What is the optimum boardroom size?
We are frequently asked at the Corporate Governance Institute about optimum boardroom size – how many directors should be sitting around the table?
I think I can safely say that there is no universal agreement on the optimum boardroom size. It depends on a number of factors.
If the number of board directors and members is too large, then the challenge can be how to effectively encourage each of the directors to participate in a meaningful way. And sometimes the loudest voice in the room will dominate.
Of course, too small a number may be too few to carry out all the work that is required of 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
Let’s look at each of these in turn.
Stage of development of the company
Small companies do not need large boards, but having board meetings is a good discipline even if all the members working in the company are directors and shareholders.
As the business grows, it makes sense to bring in certain skills and experience to support the ambition of the founders. This also allows a separation of the role of the board and that of the executive management team. This separation needs to be real and defined, as it will build trust and confidence in the company with its investors, shareholders, staff and other stakeholders in the company. This needs to be thought through very carefully, particularly in family companies where succession planning can be tricky.
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 are:
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 are required. Doubling up will be fine as long as it does not lead to conflict or too much of a workload for a director.
I favor boards where the non-executives are in the majority, the Chair is not the CEO and directors’ terms do not exceed six years’ maximum. The board should consist of the right combination of skills and experience required to support the achievement of the strategy: and bear in mind that the strategy may well change over time.
It is generally agreed that there is no single figure for an optimum board size. However, we believe boards that can accommodate the features above will succeed. We think any number beyond ten directors will be hard to be justified in terms of the effort and cost to sustain them. Beyond that you are dealing with crowd control.
This topic of optimum board size is covered in Module Two of the Diploma in Corporate Governance.
You can also read further on this topic of optimum board size at Investopedia and at Governance Today.