Certain elements of good governance are required by law, while others are encouraged through guidelines and recommendations. For example, Canadian Securities Administrators (CSA)—the national regulatory body for publicly-listed corporations—recommend that a board’s mandate include responsibility for “the identification of the principal risks of the issuer's business, and ensuring the implementation of appropriate systems to manage these risks” (2005).
In a framework for board oversight of risk—commissioned by Chartered Professional Accountants of Canada—the author argues that “While boards should not be involved in day-to-day risk management […] boards must take a more active and direct role in risk assessment well beyond traditional oversight of typical risk management processes” (Caldwell, 2020, i-ii). Caldwell also recognizes that “[…] there are no standards for risk oversight and few, if any, authoritative sources on which boards may rely” (2020, ii). Caldwell recommends that risk oversight be a full-board responsibility: “risk oversight is a team sport and the full board must take an active role because the nature of risks requires the full capabilities of the board” (2020, p. 125).
The oversight of risk—both financial and non-financial—has become a foundational element of good governance since the CSA published its guidelines in 2005. However, its formal adoption at the board level has not always been observed, in the long-term care sector and beyond. In their 2014 study of corporate governance frameworks and practices in 27 countries, the Organisation for Economic Co-operation and Development (OECD) observed that “[…] the cost of risk management failures is still often underestimated, both externally and internally” (p. 7). Further, “It is not always clear that boards place sufficient emphasis on potentially ‘catastrophic’ risks, even if these do not appear very likely to materialize” (OECD, 2014, p. 8). We were curious to learn if and how the boards of long-term care organizations in Ontario oversee risk. The COVID-19 pandemic illustrated the need for robust risk oversight, especially in organizations that are responsible for the care of vulnerable people.
In our survey, we asked participants to indicate their level of agreement on three specific statements concerning risk oversight, using a scale ranging from strongly disagree to strongly agree. According to our results, almost every surveyed long-term care home representative (n=109) identified that their board of directors regularly assesses financial risks facing the organization, regularly assesses non-financial risks facing the organization, and approves reports on organizational risks. We also learned that 50% of long-term care organization boards (n=86) meet monthly, and over 90% (n=86) meet at least quarterly. In addition, we asked participants if they were aware of site visits, by the board, to their long-term care home. Over three quarters of respondents (n=109) indicated that their board visits their organization. When considered together, we interpret the responses to these three groups of questions to be positive indicators, as they suggest formal processes are in place for the board to provide ongoing and structured oversight of risks, to meet regularly, and to communicate with staff (and possibly residents) via site visits.
As discussed above, the risks inherent within long-term care homes have been particularly highlighted during the COVID-19 pandemic, and sustained engagement by the board on the issue suggests that governance—including the governance of risk—has become a formal process. A formal governance structure and process can help to ensure that the board is informed, proactive, and can effectively oversee difficult circumstances.
We also wanted to learn about the structures used by a long-term care board to oversee risk. We found that it was common for a long-term care organization’s board to use one or more committees for the oversight of risk. Furthermore, 60% of respondents (n=84) reported that their board uses a committee to oversee non-financial risk, including resident health, safety, and satisfaction. In our interviews, one participant provided further detail about one such committee, and highlighted the involvement of residents and family members. “We have the Quality Care board committee”, they shared, “that includes members from the Family and Resident councils. All the information gets reported back to the full board […] These board members are hearing directly from representatives of the people that we serve”. A standing committee can provide the board with the ability to spend extra time on the details of specific items without detracting from valuable or limited board meeting time, where discussions are focused on strategy and decision-making.
Effective risk oversight depends on the quantity—and quality—of communication between management and the board. We asked survey respondents to indicate the frequency with which their organization’s management reports to the board of directors. Just over half of participants (n=86) shared that their long-term care organizations report to the board at least monthly. However, 60% of respondents (n=20) from for-profit long-term care organizations were not sure how often the organization reports to the board. It is unclear why the most senior staff member in a long-term care home is unfamiliar with the reporting process. It might suggest that administrators report indirectly to the board, through an intermediary. In the case of multi-home operators, this could be particularly applicable; and indeed, 41% of respondents (n=111) indicated that they represent a multi-home licensee. In additional open text survey responses, three participants from for-profit multi-home long-term care organizations disclosed that they do not interact with the board. Further study would be required to learn and develop more conclusive insights.
“We have the Quality Care board committee that includes members from the Family and Resident councils. All the information gets reported back to the full board by the chair of the Quality committee. These board members are hearing directly from representatives of the people that we serve”
(CEO, long-term care organization)
We also followed up with long-term care leaders to find out more about the information the board receives from administrators. In our interviews, they shared that administrators provide the board with a considerable amount of information in different reports that discuss finances, critical incidents, inspections, satisfaction surveys, and quality care. With our findings that most boards meet at least quarterly, and most administrators report monthly to the board, participant responses suggest that administrators (or other managers) report organizational risks to the board every time the board meets.