Let the Leaders Lead

Imagine managing a multimillion-dollar company without any formal rules in place to outline how the business is run, the roles of leadership, and decision-making processes. You'd be surprised just how many medical practices operate this way.

Imagine managing a multimillion-dollar company without any formal rules in place to outline how the business is run, the roles of leadership, and decision-making processes. Sound far-fetched? You'd be surprised just how many medical practices operate this way.

No matter what size your practice, you need to have processes in place that give structure and direction to the governing body of your group. Your board of directors and shareholders will be better able to lead your practice in the right direction if they have a roadmap to follow.

What's in those bylaws?

Typically, the decision-making authority among physicians, as well as most operational processes, is delineated in the practice bylaws, operating agreement, or partnership agreement. These are similar documents with different names, depending on the corporate organizational structure of your practice.

At first glance, the bylaws look like fairly dry documents, with plenty of legalese. You may be tempted to simply take sample bylaws from online legal resources, insert your practice's name at the top, and be done with it. That's a mistake. Since they are so integral to the governance of your practice, your bylaws should be tailored to the inner workings and size of your group, with the help of your attorney. Among the items to include:

How meetings are planned and conducted

At a minimum, the shareholders should meet formally once a year to discuss the business of the practice. If a special meeting is required, the bylaws should say how it can be called and how much notice must be given, tailored to your practice's needs. For instance, large practices may not want a special meeting to be called at the request of only one shareholder.

Be careful to establish a policy for how notices can be given to the shareholders and board members. It is tempting to simply communicate by e-mail or fax. Instead, notices should be delivered by courier or overnight or regular mail, with proof of receipt.

  • Shareholders' voting rights

The bylaws also outline shareholders' voting rights in the practice. Most medical practices tie voting power to the number of shares owned by each shareholder. Make sure your practice bylaws clearly address how votes are cast, who is entitled to vote, and how many votes each shareholder is permitted to cast.

  • Making decisions

It's important to spell out how many shareholders must participate in the meeting to have a sufficient representation of the practice (a quorum). Most practices require at least 50 percent of all voting shareholders to be present for a shareholder meeting, in person, by phone, or videoconference.

Shareholders can also make decisions by unanimous consent instead of holding a meeting. A unanimous consent is a resolution of the shareholders that authorizes a certain action and is signed by all of the shareholders.

Minutes of the shareholders' meetings should be approved by the shareholders and placed in your practice's corporate minute book.

The role of the board

A key function of the shareholders is to appoint the board of directors. The board oversees the daily functions of the practice and appoints the officers to run the practice - commonly a president, vice president, secretary, and treasurer. 

In very large medical practices, the board may delegate some of its management responsibilities to practice managers or to a management committee made up of physicians who can share the administrative tasks of the practice. 

For the board of directors, your bylaws should include:

  • Board elections and terms

In a small practice, board members may serve for a one-year renewable term. In larger practices, they may rotate, requiring elections.

How frequently should elections occur? Certainly no more than once a year. If board members are serving for a few years at a time, you may decide to stagger the elections so all board positions are not up for election at the same time. 

  • Board meetings and decision-making

The board should hold regular meetings, at least annually, if not more frequently. Minutes of the board meetings should be taken and stored in the practice's minute book.

Just as quorum is important for shareholders meetings, the bylaws should clearly state how many board members must be present at a meeting.

Most bylaws state that decisions can be made by majority vote of those in attendance at a meeting. Considering that most bylaws only require half of those eligible to vote to be present in person (or by phone, etc.) to constitute quorum, the majority vote could be achieved by having a little over a quarter of those eligible to vote acting on a particular matter.

To avoid having fundamental issues being decided by so few voting members of your shareholders or board, consider requiring a higher percentage of votes - a super-majority vote - for certain key business decisions. This generally means 60 percent or more voting approval. Here are some situations in which you may consider requiring super-majority approval:

  • Selling or disposing of the assets of the practice
  • The sale of practice stock
  • Making changes to the bylaws
  • Making any assignment for the benefit of creditors; filing any reorganization or bankruptcy petition on behalf of the practice
  • The termination of any physician-employee (except the affected physician)
  • The hiring of new physicians
  • The hiring, firing, or replacement of the practice administrator or manager or practice advisers
  • The opening of new offices, expansion or termination of the practice's services
  • Approval of office leases, subleases, or equipment leases
  • The settlement of any action, claim, controversy, or litigation
  • The establishment, amendment, or repeal of practice policies, or benefits offered by the practice
  • Entering into loans or other financial obligations in excess of an agreed per-transaction and annual amount
  • The purchase of real estate by the practice
  • The approval of new shareholders

In certain circumstances, it may also make sense to implement "founding shareholder" protections. This clause requires that the founding shareholder must agree to the "fundamental changes" outlined above and be part of the super-majority voting in favor of such issues in order for the resolution to receive formal practice approval.

Review your practice governance documents periodically and amend them as needed to keep them current with changes in your practice, medical practice in general, and legal requirements. By anticipating future problems and drafting appropriate policies, rules, or regulations to address them, your governing officers will have a clear plan in place for moving your practice in the right direction.

Joan M. Roediger, JD, LLM, is a partner with Obermayer Rebmann Maxwell & Hippel LLP of Philadelphia. She can be reached at (215) 665-3216, at joan.roediger@obermayer.com or editor@physicianspractice.com.

This article originally appeared in the June 2005 issue of Physicians Practice.