Issue link: https://beckershealthcare.uberflip.com/i/1219854
25 25 CEO/STRATEGY What healthcare boards can take from baseball's sign-stealing scandal By Michael W. Peregrine, partner, McDermott Will & Emery T he Houston Astros' sign-stealing scheme, in which the baseball team used video cameras to decode opponents' hand signals, offers a stark reminder for healthcare boards. What's that? ink it's a stretch? Can't see the connection? Well, think again. It's because the circumstances surrounding Major League Baseball's sign-stealing scandal are quite relevant to the healthcare industry and to the board's obligation to preserve a culture of compliance. at's why MLB's recent investigative report and associated penalties, and the related ripple effect throughout the game, offer an important teaching moment for healthcare industry boards and their executives. First, let's start with the obvious similarities. Baseball and healthcare are iconic American industries regularly in the public spotlight. Both are subject to multiple rules and regulations, dependent not on the production of products but rather on the skills of individual employ- ees. Both operate in extraordinarily competitive environments that heavily incentivize individual performance. And then there are some not so obvious similarities. Both are ground- ed in a commitment to integrity and compliance, without which pub- lic confidence in their services would suffer, and both foster incredible awareness of the actions of their competitors. And while reliant in large part on the skills of elite professionals, both also depend on a sense of teamwork and trust. OK, great you say. You see some similarities. But the relevance ... wasn't this just a little horseplay by some ballplayers, in the grand tra- dition of the game? No, actually, it wasn't. It was a failure of corporate culture that permeated all organizational levels of a sophisticated busi- ness enterprise, from senior leadership through line executives to the primary workforce. It's about elite, intelligent and highly compensated employees actively deciding to either do what simple diligence would have told them was "the wrong thing," or turn a blind eye to those they knew to be doing it. And that goes right to the heart of the healthcare board's obligation to maintain an organizational culture of compliance. Because it could happen on their watch, too. For the MLB scandal speaks — loudly — to those difficult situations when teams (and corporations) are confronted with attractive busi- ness options for which the legal rules aren't clear but the optical risks are more obvious. When does a hard slide, a scuffed ball or a brush back pitch cross the line from "good baseball" or "sending a message" to cheating, or to the physically dangerous? When does a business transaction or compensation arrangement cross the line from a legitimate arrangement to an illegal inducement to refer? e fog of interpretation. Pressure and temptation run high. Everyone else is doing it, why can't we? And who within the organiza- tion makes that call? What makes this scandal so particularly relevant to healthcare is the presence of nuance, like with the application of MLB rules. Accord- ing to media reports, there was a "broadly written rule" in place in 2017 that prohibited the use of electronic equipment for purposes of conveying information that would give one team an advantage over another. Yet it apparently fostered some uncertainty. Did it mean that a coach's own eyes, or a pair of binoculars, was OK, but a camera sys- tem linked to a TV monitor in the dugout was not? How best to guide decisions? To direct in-game strategy? Questions were begged, but ap- parently not asked too strenuously. Apparently, MLB has recognized the ambiguity for it reportedly re- leased new rules earlier this year (not available to the public) designed to clarify sign-stealing rules, especially those relating to the use of technology and replay systems. But these kinds of nuances pop up all too frequently in the corporate world as well. Healthcare statutes and regulations tend to be murky as well. But that's why there are general counsel and compliance officers, to help clear things up. Indeed, from the broader commercial perspective, the MLB situation is not that unique. Management (or a coaching staff ) will from time to time identify business options that promise great upside, but their "optics" look bad. Like sign stealing, these are options that fall into the confounding "gray area" of legal uncertainty (they're not clearly right, but they're not obviously wrong). ese can be circumstances in which the pressure to "win," to achieve greater business success or personal gain, may trump measured judgment or inquiry. In these circumstances, the expectation is that a strong culture of com- pliance will carry the day; when an inbred sense of integrity will serve as a firewall to the embers of malfeasance. When employees are ori- ented to do "the right thing." But, for whatever reason, that firewall crumbled in the MLB situation. And there was no "fail safe" mechanism that would have alerted team ownership — here, the ultimate organizational authority; there, the governing board — to the problem. So the sign-stealing scandal provides an unusually recognizable plat- form for some serious corporate accountability reflection. Are our in- centives out of whack with our mission? Would our executives know to first reach out to counsel or the compliance officer with their ques- tions? Would our line employees report their concerns upstream or feign ignorance? Would our culture hold? Preservation of the organizational culture is squarely a responsibility of the governing board, no matter what the industry. But it's especially so for healthcare, with its many similarities to the business of sports. e board would do well to recognize the connection, and to ask the ultimate question — could it happen here? — and do some digging to find out. Because so much could be at stake. e sign stealing scandal shows boards that optics count. And more importantly, ethics matter. Boards must take seriously their obligation to nurture an organizational commitment to corporate ethics. Michael W. Peregrine, a partner at the law firm of McDermott Will & Emery, advises corporations, officers and directors on matters relating to corporate governance, fiduciary duties, and officer and director liability issues. He is outside governance counsel to many prominent corpora- tions, including hospitals and health systems. His views do not necessar- ily reflect the views of the firm or its clients. n