Board Size: Governance experts see smaller boards as more effective, but who’s listening?
By Eve Tahmincioglu and April Hall

Late last year, General Electric Company’s Chairman and CEO John L. Flannery announced plans to shrink the board to 12 directors from 18 as part of an effort to bolster growth.

It was part of a board restructuring process, he added, to find “the right mix of composition of skills going forward to support the company.”

The move was seen as positive by many governance experts.

Studies on board size and financial performance, says Michael Useem, a management professor and director, Center for Leadership and Change Management at Wharton, point to a sweet spot for the most effective boards. “Boards that are too small — under seven — don’t have enough expertise and diverse strategic thinking, but over 13 they become too unwieldy to be effective,” he explains.

Special Report

Read More

Environmental, Social & Governance: Key transparency and performance issues for 2018.

Director Liability: Boards are on the hot seat over data breaches, illegal sales practices and more.

Shareholder Engagement: BlackRock, CalSTRS, among other investors, upping pressure on boards.

Truth in Financial Reporting: Is Your CEO Lying?

Blockchain: ‘Fraud’ or Fortune?

Gender Diversity: Former DuPont CEO looks to bolster gender diversity in the C-suite and boardroom.

Sexual Harassment: Boards Can’t Be Silent

Despite this, many companies are going in the opposite direction.

According to the 2017 Spencer Stuart U.S. Board Index:

…the number of larger boards appears to be ticking up; 18% have 13 or more members, compared with 16% last year and 14% five years ago. The majority of these larger boards have 13 or 14 members.

Despite the uptick, Useem says GE made a great move by deciding to shrink its board and he expects other companies with large boards to follow their lead this year.

Smaller boards, however, aren’t all positive.

One study found increasing the size of a board benefits women and minority candidates.

“Ad hoc changes in board size appear to provide boards with more flexibility to add women and (to a lesser degree) ethnic or racially diverse candidates to their boards,” according to a IRRC Institute 2017 report Board Refreshment Trends at S&P 1500 Firms. “Notably, such board expansions may allow boards to bring more diverse candidates onto their rosters without the necessity of replacing specific skill sets of sitting directors who will soon exit the boardroom.”

Here’s a list of boards with 13 or more board members from Spencer Stuart.


Issue: 
2018 First Quarter

Other related articles

  • First Principles of Executive Pay: Setting Effective Performance Goals
    Published March 04, 2019
    By John Borneman
    Nearly all companies have the same philosophy for their executive compensation plans. The goal is to create incentives that drive the creation of value for shareholders and then align the pay for the ...
  • Designating Courts for Shareholder Lawsuits is on the Rise
    Published March 04, 2019
    By Doug Raymond
    Exclusive forum provisions, however, are under growing scrutiny.Requirements adopted to force suits against companies be filed only in certain courts, while a growing trend, face legal scrutiny depend ...
  • Survival Guide: How Marcy Syms prepares for board meetings
    Published February 26, 2019
    By Directors and Boards
    Marcy Syms: Director, Rite Aid; Benco Dental; ERA Coalition; NPR Foundation; Women’s Forum of New YorkMarcy Syms goes into board meetings with one thing on her mind — profitability. Not only profi ...
  • 2019 Focus Areas for Boards
    Published February 26, 2019
    By Directors and Boards
    Time for reinvention, especially audit committees.Board agendas should continue to evolve in 2019. The game-changing implications of technology/digital innovation, scrutiny of corporate culture, growi ...