Smaller boards lead to better communication and stronger decision-making.
With the expanding scope of issues facing boards today, some companies are seating larger boards to cover the need for expertise in a wide variety of fields. But private company boards can often work more effectively with fewer members.
Insightful and supportable research related to the effectiveness of board size has most often been based on data from public companies, which are required to report their performance results.
Much of the available evidence points to the diminishing benefits and even negative performance implications of larger boards. Smaller, more-focused boards are well-suited for private enterprises, and certain attributes make for better private board directors.
The Primary Private Company Agenda
Private company directors spend more time than public company directors on business performance, critical business-building initiatives and risk management. Yet private company boards can’t ignore other key needs of today’s business operating environment, such as corporate social responsibility, ESG and DEI.
While there is no such thing as an “average” private company – with a wide range of business sizes and complexities and a diverse set of ownership structures, from multigenerational families to private equity sponsors – it is safe to say that the vast majority of private enterprises are focused on the issues of “survival to thrival,” profitable growth, financial security, customers and competition, while also striving to be good corporate citizens. These key topics can often consume 100% of the board agenda.
The Compact Private Company Board
I’ve had the opportunity to serve on numerous private boards, some with as few as three directors and others with as many as 11. Thankfully, while all these enterprises performed well and some extraordinarily, the best of these boards – the most nimble, the most impactful and most focused on short- and long-term business performance – have been those with five members or fewer, for the following reasons:
- Fewer board roles made the critical decision of who would be best to serve on the board much clearer. It elevated the process of selection, including more focus on how effective the board’s chemistry would be.
- Larger boards often unnecessarily complicate communication, scheduling and the management of “airtime” in board deliberations, while a small board can be much more focused and move faster. Also, on a smaller board, there is nowhere to “hide.” You can’t come unprepared.
- Directors on a smaller board get to know their colleagues better. This camaraderie improves candor, constructive debate, idea sharing and solution orientation for the good of the whole.
- Board discussions are more on point and less prone to the bookends of the “tyranny of the minority” or the desire for unanimous decisions. The compact board can dedicate more time to bigger issues.
- Compact boards can do deeper dives on the most significant topics and crystallize the issues and necessary decisions that make a group of directors perform well.
How do you select the best directors for smaller boards? With larger boards, you have the chance to bring in a wide range of expertise in many areas. You can strive for perspectives from broader vantage points. This can also be achievable with a compact private company board, but in a different way. The best-suited compact board directors share the following attributes:
- They have proven success in a variety of business settings, having led and managed in different situations – such as transforming companies or managing rapid growth. They have a stronger focus on fiscal return, because they have experience working with limited resources. The net effect is that you have both the breadth and the depth you need concentrated in fewer directors. The compact private board should not be a training ground for new directors with one-dimensional experience.
- They have superb generalist leadership and decision-making skills, often supplemented by special concentrated expertise in a vital area, such as finance, sales, operations or technology. Any additional specialized expertise you require can be hired as needed. Also, the best directors are well-versed in leveraging outside expertise.
- They are curious and willing to do the work. They are also fast learners and strong communicators.
- They have high situational awareness and can distinguish between wasted motion, commotion and no motion. Still, they are “urgently patient.”
- They are team-oriented, leveraging that quality to engage in constructive debate that leads to common commitment and firm, insightful decision-making on board matters.
As you consider your approach to improving your board’s contribution, think about the compact private board and its best attributes, even if your board currently is a large one. Less can be more, and it will make a real difference.
Don Yee has been a CEO or an independent board member of numerous companies, from mid-market to multibillion-dollar businesses. He currently serves as a strategic business advisor and on the boards of Aerometals (where he is chairman), Lundberg Farms and the Fat Group of Companies.