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Board size matters

Nov 24, 2019

How big should your board be? Is there an optimum size needed for a board to be effective? David W. Duffy shares three key points that will ensure board structure success.

One of the most frequently asked questions by our clients is how large a board of directors should be. We can unequivocally say that there is no universal agreement on the optimum size as every board is unique.

What’s important is getting the balance of the board right. Large numbers of board members makes it challenging to have meaningful individual participation. On the other hand, a small board may have few too few members to carry out all the work that is required of it.

We’ve put together three key important points to help you decide on the size of your board.

  1. Stage of development of the company

    Small companies do not need large boards, but having a board meeting is best practice, even if all members are executive directors and shareholders.

    As the company 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 will build trust and confidence in the company with its bankers, shareholders, staff and donors (if it is a charity). It is essential to put careful thought into this, particularly where it concerns family-owned businesses and succession planning.

  2. 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; and
    • risk.

    All board committees should be chaired by non-executive directors (NEDs) where possible. The more committees a company has, the more board members and NEDs are required. Sitting on more than one committee is acceptable provided it does not lead to a conflict of interest or too much of a workload for a director.

    However, it is important to ensure that the audit and compensation committees are made up of independent members. 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.

  3. Balance

    Ideal boards are where NEDs are in the majority, the Chair is not the CEO and terms do not exceed a nine-year maximum. Ultimately, the board should consist of the right combination of skills and experience required to support the achievement of the strategy.

I believe boards that can accommodate the points above will succeed. For most companies, boards with more than 10 members will be hard to justify in terms of effort and cost to sustain them.

David W. Duffy is the Founder of The Governance Company.