ATTRIBUTES OF EXCELLENCE: GOVERNANCE OF NONPROFIT CAPTIVE INSURANCE COMPANIES

1. ATTRIBUTES OF EXCELLENCE:GOVERNANCE OF NONPROFIT CAPTIVE INSURANCE COMPANIES June 2008 Ellen L. Barton, J.D., CPCU, DFASHRM Principal, ERM Strategies, LLC 19 Overshot Court Phoenix, MD 21131 ebarton@comcast.net

2. ATTRIBUTES OF EXCELLENCE • INTRODUCTION • Good Governance – An issue of • increasing importance • Nonprofits • Health Care Organizations • Captive Insurance Companies • Failures in Governance • AHERF • AHSPIC

3. ATTRIBUTES OF EXCELLENCE • INTRODUCTION (Continued) • Panel on the Nonprofit Sector: • Principles for Good Governance and Ethical Practice: A Guide for Charities and Foundations (Principles)1 • 33 Concepts of Sound Practice • ¹ Released October 18, 2007, a copy of the Principles can be found at www.nonprofitpanel.org. The Panel is comprised of 24 nonprofit and philanthropic leaders whose organizations encompass great diversity in location, mission, perspective, and scope of work.

4. ATTRIBUTES OF EXCELLENCE • INTRODUCTION (Continued) • 33 Concepts of Sound Practice • Legal Compliance and Public Disclosure • Effective Governance • Strong Financial Oversight • Responsible Fundraising

5. ATTRIBUTES OF EXCELLENCE • INTRODUCTION (Continued) • Legal Compliance and Public Disclosure • 1 – Comply with all applicable Laws • 2 – Have a Code of Ethics • 3 – Ensure Conflicts of Interest are • appropriately managed

6. ATTRIBUTES OF EXCELLENCE • INTRODUCTION (Continued) • Legal Compliance and Public Disclosure • 4 – Have a Whistleblower Policy • 5 – Have a Record Retention Policy • 6 – Have an ERM Plan – D&O Insurance • 7 – Issue an Annual Report

7. ATTRIBUTES OF EXCELLENCE • INTRODUCTION (Continued) • Effective Governance • 8 – Have a responsible Board of Directors • 9 – Have Regular Meetings • 10 – Determine appropriate Board Size • 11 – Maintain Member Diversity • 12 – Majority of Board members must be • Independent

8. ATTRIBUTES OF EXCELLENCE • INTRODUCTION (Continued) • Effective Governance • 13 – Hire and Evaluate CEO • 14 – Assure that Board Chairperson, CEO, • and Treasurer positions are held by • different persons • 15 – Hold Board Orientation and continuing • education programs • 16 – Hold regular Board Evaluations

9. ATTRIBUTES OF EXCELLENCE • INTRODUCTION (Continued) • Effective Governance • 17 – Establish Term Limits • 18 – Review Basic Documents and • organizational structure at least • every 5 years • 19 – Review Mission and Goals at least • every 5 years • 20 – Provide No Compensation to Board • members

10. ATTRIBUTES OF EXCELLENCE • INTRODUCTION (Continued) • Strong Financial Oversight • 21 – Maintain current and accurate • Financial Records • 22 – Invest Funds Responsibly • 23 – Do not make loans (or equivalents) • to directors, officers, or trustees • 24 – Spend significant portion of Budget • on achieving Mission

11. ATTRIBUTES OF EXCELLENCE • INTRODUCTION (Continued) • Strong Financial Oversight • 25 – Maintain appropriate Expense • Reimbursement policies • 26 – Do not pay for or reimburse for Travel • Expenses of spouses, dependents, • or others

12. ATTRIBUTES OF EXCELLENCE • INTRODUCTION (Continued) • Beyond Sarbanes-Oxley (SOX) • “Second Generation” • Era of unprecedented legislative, • regulatory, and media focus on • governance of nonprofits.

13. ATTRIBUTES OF EXCELLENCE • INTRODUCTION (Continued) • IRS Position Paper: Governance and • Related Topics – 501(c)(3) Organizations2 • Mission • Organizational Documents • Governing Body • Governance and Management Policies • Financial Statements and Form 990 Reporting • Transparency • ²The Position Paper is contained within the IRS publication “Life Cycle of an Exempt • Organization-Public Charities,” at http://www.irs.gov/pub/irs-tege/governance_practices.pdf.

