Friday, January 04, 2013

The Optimum Size for Governance

When I was recruited to Durham, North Carolina twenty-three years ago to jumpstart the community’s first official marketing organization, I was impressed that the governing board numbered only seven directors, a best practice at the time.

Until recently, two other economic development-related non-profit organizations in Durham had boards of directors that numbered more than thirty and forty respectively, which was common in the 1960s.

In their book Race for Relevance, Harrison Coerver and Mary Byers peg the optimum number of members now for non-profit boards of directors at five.  A corollary among profit and non-profit organizations has always been, “the larger the board, the poorer the governance.”

Large boards are typically less effective at governing because they are inefficient, divert a lot of organizational resources and don’t optimize the potential of individual directors, in part because the larger the board, the more many members are simply disengaged.

One of many other gems in this 152-page book is that in addition to limiting the size of governing boards to five members, organizations are well-advised to hire a search consultant to identify and qualify potential board members based on competency.

Just a few of the criteria the authors suggest are:

  • Do candidates have basic leadership skills? (not to manage but to lead)
  • Do they have at least a three-to-five-year horizon in their thinking? (strategic and visionary vs. tactical)
  • Do they know what it means to govern? (which is different and much more difficult than managing or executing)
  • Do they grasp the concepts of conflict of interest and resisting special interests?

In other words, a good board of directors is comprised of members with specific board-level competencies.

The larger the board, the more likely members will show up late or leave early, get up to take calls, spend time texting or emailing and fail to read preparation materials or hold information and context approved in policies and plans.

In my experience and as noted in the book, there are several reasons beyond inertia or out-dated thinking that many organizations still retain huge boards of directors:

  • Large boards are often used to create an audience for management to pontificate or as a means to preach to potential converts.
  • Some organizations are adverse to debate or candor or conflict resolution.  The larger the board, the more issues go unquestioned.
  • Some organizations eschew data-based decision-making and attempt instead to insinuate credibility or support for actions by parlaying the reputations of those on the board.
  • Large boards are often used to mask a superiority complex on the part of some individuals or even organization-wide which is manifest in a type of attention-deficit or mission-creep.

Al Parrish, a friend and retired hospitality and healthcare executive in Anchorage, Alaska smilingly advised me once after an individual had carbon copied forty people on a memo meant to corner me, that “the merit of an idea is always inversely related to the number of people one feels compelled to carbon copy.”

His advice became even more cogent when business communication moved to external email in the early 1990s, shortly after I arrived in Durham.  People who “cc” scores of people are often adept at lobbying, and they utilize their large boards and public officials as a form of coercion.

In a somewhat related topic, the book The (Honest) Truth About Dishonesty uses humor and plain language to overview a number of experiments and studies that reveal why and how people rationalize crossing the line when it comes to ethics.  Written by Dr. Dan Ariely, a behavioral economics researcher at Duke University and a Durham resident, the book was released in mid-2012.

In this book, Airely discusses how people use the human propensity for reciprocity “trying to engender a feeling of obligation in others.”  An executive from another organization with whom I worked during my career was a master at this both with his board and with elected officials.

He often chided me when frequently reminded that use of funds in my organization was restricted both by state legislation and governance policy, noting once that “no one will check.”  He viewed himself as very honorable but I guess to him violations of code were based only whether or not you were caught.

Large boards make malpractice such as this much easier.  They are also susceptible to the pressure of reciprocity.

Both of these books are well worth a read for anyone who is an executive or serving on a board of directors.

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