Board characteristics, governance objectives, and hospital performance: An empirical analysis of German hospitals.

ABSTRACT

BACKGROUND: There is a growing need for hospital supervisory boards to support hospital management in different areas, including (financial) monitoring, resource provision, stakeholder relationships, and strategic decision-making. Little is currently known about how boards' emphases on these various governance objectives contribute to performance. PURPOSE: Using a dominant logics perspective, this article aims to detect the governance logics that hospital boards emphasize, to determine whether there are distinct clusters of hospitals with the same sets of emphases, and to show how cluster membership relates to board characteristics and financial performance. METHODOLOGY: Using factor analysis, we identify latent classes of governance objectives and use hierarchical cluster analysis to detect distinct clusters with varying emphasis on the classes. We then use multinomial regression to explore the associations between cluster membership and board characteristics (size, gender diversity, and occupational diversity) and examine the associations between clusters and financial performance using OLS regression. RESULTS: Classes of objectives reflecting three governance theories-agency theory, stewardship theory, and stakeholder theory-can be distinguished, and hospitals can be divided into four clusters based on their board's relative emphasis on the classes. Cluster membership is significantly associated with board characteristics. There is also a significant association between cluster membership and hospital financial performance, with two of three groups performing significantly better than the reference group. CONCLUSION: High performance in hospitals can be the result of governance logics, which, compared to simple board characteristics, are associated with better financial outcomes. PRACTICE IMPLICATIONS Hospitals can influence the emphasis placed on different governance objectives and enhance organizational success by creating boards that are small enough to be effective yet diverse enough to profit from a wide variety of expertise and experience.