Conflicts of Interest s1

Page 2: Administrative Policy/Procedure: CONFLICTS OF INTEREST

CONFLICTS OF INTEREST AND FIDUCIARY DUTIES

OF TRUSTEES AND MANAGERS

POLICY: On January 1, 1977, the Board of Trustees of Children’s Hospital and Regional Medical Center (“CHRMC”) adopted a policy statement on conflicts of interest. The conflicts of interest policy calls for an annual survey of all Board members to determine potential or actual conflicts of interest. This survey has since been expanded to include the boards of the Children’s Health Care System (“CHCS,” which for purposes of this policy shall include CHRMC), members of the medical leadership at CHRMC and those members of the CHCS management staff who are classified as Director level and above (“Management Staff”). In addition, in recognition of the commitment of CHCS and all its constituents to the highest standards of ethical behavior and scientific integrity, the policy has been extended to include individuals participating in research at Children’s. In an organization that draws heavily on the efforts and expertise of members of the community, it is understood the background that such individuals bring to CHCS may give rise, from time to time, to potential conflicts of interest. Understanding that this possibility exists and that it is desirable that CHCS receive the benefit of the services of qualified individuals, this policy has been developed with an understanding that full disclosure of potentially conflicting interests is the first step to reconciling such conflicts with an individual’s fiduciary duties to CHCS. In accordance with this general policy, the following guidelines have been prepared to assist those covered by the policy in the determination of potential or actual conflicts, and to help them avoid the serious risks that may result from real or potential conflicts of interest. Nothing in this Policy shall be taken as relieving any person of any duty or obligation arising under law or the Articles and Bylaws.

PROCEDURE:

A. COVERED PERSONS

This Policy applies to the following described individuals (“Covered Persons”) except as otherwise specifically noted below:

1. Trustees, officers, and members of committees with board-delegated powers, for CHCS, CHRMC, Children’s Hospital Foundation, Children’s Hospital Guild Association, and any other entity included within Children’s Health Care System as determined by the CHCS Board of Trustees.

2. The Chief Executive Officer and Management Staff of CHCS.

3. Members of the Medical Staff of CHRMC holding an Administrative Appointment as approved by the Board of Trustees.

4. Members and staff of any CHRMC Institutional Review Board or equivalent organization.

5. Any employee of CHRMC or faculty member of another institution who is engaged in research at facilities owned, leased or operated by Children’s and who contributes to the design, conduct or reporting of research.

6. Members of the Children’s Hospital Pharmacy and Therapeutics Committee.

In addition, the officers of any Guild required to file IRS Form 990 will provide information necessary to complete the Form 990, but are not otherwise subject to this policy. The form used to collect information from officers of a Guild required to file a Form 990 is attached to this policy as Attachment C.

B. GENERAL DUTIES

1. Duty of Care.

Every Covered Person shall discharge his duties in good faith and with the degree of care that ordinarily prudent person in a like position would exercise under similar circumstances.

2. Duty of Loyalty

Every Covered Person must act with loyalty to CHCS, meaning that no Covered Person may use his or her corporate position to make personal profit or gain other personal advantage. Covered Persons may not engage in transactions with CHCS that confer unfair gains or secret profits. Covered Persons may not personally take advantage of a business opportunity that is offered to CHCS, or to the Covered Person by virtue of his or her position with CHCS, unless the Board determines (after a disinterested and informed evaluation) not to pursue that opportunity.

3. Confidentiality

No Covered Person or any other employee shall disclose any information related to CHCS’s business to any person or entity unless disclosure is related to the legitimate business of CHCS.

4. Conflicts of Interest

Covered Persons may not engage in transactions or undertake positions with other organizations that involve a financial interest (as defined below) without prior disclosure to CHCS and approval by disinterested and informed members of the Board.

