What is the 'perfect' size for a board of directors? The debate has waxed and waned for years. Shareholders, nominating committees, researchers and boards themselves have asked a range of questions as they have tried to address the conundrum:
  • ​How many directors are required to get the work of the board done?
  • What is the ideal balance between quality and quantity?
  • At what point does cost become a burden (vs. value)?​
Answers to these questions have proved to be elusive. The reason? Context. Every situation that boards need to consider is, to some extent at least, unique. Consequently, a broad range of skills and expertise is needed in the boardroom, to address different issues that come up at different times. A configuration that works well for one situation may not work well elsewhere. Consider these vignettes:
  • What about a small board of three or four directors? One small board that I was on (four directors) was great at making decisions quickly, which was helpful for the fast-moving context within which the high-growth company operated. However, we really struggled when one director was absent. On several occasions, we found ourselves reaching for external help because vital skills were not present at the table. The board discussed the matter at length. A decision was made to petition the shareholders for a larger director's fees pool, a cheaper and more effective option that paying external advisors for assistance. Sadly, the petition was never presented: the company was acquired soon thereafter.
  • What about a bigger board, to deal with a range of complex issues? Last year, I was asked to evaluate a board with eighteen (yes, eighteen) directors. When they were asked about board meetings and board practices, the directors said that meetings "took forever", that group dynamics were "overly complex" and that several directors were "passengers": clues that something was wrong. After further discussion, including the desire to move in a new direction (purpose and strategy were MIA), one of the recommendations to emerge was to ask shareholders to consider reducing the board size to nine directors, via a 24-month transition period of fourteen directors. The recommendation was accepted, and both board effectiveness and company performance improved as a result.
These two cases demonstrate some of the typical challenges faced by small and large boards. While the best answer to the title question is 'it depends', a sweet spot does exist. Boards with between six and nine directors is about right—as Tracy Hickman reports—because board effectiveness seems to peak somewhere in this range. My research suggests bears this out. Boards with fewer than six directors have great dynamics and decisions are generally made quickly. However, small boards often struggle to deal with an array of strategic options, decisions and monitoring tasks. In contrast, group dynamics start to become unwieldy when the board size reaches double digits. Big boards are also expensive to run and the risk of passenger-directors increases markedly!
​If you'd like to know more about how to improve board effectiveness, or want to schedule a board review, please get in touch.