In 2010, Australia’s largest not-for-profit health fund HCF embarked on an extraordinary process to overhaul its constitution and board structure. HCF’s commitment to its not-for-profit (NFP), mutual status is part of its DNA. It exists for its members, rather than shareholders. Maintaining this commitment has been an important point of focus for HCF’s board during a period of industry-wide turbulence.
Against a backdrop of multiple regulatory reviews and ongoing industry consolidation, HCF has returned to members more than 90 cents in benefits for every contribution dollar received. Its management expense ratio is significantly less than the industry average.
These results were delivered within the context of a significant governance transformation. A new constitution was implemented in 2010, reducing the number of directors from 12 to eight non-executive directors and introducing a board renewal policy, limiting directors’ terms to a maximum of 12 years.
With significant change to the board, HCF employed a skills matrix to assist with selecting new board members. This focus on governance as a team activity is an important part of the HCF story, as their board explains. 
 
Q: What did the change in constitution mean for the business?
Stuart Coppock MAICD, Non-executive director (SC): Four things had to be addressed. There was a governance document, of course, that had to be modernised within corporations law context. The role of the directors and their appointment also changed. Hospital members had to be engaged. Having successfully achieved that, we now have a director cohort who are demonstrably accountable. We had to make sure the process didn’t adversely impact how the business ran. We have also made sure governance of the whole organisation through the constitution matches contemporary practice.
Q: How has the skill set of the board changed?
Robert Goaley FAICD, Chair (RG): The board that was instrumental in the new constitution was an extremely effective board; they all had a lot of experience within health insurance. Through their persistence, the constitution was changed, putting in place a new mechanism that would see them out of a role. So the first thing we looked at were the skills we had on the board. Then we looked at the skills that would be required to run our organisation. Our first new directors were Lisa McIntyre GAICD, who has strong strategic skills, and Claire Jackson FAICD, who has a clinical background, followed by Chris Wright FAICD, who comes from a funds management perspective.
We were also looking for someone with strong auditing and accounting skills and Mark Johnson FAICD came to the board. John Barrington FAICD brought another set of skills; he was CEO of a large health fund and he has been a commissioner of the Private Health Insurance Administration Council. You can sit down and come up with 40 or 50 skills you need on a board, but for a board of our size I’m confident we have the relevant skills.
Along with these changes we, as a board and a company, have been very fortunate to have a strong leader in our managing director Shaun Larkin, especially as our governance changes coincided with some of the most turbulent and fast-changing times in the history of the industry.
John Barrington, Non-executive director (JB): Following on from Rob, our skills as a board are well complemented by the refreshed management team. The skill base has been uplifted in the disciplines of running a business in every area from marketing to IT. We have more than kept pace with developments going on in the general industry so we are well served as a board, particularly in our governance responsibilities, by having people who really can give us factual, clear advice.
Q: Can you describe how you evaluate and benchmark your board?
Chris Wright, Non-executive director (CW): We are being benchmarked against the best, including Australian Securities Exchange-listed companies. We’re prepared to put ourselves up against any of those top companies in the way we run the organisation. We benchmark ourselves against ASX corporate governance standards.
RG: We’ve just completed our second year using AICD’s Governance Analysis Tool™. The structure of the questions that were asked gave us the opportunity to really examine how the board as a whole is operating and how directors as individuals are performing. Last year, being our first time, we used a consultant from the AICD to walk us through the report. The AICD was impressed with the extent of written comments from our directors. We didn’t just tick the box.
Q: What are you focused on as a board at the moment?
Mark Johnson FAICD, Non-executive director (MJ): There are aspects to running an organisation with a mutual ethos that are very different to running a for-profit organisation. We are here to service members. It’s a beacon in the middle of the room and it is the light we work towards.
CW: It’s a culture that has permeated the organisation since it started. There is a culture of teamwork and you’re expected to contribute and everybody will hear your views. But after the matter has been discussed we adhere to what the board and management have decided. You may have different views and you’re given the opportunity to express those, but we are a team and we’re all working towards the objectives that have been agreed. No individuals.
JB: We’re probably one of the most talked-about players in the industry. To some extent that bonds us because we do feel a responsibility as a group to protect members and to make sure we can give them the services we believe are important. We’re focused on continuing to deliver exceptional services.
 
This is an edited extract of an article that appeared in the April 2016 edition of Company Director magazine. For more information on how the AICD's Advisory team can help your organisation benchmark its governance, visit our Advisory website.