5. Limited Prohibition on Gifts

No Covered Person or any other employee shall accept any gift, entertainment, or other favor where such acceptance might create the appearance of influence on the Covered Person or employee in the performance of his or her duties. The acceptance of any gift, entertainment, or other favor from an entity selling goods or services to CHCS presents the appearance of influencing a Covered Person or employee. However, acceptance of gifts having nominal value, which are clearly tokens of respect and friendship unrelated to any particular transaction, is not prohibited. Cash or a cash equivalent is never of nominal value.

C. PREVENTIVE MEASURES

1. Conflicts of Interest

a. Definition

A financial interest exists whenever:

(1) a Covered Person has, directly or indirectly, through business, investment or family:

(a)

(i) an ownership or investment interest in any entity with which CHCS has a transaction or arrangement, or

(ii) a compensation arrangement with CHCS or with any entity or individual with which CHCS has a transaction or arrangement, or

(iii) a potential ownership or investment interest in, or compensation arrangement with, any entity or individual with which CHCS is negotiating a transaction or arrangement; or

(b) authority or influence with respect to such entity’s transaction or arrangement,

provided, however, that owning less than 10% of the securities (or of securities representing less than 10% of the net worth) of a publicly traded entity does not present a conflict of interest so long as the fair market value of the interest is less than (i) 10% of the Covered Person’s net worth at year end, or (ii) the Covered Person’s annual income; or

(2) a Covered Person, directly or indirectly, through business, investment or family, has ownership interest in any competing entity having a value in excess of 10% of the net worth of such entity or the Covered Person has a position with any competing entity that confers decision-making authority influence with respect to such entity; or

(3) a Covered Person has accepted any gift, entertainment, or other favor in violation of this Policy.

b. Disclosure.

Each Covered Person shall disclose to the Audit and Corporate Responsibility Committee, all conflicts of interest (i) existing when he or she is offered or elected to a Covered Position with CHCS, (ii) occurring after the acceptance of the Covered Position, and (iii) annually through a conflict-of-interest survey that is distributed in the form attached hereto as Attachment A (for Covered Persons other than trustees of Children’s Hospital Foundation or Children’s Hospital Guild Association) or the form attached hereto as Attachment B (for Covered Persons who are trustees of Children’s Hospital Foundation or Children’s Hospital Guild Association and not otherwise subject to this policy). Disclosures from members of the Board of Trustees and the Chief Executive Officer shall be directed to the Chairman of the Board of Trustees. Disclosures from others subject to this policy shall be directed to the Chief Executive Officer. Disclosures by the Chairman of the Board of Trustees shall be directed to the Executive Committee of the Board of Trustees. Covered Persons who are in doubt as to the existence of a conflict of interest are encouraged to disclose to the Corporate Ethics Committee all facts pertaining to the transaction or event before the Covered Person undertakes the transaction or makes any decision in the matter.

c. Evaluation Procedure

The Audit and Corporate Responsibility Committee will review all disclosures and make recommendations regarding any necessary management plans related to them. Any management plan dealing with a member of the Board of Trustees or the Chief Executive Officer shall be directed to the Chairman of the Board of Trustees (or, when the plan concerns the Chairman, the Executive Committee), for review and action. Any management plan dealing with other individuals subject to this policy shall be directed to the Chief Executive Officer for review and action, which may require the involvement of the Vice President and Medical Director for medical leadership, the Vice President – Research for individuals participating in Children’s research program, or the Vice President/Executive Director, Children’s Hospital Foundation, for Foundation and Guild Association employees and Guild leaders subject to this policy. In formulating a recommended management plan, the Audit and Corporate Responsibility Committee will review the facts and circumstances of all transactions or events disclosed as actual, potential, or possible conflicts of interest, and will also consider any alternatives to proposed transactions or events, the possibility of competitive bidding, the benefit, if any, to the Covered Person or employee, and the fairness to and the need of CHCS in regard to the transaction. The Audit and Corporate Responsibility Committee will determine whether the situation involves a conflict of interest and may attempt to develop alternatives such that any conflict is removed from the situation.

The Chairman of the Audit and Corporate Responsibility Committee shall report annually to the Board in general the disclosures made under this Policy and the actions taken with respect to them. Specific actions by the Board of Trustees regarding any management plan, and the disclosures making it necessary, shall be recorded in the minutes of the Board.

