Lawrence Van Horn, MBA, PhD
Associate Professor of Health Sciences, Economics and Management, William E. Simon Graduate School of Business Administration, University of Rochester

Board Composition And Private Inurement In Nonprofit Organizations: Evidence From Hospitals

Thursday, April 1, 2004
12:00 - 1:30 PM

Colonial Penn Center Auditorium

Abstract Paper

R. Lawrence Van Horn is an Associate Professor of Economics and Management and Area Coordinator for Health Care Programs, William Simon School of Business, University of Rochester. Dr. Van Horn’s research interests are in the areas of corporate governance, managerial accounting and the organizational economics of health care organizations.

Dr. Van Horn’s current work focuses on not-for-profit CEO compensation, hospital governance. He also has worked in the area of pharmaceutical promotion. Dr. Van Horn has published articles in various journals, including Medical Care Research & Review, Journal of Public Budgeting and Financial Management, Medical Care and Harvard Business Review, Journal of Law & Economics, and forthcoming International Journal of Industrial Organization..

Dr. Van Horn created the health care MBA program at the William E. Simon Graduate School of Business and is responsible for all the schools health care related initiatives..

Dr. Van Horn received his B.A in Philosophy. from the University of Rochester in 1989, an M.P.H. with a concentration in Health Care Administration form the University of Rochester Medical School in 1990, an M.B.A. with a concentration in Organizations and Markets from the William E. Simon Graduate School of Business Administration, University of Rochester, in 1991, and a Ph.D. from the University of Pennsylvania Health Care Systems Department in 1996. Dr. Van Horn's dissertation, “Environmental Turbulence, Organizational Capabilities and Strategic Response: Hospital Strategy in an Era of Managed Care,” was chaired by John R. Kimberly, Ph.D.


This study uses a large sample of nonprofit hospitals to provide evidence on whether board composition affects a nonprofit organization's ability to limit private inurement. We find that both the level and change in CEO pay are positively associated with CEO power on the board. Additional findings, however, suggest that the compensation premium is not necessarily "excess" pay (private inurement). Rather it potentially reflects unmeasured CEO talent and risk that accompanies a hospital's potentially optimal decision to allocate power to the manager (e.g., due to valuable specific knowledge). Our study suggests that a potentially larger agency concern is between donors and private interest groups on the board. In nonprofit hospitals, physicians can extract resources from a hospital in numerous ways. Our evidence suggests that (plausibly as a result of this incentive problem) donations systematically decrease with physician representation on the board. Examples from the media suggest that the conflict between donors and private interest groups extends to other nonprofit organizations.

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