Pursuant to the National Housing Federation’s (NHF) Code of Governance 2020, the board should have between five and 12 members, including any co-optees and executive members. I have recently been asked for my view on optimal board size and this seems a good opportunity, given the number of recent examples of ineffective board leadership putting even greater responsibility on boards, to consider whether this range remains fit for purpose.
Yet, asking “What’s the ideal size for a board of directors?” is a deceptively simple question without a straight-forward answer. As with many governance issues, nuance is required. There is no one size-fits-all – hence the NHF choosing to provide a range. Added to which, one can’t consider board size without taking a more in-depth look at board composition. The two issues go hand in hand.
Board is a place for debate
The Financial Reporting Council’s 2024 guidance to the UK Corporate Governance Code (UKCGC) tells us (at paragraph 16) that the boardroom “is a place for robust debate where challenge, support, diversity of thought and teamwork are essential features.” It goes on to say, “diversity of skills, background and personal strengths is an important driver of a board’s effectiveness, creating different perspectives among directors, and mitigating any risk of ‘group think’.”
This is important as, although the UKCGC only applies directly to premium listed companies on the London Stock Exchange, it provides the gold standard of governance in the UK.
For a board to achieve that diversity of thought and experience, more than a minimum number of directors will be required. There will need to be sufficient directors such that debate can take place with different viewpoints being held and shared.
Board size should reflect sector or organisational needs
On top of this practical element will be considerations around the size and complexity of the organisation. In the setting of a housing association, the board might have taken the decision to appoint tenants on to the board. The external viewpoint and monitoring function that independent NEDs can bring to oversight of operation of a business will be valuable. What about financial requirements and expertise? In some instances, workers from the business have been invited onto the board.
In an NHS Trust with so many competing priorities and so many different stakeholders to satisfy, the sheer scale of operations necessitates a robust governance structure. Independent Non-Executive Directors (NEDs) can provide invaluable oversight, ensuring that the Trust remains accountable and transparent in its dealings. Their external perspective can help balance the interests of various stakeholders, including patients, staff, and the wider community. Additionally, their expertise in financial management and strategic planning can support the Trust in navigating complex regulatory environments and achieving long-term sustainability.
Or in a small privately owned business, the size may be a limiting factor in terms of resources and expertise available internally. Here, the inclusion of independent NEDs can be particularly beneficial, offering critical insights and guidance that might not be present within the existing team. Their role can help the business to adopt best practices in governance, enhance credibility with external stakeholders, and provide a check on the owner’s decisions, ensuring that the business remains on a stable and growth-oriented path.
All of this means that a board could rapidly get to between 5 and 7 people, including executive directors. Yet, on the other hand, it is as important that the board can function and make decisions. After all, that is its main purpose: to make strategic decisions.
Anyone who has tried to reach a decision by consensus in a large group – I suspect all of us! – will understand how difficult that can be. Where the issues under consideration are fundamental to the organisation’s success and direction, a very large board can find making such decisions extremely unwieldy, even paralysing. It’s therefore important that the board doesn’t get too big. On a very large board there is the risk that members ‘hide’ and stop contributing and/or the board will be hamstrung by its size.
Too big, too small, or just right?
Although there is no one-size-fits-all there are a couple of things that it is important to consider when a board is reviewing its composition and the link to effectiveness.
- What skills and experience does the board think it needs? (This may relate to the complexity of the organisation’s operation.)
- Do different stakeholder groups need to be represented?
- Is the board actively looking for diversity of background, skill and cognitive diversity to avoid group think and avoid blind spots?
- Are there clear skills gaps that could appropriately be filled by appointment of another board member (as opposed to, for example, getting professional advice)?
- Is the board able to make decisions in good time and that it is confident can be supported?
- What about diversity? Questions around representation of gender, race, disability and age have been challenging boards in the sector, adding another layer of complexity to getting the most appropriate mix.
So, where does that leave us in answering the initial question – how large or small should a board be?
Some numbers
In essence, a board is a type of high-performing team. As this 2021 blog by Witold Studzinski suggests, lots of commentators have identified five people as an optimal number for a team. An odd number, so that decisions can be made on a vote (if necessary); large enough that people can be absent (if required) and the meeting likely still to be quorate and/or able to make a decision; small enough that there is nowhere to hide.
The overall size of the optimal board has received considerable academic attention. In 1993, Michael Jensen suggested the number to be around eight – beyond that, it is difficult for a board to operate, allowing the executive to take more control. A 2009 post by Professor Bainbridge of UCLA specifically on boards agreed with research indicating the optimal number of board members is around ten (broken down to eight NEDs and two executives). Research reported in 2014 by The Wall Street Journal found an average board of around eleven, with smaller boards seemingly outperforming larger ones. A recent (2021) UK paper considering the impact on gender on boards reviewed the FTSE100 for twelve years and found an average board size of eleven.
This suggests that the NHF’s boundaries are appropriate. Smaller boards may report increased cohesion, more effective decision making, and accountability (no-one can hide). Larger boards may report a collectively greater skillset, an ability to staff its committees more easily and therefore make decisions that have received more comprehensive review.
Succession planning
Overlaid on the numbers must be plans for board renewal and succession planning.
The NHF Code which again is a useful source for how to deal with sucession, makes a further recommendation for the maximum tenure for a board member. This is, normally, up to six consecutive years (typically two terms of office), although where a member has served six years, and the board agrees that it is in the organisation’s best interests, tenure may be extended up to a maximum of nine years.
This six-year rule (nine at a push) is designed to encourage rotation of board members, bringing in fresh perspectives and approaches. However, it inevitably means that board members with important and useful skills to the organisation – and by definition considerable experience – will leave. So making sure that there is space for and process by which new members join the board in advance of those leaving i.e. there is some element of overlap, will also be important.
A proposal of six to ten members…
With my experience across the private, public and voluntary sector, I suggest that the optimal size is probably six to 10 members, closely aligned to the NHF’s range of five to 12 members, which remains appropriate.
Some of our organisations will require a greater breadth of skill, diversity and stakeholder representation (pushing above ten members) and others where the board can be smaller because the operations are less complex and so there isn’t the same need for spread of skills required.
But, as a rule of thumb, six to ten will keep you honest without unduly delaying decisions – and that is really where you want to be.