Whenever under this policy the Board of Trustees takes action to implement, modify or enforce a management plan, only those Members of the Board of Trustees who are disinterested in the matter under review shall act. In addition, if a transaction (including a proposed transaction) involves a conflict of interest involving a member of the Board or the Chief Executive Officer, the disinterested members of the Board, being informed of the facts, shall determine whether the transaction or event is fair to CHCS. No interested person may participate in the Board’s decision or be present at the Board meeting when the Board’s evaluation and decision are made, but interested persons may respond to questions about the matter. If the Board determines that the transaction or event is unfair to CHCS or jeopardizes the Covered Person’s observance of the duty of loyalty, the Board shall disapprove the transaction or event (if pending), may declare any existing pertinent contract or transaction void, or take such other action as the Board deems appropriate.

2. Confidentiality

Each Covered Person and all other employees shall sign a Nondisclosure and Confidentiality Statement in the form attached hereto as Attachment D.

D. CORRECTIVE MEASURES

Any Covered Person or other employee who engages in a violation of this Policy or pursues a transaction or event following disapproval by the Board or the Chief Executive Officer may, in the discretion of the Board or the Chief Executive Officer in accordance with their respective authority, be removed immediately from his or her duties with CHCS and/or terminated in his or her employment.

E. RECORDS

The minutes of the Board and all committees with board-delegated powers will contain:

1. the names of the persons who disclosed or otherwise were found to have a financial

interest in connection with an actual or possible conflict of interest, the nature of the financial interest, any action taken to determine whether a conflict of interest was present, and the Board’s or committee’s decision as to whether a conflict of interest in fact existed;

2. the names of the persons who were present for discussions and votes relating to the

transaction or arrangement, the content of the discussion, including any alternatives to the

proposed transaction or arrangement, and a record of any votes taken in connection therewith.

F. COMPENSATION COMMITTEES

1. A voting member of any committee whose jurisdiction includes compensation matters and who receives compensation, directly or indirectly, from CHCS for services is precluded from voting on matters pertaining to that member’s compensation.

2. Physicians who receive compensation, directly or indirectly, from CHCS, whether as employees or independent contractors, are precluded from membership on any committee whose jurisdiction includes compensation matters. No physician, either individually or collectively, is prohibited from providing information to any committee regarding physician compensation.

G. PERIODIC REVIEWS

To ensure that CHCS operates in a manner consistent with its charitable purposes, and that it does not engage in activities that could jeopardize its status as an organization exempt from federal income tax, periodic reviews shall be conducted. The periodic reviews shall, at a minimum, include the following subjects:

1. Whether compensation arrangements and benefits are reasonable and are the result of arm’s-length bargaining;

2. Whether acquisitions of physician practices and other provider services result in inurement or impermissible private benefit;

3. Whether partnership and joint venture arrangements and arrangements with management service organizations and physician hospital organizations conform to written policies, are properly recorded, reflect reasonable payments for goods and services, further the charitable purposes of CHCS and do not result in inurement or impermissible private benefit;

4. Whether agreements to provide health care and agreements with other health care providers, employees, and third party payors further the charitable purposes of CHCS and do not result in inurement or impermissible private benefit.

Submitted by: Board of Trustees

Reviewed by: Audit and Corporate Responsibility Committee

Revised by: Board of Trustees

APPROVED BY:

Thomas N. Hansen, M.D. May 10, 2006

President and Chief Executive Officer

Kathy Randall May 10, 2006

Chairman, Board of Trustees

ORIGINATED: 1/1/77

REVIEWED: 7/18/01

REVISED: 6/24/98

REVISED: 5/10/2006; 10/24/2007

Additional Key Words: Code of Organizational Ethics; Code of Ethical Behavior; Code of Conduct; Corporate Standards; Business Ethics; Gratuities; Favors; Inside Information; Ethics; Ethical; Department Heads; Department Managers; Leadership; Leaders; Executives; HSC; Human Resources; Termination