Hospital, a 6-year-old political action committee.

Hudson objected, telling Verinder he thought it was illegal to use taxpayer funds in political activity. In a July 27, 2020, letter to Verinder, Hudson wrote: “Because taxpayer dollars are involved, any contribution of district funds to a political committee should be approved by the district board.”

The issue is complicated in large part because of all the machinations and maneuvering involved.

It starts with the hospital being among the owners of an office condominium on Arlington Street in Sarasota, just south of the hospital, known as Doctors Gardens. Over 20 years, the hospital bought control of 29 of the 30 units in the building. Plans called eventually for tearing the building down and redeveloping the property.

As controlling owner of the building, five members of SMH senior management comprised the board of the Doctors Gardens Association, the condo’s homeowner association.

The association in turn in 2020 assessed its unit owners (e.g., the hospital) $275,000 for roof upkeep and other maintenance needs. Along the way, the association board also voted to amend the association’s bylaws to allow it to make contributions to not-for-profit and charitable organizations.

After all of this, the board voted to contribute $50,000 out of the $275,000 assessment to Save Our Community Hospital.

All along the way in early 2020, and over at least three audit committee and general board meetings, Hudson raised questions and requested the hospital board bring in outside counsel to determine whether all of the transactions were legal.

By summer, when Hudson’s objections reached Morgan Bentley, Sarasota lawyer and chair of Save Our Community Hospital PAC, Bentley refunded the $50,000. In a June 24, 2020, letter, Bentley explained:

“In the divisive age in which we live, I try to ‘err on the side of caution’ with any donation. Anyone with a laptop can file an election complaint against both the donor and the donee, often resulting in unnecessary legal expense for both parties. Here, the donation is legal; however, the issue involves the wording of the [association’s] amended declaration dated Dec. 20, 2019.”

But Hudson persisted. At a July board meeting, he made a motion to bring in outside counsel to determine the legality of the contributions and what the board’s political contribution guidelines should be going forward. The board voted 9-1 against Hudson’s motion.

Instead, according to the Herald-Tribune, the board relied on the opinions of two independent attorneys, the hospital’s auditors, the board’s general counsel and the health system’s chief in-house lawyer and compliance officer.

 

Whom do they represent?

Is this much ado about nothing?

It’s a long-standing practice in Florida that public and governmental agencies use taxpayers’ dollars for political purposes.

Practically every city and county in Florida pays for lobbyists in Tallahassee. School boards hire lobbyists. And whenever school boards need to extend their one-mill or one-cent sales tax for local education, they can and do use taxpayer funds to educate the public — not urge you how to vote. Wink. Wink.

What is striking about this period of strife on the hospital board are lessons that apply to all boards and city and county commissions. We’re not saying what follows is the case for the Sarasota County Hospital Board, but the fact there was and is such overwhelming resistance to Hudson triggers curiosity:

  • Beware of the board that becomes management’s friend, that rarely questions or challenges management. No one likes being associated with constant strife, and certainly, no CEO wants to have a board that makes his or her life miserable.

At the same time, every CEO should welcome board members whose questions and insights will hold them accountable and make them better CEOs.

  • Board members, at the same time, must always remember whom they are representing. We see it often: After town commissioners are elected on their platforms of representing and being defenders of taxpayers’ interests, once they get nestled into their positions of power, they shift to become defenders of the town government and the institution, with taxpayers secondary concerns.
  • If any deal or transaction requires complicated maneuvering and machinations, as did the Doctors Gardens contribution, it’s usually flawed and shouldn’t be done. Everyone learns in the end: Be open and up front. Clever, crafty maneuvering typically has a funny smell and often creates perceptions that lead to long stories in newspapers.

To be sure, Verinder and the hospital board no doubt didn’t appreciate reading in the Herald-Tribune what they did (Bentley, an elections lawyer, says it was legal), but from the taxpayers’ perspective, Hudson and the Herald-Tribune performed a public service. It’s always good to shine a light on actions that involve taxpayer money.

This controversy takes nothing away from Sarasota Memorial Healthcare System being the first-rate operation that it is. It simply serves as a reminder of the delicate nature of public credibility.   

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