14. GOVERNANCE DOCUMENTS • GOVERNANCE DOCUMENTS • Charter [5 & 18] • Often called the “Certificate of Incorporation,” “Articles of Incorporation” • Prerequisite to official status • Constitution of Organization • Amendment by Board • Annual Reports

15. GOVERNANCE DOCUMENTS • GOVERNANCE DOCUMENTS (Continued) • Bylaws [5 & 18] • Basic Operating Rules • Board Structure/Governance • Directors/Officers/Committees • Meetings/Voting/Indemnification

16. GOVERNANCE DOCUMENTS • GOVERNANCE DOCUMENTS (Continued) • Code of Conduct (Ethics) [2 & 3] • Expectations of Organization for • Board Members • Expectations of Board for • Management Team

17. GOVERNANCE DOCUMENTS • GOVERNANCE DOCUMENTS (Continued) • Mission Statement [8, 18 & 19] • Defines organization’s purpose • Directs its future • Assists Board/Management to focus • on stated goals • Educates others about organization

18. GOVERNANCE DOCUMENTS • GOVERNANCE DOCUMENTS (Continued) • Mission Statement - Sample • GG Captive Insurance Company’s mission is to be a permanent and financially stable source of liability insurance for its owners’ health care operations by operating efficiently and effectively, and to provide educational, claims management, and risk management consultative services in order to partner with its owners’ in delivering quality health care. GG CIC

19. GOVERNANCE DOCUMENTS • GOVERNANCE DOCUMENTS (Continued) • Corporate Governance Guidelines • Rules of the Road: Spell out how the organization will be governed.

20. BASIC BOARD RESPONSIBILITIES • BOARD OF DIRECTORS/TRUSTEES • Basic Board Responsibilities3 • Determining the organization’s mission and purpose. [8 & 19] • Selecting the chief executive. [13] • Providing proper financial oversight. [21] • ³ From Ten Basic Responsibilities of Nonprofit Boards, by Richard T. Ingram (Washington, DC: BoardSource, revised 2003)

21. BASIC BOARD RESPONSIBILITIES • BOARD OF DIRECTORS/TRUSTEES (Continued) • Basic Board Responsibilities • Ensuring adequate resources. • [24, 25 & 26] • 5. Ensuring legal and ethical integrity • and maintaining accountability. [1 & 2] • 6. Ensuring effective organizational • planning. [8]

22. BASIC BOARD RESPONSIBILITIES • BOARD OF DIRECTORS/TRUSTEES (Continued) • Basic Board Responsibilities • Recruiting and orienting new board • members and assessing the • board’s own performance. [10 & 11] • 8. Enhancing the organization’s public • standing. [7]

23. BASIC BOARD RESPONSIBILITIES • BOARD OF DIRECTORS/TRUSTEES (Continued) • Basic Board Responsibilities • Determining, monitoring, and strengthening the organization’s programs and services. [19] • Supporting the chief executive and assessing his or her performance. [13]

24. LEGAL OBLIGATIONS OF THE BOARD • IV.LEGAL OBLIGATIONS OF THE BOARD • Duty of Care and Duty of Loyalty • -- whether for-profit or nonprofit • Duty of Care [1 & 12] • Directors must exercise the care, diligence, and skill that the ordinary prudent person would exhibit under similar circumstances.

25. LEGAL OBLIGATIONS OF THE BOARD • IV.LEGAL OBLIGATIONS OF THE BOARD (Continued) • Duty of Loyalty [2, 3, 12] • Directors must pursue the organization’s best interest, avoid self-dealing and conflicts of interest, as well as disclose potential conflicts, and obtain Board approval of any transaction or situations that might be considered self-dealing or a conflict.

26. LEGAL OBLIGATIONS OF THE BOARD • LEGAL OBLIGATIONS OF THE BOARD (Continued) • B. Federal and State Laws [1] • May place responsibilities on Directors of nonprofits. • SOX provisions applying to nonprofits: • Whistleblower protection [4] • Destruction of documents penalties [5]

27. LEGAL OBLIGATIONS OF THE BOARD • LEGAL OBLIGATIONS OF THE BOARD (Continued) • C. Tax Regulations • Tax exemption is NOT automatic for nonprofits • File with IRS [7] • Exempt from paying tax • File an annual return

28. EFFECTIVE BOARD MEMBERS • V. PERSONAL QUALITIES OF EFFECTIVE BOARD MEMBERS • A. Fundamental Characteristics [11] • Vision and Leadership • Advocacy, Stewardship, and Integrity • Knowledge • Personal Commitment and Diligence • Collegiality

29. EFFECTIVE BOARD MEMBERS • V. PERSONAL QUALITIES OF EFFECTIVE BOARD MEMBERS (Continued) • A. Fundamental Characteristics • Particular Backgrounds [11] • Types of Expertise [11] • Access to Key Constituents • Specific Professionals

30. EFFECTIVE BOARD MEMBERS • V. PERSONAL QUALITIES OF EFFECTIVE BOARD MEMBERS (Continued) • B. Personal Commitment [8, 9, 10, 11] • Understanding Mission • Current on Organization’s Issues • Regular Meeting Attendance • Active Participation • Collegial

31. EFFECTIVE BOARD MEMBERS • V. PERSONAL QUALITIES OF EFFECTIVE BOARD MEMBERS (Continued) • Compare Performance vs. Criteria • = Effective Board Members

