Making The Grade

How can an organization produce solid evidence of “Effective Management and Governance” to rating agencies and bankers?

A week ago I attended a healthcare conference presentation describing the current turbulence in capital markets. This was a topic of high interest for me, given the news reports of Moody’s issuing more downgrades than upgrades on hospital debt.

Much of the public assumes that healthcare has been immune from the economic slump, but that is definitely not the case. Many hospitals across the nation are experiencing a drop in revenue… even as patient volumes may be rising.

The presenters from Piper Jaffray provided a welcome surprise: There are, in fact, currently more hospital debt upgrades than downgrades – when all three rating services (Moody’s, S&P, and Fitch) are combined. Reporters apparently focused on Moody’s to produce a more spectacular headline.

Of equal interest to me is a list of rating agencies’ reasons for upgrading hospital debt. Topping the list is “Effective Management and Governance.” This begs the question: How can executives of any sector demonstrate effective management and governance to people outside their company?  I’ll share my strategy.

Making It Visible
After being pilloried for the home mortgage crisis, rating agencies are a particularly thorough crowd today. They demand tangible evidence for every assertion an organization makes. We need to make it easy for analysts to see our effective management and governance.

One key strategy is to demonstrate the organization consistently follows sound evaluation and decision disciplines. Revisit your processes for approving capital with a critical eye for:

  1. Clear documentation of evaluation procedures your project teams follow when preparing proposals. Keep a keen eye out for gaps in the documented process. While your teams may be doing all the right things, if it’s not written down, how can an outsider believe it?
  2. A paper trail of the teams’ work being complete and reviewed by the decision-maker. Where shortcuts were allowed, was a compelling case made for allowing those shortcuts?
  3. Records of consistent follow-up and adjustment. Does the executive team revisit major decisions and expenditures to learn what actually happened and adjust future decision-making processes accordingly?

If reliable access to affordable debt is a priority for your organization, make it easy for ratings analysts or your banker. Have a solid case you can put into their hands when they come calling.

© 2011 Verax Point Consulting, LLC

About Dave Wittenberg

I am all about equipping business teams to enjoy greater payoffs on their biggest bets. I bring a unique combination of evaluation expertise and behavioral insights developed over the course of more than 300 major strategic initiatives. Applying a highly effective, disciplined framework, teams unleash their full capabilities to generate better solutions, wring out hidden waste, and deliver superior returns. Specialties: Investment Evaluation, Decision Excellence, Strategic Analysis, Mergers and Acquisitions, Investor Relations, Leadership Development, Education & Training
This entry was posted in Leadership & Decision-Making, Team Effectiveness. Bookmark the permalink.

Leave a Reply

Fill in your details below or click an icon to log in: Logo

You are commenting using your account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s