Other Side Consulting - Saving the world one manager at a time

Funding alone will not cure our health system

The traditional joke stereotype of the board is ‘the unworthy appointed by the unwilling for the unnecessary’.
— Bob Garratt - The Fish Rots From The Head


We have a new government, and with it comes promise. The health sector in Aotearoa was a major discussion point in the recent election, with underfunding a point of contention. The health sector has been chronically underfunded over the past nine years and yes, change needs to take place, but it is not just more funding that is needed – we also need to initiate a product recall on the structure of the district health board. It is a failed experiment. They will be put under the microscope as part of the recently announced government review of the health sector though I won’t hold my breath as they aren’t expected to be finished before January 2020.  

Why don’t private and public companies like Fisher & Paykel Healthcare, Air New Zealand and The Warehouse have public elections for directors? Because they understand the importance of skill and experience. These organisations are responsible for millions of investment dollars and, more importantly, the job security of thousands of people. If they held elections for these key leadership roles investors, especially institutional ones, would abandon them in a heartbeat.

New Zealand has 20 District Health Boards (DHBs), and some equal the size of our biggest corporations. They are significant multi-million-dollar organisations and they need to be run as such.

Using a corporate board structure for DHBs defies logic. Boards struggle to work well in the business world, and practitioners and academics alike will tell you there is no magic formula for an effective board. To transplant a problematic business concept, with all of its idiosyncratic fallacies and peculiar theoretical assumptions (we would point here to agency theory, rational economic man/woman, ability for business failure, and the market among others) is flawed. Some of the inevitable outcomes have become public – Southern DHB Board sacked and more recently the Waikato DHB chairman Bob Simcock quitting under pressure.

If, as it is argued, the purpose of electing directors was to gain community voice then it is failing to achieve that as well. Clear evidence that DHB boards are not providing an effective community voice can be seen in the numerous consumer councils being set up within them, popping up at – MidCentral, Waikato, Hawkes Bay, Counties Manakau, Canterbury.

What have we got so wrong about governance boards in the health sector? First, here is an obvious point. In order to be a director you must be competent. The health sector, for example, devotes a huge amount of time and energy making sure the titles of doctor, nurse or occupational therapist are only given to those assessed as competent to have those titles. If you accept the assumption that directors need to be competent then selection must be based on competency – a meritocracy. Instead, we put it to a public vote and elect the directors every three years. Most voters simply aren’t interested, with approximately 40% of eligible people voting in DHB elections. This gives us seven directors where competency is basically left down to happenstance.

And under the current law the minister then appoints four more. The ministry notes that: "In making appointments, the Minister considers a range of people who may be able to fill gaps on the board in terms of skills and experience. For example, the Minister may wish to appoint people with financial or other experience in governing large organisations, or people from groups not represented among the elected members. The appointees may also include people who stood for election but missed out on being elected."

In other words, accountants are appointed so someone understands the financials, despite the fact that legally it is every director’s responsibility to understand the financials. Visit your DHB's website and look through the director profiles. These are the people responsible for your health care, hundreds of millions of dollars of expenditure and thousands of jobs. And they are responsible. Under New Zealand law they face the same penalties as directors of private companies if things go pear-shaped. “A member of a DHB board committee established or appointed under Part 3 of the NZPHD Act is not liable for any act or omission done or omitted in his or her capacity as a member, if he or she acted in good faith, and with reasonable care, in pursuance of the functions of the committee.”

 If you aren’t competent, how can you act with reasonable care? If we elected surgeons, rather than training them to be competent, when they make a pig’s breakfast of an operation how could they argue that they were acting with reasonable care. The election process, combined with a ministerial process – behind closed doors – means the competency of the board is basically a lottery.

And what about the cost of it? The value we get as citizens is extremely dubious (and that’s being kind). Twenty DHBs at $314,000 per year (using MidCentral’s 2015/16 figures) is $6.2 million dollars – and that's just the tip of the iceberg. Each DHB has a team of people engaged in an unproductive cycle of preparing reports, rewriting them when they come back scrawled on by executives, attending board meetings and workshops – broadly they worry about the boards, but not about our health. It is hard to calculate the actual total cost, but if you removed the need for board reporting there would be a lot of happy DHB staff who could devote their time to improving health care.

The bottom line is District Health Boards are costly and structurally ineffective. Removing them would provide an easy way to save time, and money, that could go into health care. That saving sits nicely alongside those calling for less DHBs, which has the potential to save a huge amount of money by removing a shuffle of CEOs, CFOs, CIOs and an array of  2nd tier ‘executives’.

DHB directors reading this article may not be pleased but, if it’s any consolation, it isn’t personal. They are likely to be all talented and competent in their own careers. But, and it is a big but, being competent in one arena does not mean you are a competent director. The health sector (along with many others) make a similar mistake when they promote talented and able clinical staff, throw in a few days training, and make them managers. It would be equally ludicrous if one of us suddenly thought a management doctorate qualified us for general practice. Surely we would need to attend a few days of training first?