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Vanderbilt Law Review

First Page

1029

Abstract

This Article specifically considers whether the existing legal system permits corporate governance mechanisms to function in a manner that promotes the public interest, particularly the public's interest in disclosure and participation in institutional policy development. The Article focuses on the viability of corporate governance structures in the health care industry, with special emphasis on the nonprofit hospital corporation. The Article begins with an overview of the issue of role reversal between management and directors of nonprofit corporations.The manifestations of role reversal are seen in the trend in non-profit corporations toward excessive delegation of board powers to executive committees, the elimination of the potential for independent control over the board of directors by the absence of member-ship requirements for nonprofit corporations, and abuse of the power to alter the charters and bylaws of these corporations, particularly with respect to the size and composition of the board of directors. The Article argues that a principal reason for the reversal of the direction of managerial control is the insufficient development in the nonprofit sector of statutory and judicial remedies to enforce the supervisory role of the board of directors. The Article contends that statutory mechanisms to ensure the board's accountability to the membership are inadequate, if not nonexistent. Since nonprofit corporation statutes allow for a situation in which control need not be extended beyond the corporation's original promoters, it is submitted that the definition of "members" in these statutes do not adequately protect the public interests that health care institutions serve.Given this analysis, the Article concludes that the statutory framework for nonprofit corporations must be refined for the purposes of health care institutions, principally hospitals, so that the direction of managerial control rests squarely with the board of directors; so that the membership of nonprofit corporations is broadly defined; and so that the functions of the members are analogous to those of shareholders in the for-profit sector. This Article regards these reforms as critical in an environment in which private regulation is widely believed to be an effective and desirable alternative to public health care regulation. Without them the public interest cannot be protected in a competitive system.

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