BOARDS
Rightsizing Your Board
What’s the Right Size for a Board?
A good board is a fit-for-purpose board. It has the right mix of skills, background, perspectives and expertise for the present moment in the organisation’s life. But what’s the right size? It’s a common question, and it doesn’t have a simple answer.
Legal Minimum
One end of the spectrum is the legal minimum: a company in Australia must have at least one director; beyond a certain size it must have two.
Incorporated associations (under the West Australian Associations Incorporation Act) don’t have a prescribed minimum board size, but the elected office bearers must be able to properly govern and conduct the business of the association. The guidelines speak sensibly of giving this body “an adequate spread of responsibility, experience and representation.”
So realistically, what’s the smallest right size for a board that actually does a board’s job? In our experience, you’re not going to get a rich enough mix with less than about 5 directors, and they all need to be full-value contributors. Particularly in an NFP, where you often have volunteer, inexperienced directors, I’d provide a place or two for new directors who are still coming up to speed, so that board succession doesn’t remove too much knowledge. And you want to be sure that committee work doesn’t overload anyone.
Advisory Board
On the other hand an advisory board can work well at a smaller size, because it’s typically not dealing with the full complexity of governing and leading. Even there, you’ll want at least three to get real discussion.
Too Large?
At the other end of the spectrum, a board can get unwieldy and bogged down if it is too large. This often results from a well-intentioned attempt to represent the interests of all kinds of stakeholders, and it’s a trap not-for-profits fall into. A board is not a parliament, and directors have a duty to act in good faith in the interests of all members, not any section, party or group. Rather than loading the board up with members, use the constitution, board charter, and a robust AGM to keep a board in touch with all its stakeholders. Or consider another body such as a members’ council to hold the representation and relationship functions.
An Answer
So how many is too many? The answer is not a number. A board is too big when it gets in its own way, when its pro-forma debates and internal workings steal quality time from good decision-making, or when it forms factions. We won’t cop-out completely here. If a company board is bigger than 9, or an NFP board bigger than 11, we’d suggest it needs review. Boards bigger than that can function well, but they take more skill, better chairing and strong self-management.
The documented research on right-sizing your board is inconclusive, and that’s not surprising. Like so many aspects of board effectiveness, this is about human nature and human interaction, not about rules. The rules that work here are rules of thumb, thoughtfully applied. The research tends to converge on around 5-8 for effective company decision making.
And Not-for-Profits?
Intriguingly, the ideal range might be a bit higher for nonprofits. There is a “law of nonprofit complexity” that suggests NFPs are inherently more complex than companies, due to multiple competing constituents, stakeholders, obligations, and revenue sources. Hmm… not totally convinced. A company of any size in today’s business environment is a pretty complex creature. And there are better ways to handle complexity: board committees involving staff and outside experts, for example, or an advisory board to help think the strategy through, or a working party to handle a transient issue like a competitive challenge or a takeover offer. You certainly don’t want board members “just in case”.
Supersizing
Boards sometimes super-size themselves by mistakenly thinking that if they need to draw on specific expertise (fundraising, accounting, legal, digital…), they ought to have that expertise among the directors. Many times, it’s better just to hire those experts as advisors than to put them on the board. Directors need to be good directors, not good lawyers or technologists.
A Method
So here’s our suggestion:
- Be very clear what job the board has to do
- Map out the skills, perspectives and background you really need on the board (not those you may engage from advisors and consultants)
- Think out the minimum board size that will cover these needs, and give you a robust debate
- Favour odd numbers to avoid deadlocks
- Revisit right-sizing the board whenever you discuss board succession and recruitment.
And Finally…
One last thing: be wary of constitutions and shareholder agreements that give anyone a “right” to nominate a director. This tends to promote factionalism and observer status, when you want every one of those directors actively representing all members and covering all the issues.