Fiduciary Duties of Interlocking Directors within a Nonprofit Health System

In response to regulatory and financial pressures, entities participating in the healthcare industry have joined with others in order to maintain, even improve, their market positions. In the nonprofit sector of the industry, partnerships, mergers, and acquisitions have included arrangements whereby some corporate partners have interlocking directors. After review of the fiduciary duties of care and loyalty owed by corporate board members, and their application to traditional performance and conflict of interest situations, the authors address two scenarios raising interlocking director issues. One scenario involves the acquisition of a community hospital by a health system; the other a "partnership" between a health system and a university with a medical school. Their analysis leads to the conclusion that the duality of interest created by interlocking directors should not ordinarily bar participation in corporate decisionmaking by such directors, because the key reason for establishing such interlocking directors is to create a mechanism for the entities, through their representatives, to participate the decisions of each other