Size Matters!

Size Matters!

One of the most frequent questions we get asked by our clients is how large should a board be. We can safely say that there is no universal agreement on the optimum size of a board of directors. It depends……every Board in unique!

A large number of board members represents a real challenge in terms of using them effectively and having meaningful individual participation. A small number may be too few to carry out all the work that is required on the board.

So, some features that need to be considered in deciding what size the board should be are:

  • Stage of development of the company
  • Number of board committees required
  • Balance of skills and experience

So, let’s look at each of these in turn.

  1. Stage of development of the company

Small companies do not need large boards but having a board meeting is a good discipline even if all the members working in the company are executive directors and shareholders. 

As it grows, it may make sense to bring in certain skills and experience to support the ambition of the founders and to separate out the role of the board and the management team. This separation which needs to be real as it will build trust and confidence in the company with its bankers, shareholders, staff and donors if it is a charity.  This needs to be thought through very carefully particularly in family companies where succession planning will need very careful thought and planning.

  1. Number of board committees required

As a company develops and grows it will need to bring in greater structure and establish board committees.  Typical committees could be;

  • Audit
  • Compensation
  • Nomination
  • Risk

All board committees should be chaired by NEDs if possible.

The audit and compensation committees must be made up of independent members.  Assuming a minimum number for each committee is two or three depending on the size of the company, this means that a minimum of four to six board members are required for those committees so that no one is on more than one committee. It would not be good practice to have an overlap of independent members serving on both the audit and compensation committees, as it may lead to conflicts of interest. So, the more committees, a company has, the more board members and NEDs are required.  Doubling up will be OK as long as it does not lead to conflict or too much of a workload for a director

  1. Balance

We favour boards where the non-executives are in the majority, the Chair is not the CEO and terms do not exceed a nine years maximum. The board should consist of the right combination of skills and experience required to support the achievement of the strategy.

Key Takeaway

We believe boards that can accommodate the features above will succeed. We think any number beyond 10 will be hard to be justified in terms of the effort and cost to sustain them.  Beyond that we are dealing with crowd control!

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David W Duffy

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