32. BOARD STRUCTURE AND OPERATIONS • VI. BOARD STRUCTURE AND OPERATIONS • A. Size and Function [10] • Governing/Oversight • Operating/Hands On • Meeting Frequency

33. BOARD STRUCTURE AND OPERATIONS • VI. BOARD STRUCTURE AND OPERATIONS (Continued) • B. Committees • Standing • Executive • Governance [15] • Finance [21 & 22] • Audit [14, 20, 23]

34. BOARD STRUCTURE AND OPERATIONS • VI. BOARD STRUCTURE AND OPERATIONS (Continued) • B. Committees • Standing • Investment [22] • Risk Management [6] • Claims

35. BOARD STRUCTURE AND OPERATIONS • VI. BOARD STRUCTURE AND OPERATIONS (Continued) • B. Committees • Ad Hoc – Short Term/Single Purpose • Strategic Planning [8] • Search Committee

36. BOARD STRUCTURE AND OPERATIONS • VI. BOARD STRUCTURE AND OPERATIONS (Continued) • C. Committee Members • Board Members [10] • Non-Board Members • Special Expertise • Assess Potential Board Members

37. EFFECTIVE MEETINGS • VII. EFFECTIVE MEETINGS [9] • Role of Chairperson • Written Agendas • Limited Agendas • Consent Agendas • Strategic Issue Focus

38. EFFECTIVE MEETINGS • VII. EFFECTIVE MEETINGS (Continued) • Written Reports [5] • Executive Summaries • Staff Analyses

39. BUILDING AND MAINTAININGAN EFFECTIVE BOARD • BUILDING AND MAINTAINING AN EFFECTIVE BOARD • Members believe in Mission • Members understand Business • Members operate in accord with Legal and Fiduciary Responsibilities

40. BUILDING AND MAINTAININGAN EFFECTIVE BOARD • BUILDING AND MAINTAINING AN EFFECTIVE BOARD - NOT • No regular meeting schedule • Directors micromanage staff • Lack of trust/confidence between board and management • Lack of confidentiality

41. BUILDING AND MAINTAININGAN EFFECTIVE BOARD • BUILDING AND MAINTAINING AN EFFECTIVE BOARD (Continued) • Board-Effectiveness Survey [16] • Polls board members on issues • related to effective operation of the • board • Substance • Process

42. BUILDING AND MAINTAININGAN EFFECTIVE BOARD • BUILDING AND MAINTAINING AN EFFECTIVE BOARD (Continued) • Board-Effectiveness Survey • Provides base line for • Self-Comparison • Peer Comparison

43. BUILDING AND MAINTAININGAN EFFECTIVE BOARD • BUILDING AND MAINTAINING AN EFFECTIVE BOARD (Continued) • Board-Effectiveness Survey • Starting Point for • Adjustments • Improvements

44. BUILDING AND MAINTAININGAN EFFECTIVE BOARD • BUILDING AND MAINTAINING AN EFFECTIVE BOARD (Continued) • Strategies (w/o Survey) • Designate a Board Committee to be • responsible for governance issues. • Review Corporate Documents. • Draft Expectations of Directors • document.

45. BUILDING AND MAINTAININGAN EFFECTIVE BOARD • BUILDING AND MAINTAINING AN EFFECTIVE BOARD (Continued) • Strategies (w/o Survey) • Define other key roles, create job • descriptions. • Draft Committee Charters. • Define characteristics for Directors.

46. BUILDING AND MAINTAININGAN EFFECTIVE BOARD • BUILDING AND MAINTAINING AN EFFECTIVE BOARD (Continued) • Strategies (w/o Survey) • Review who is on Board [16 &17] • Who is needed • Who is not

47. BUILDING AND MAINTAININGAN EFFECTIVE BOARD • BUILDING AND MAINTAINING AN EFFECTIVE BOARD (Continued) • Strategies (w/o Survey) • Consider establishing term limits [17] • Meet personally with ineffective • Directors: [15] • Re-engage them • Prepare them for transition

48. BUILDING AND MAINTAININGAN EFFECTIVE BOARD • BUILDING AND MAINTAINING AN EFFECTIVE BOARD (Continued) • Strategies (w/o Survey) • Create active dialog with • Management • Maintain active Committees • Establish goals • Rotate members

49. BUILDING AND MAINTAININGAN EFFECTIVE BOARD • BUILDING AND MAINTAINING AN EFFECTIVE BOARD (Continued) • Strategies (w/o Survey) • Establish Board Orientation Process • and Board “Book” [15] • Meeting with Key Staff • Basic Documents • Glossary of Terms • Resource Material on Key Issues

50. MAKING BOARD SERVICE FULFILLING • MAKING BOARD SERVICE FULFILLING • Establish Issues List • For use in determining • Role of Director • Value to Organization • Effectiveness of Director • Organization’s “OE” (Operational • Effectiveness)