Meeting with several of my clients in the past few months to discuss corporate governance and strategic planning had got me thinking and exploring better ways of doing the business of what each of them do. Staying on mission and accomplishing that mission is critical for the overall success of the organizations, and I am here to ensure the part of that mission that I’ve been hired to do is completed. Several of the organizations are discussing the addition to their board of directors, and I applaud the way they are approaching it. I do have several clients who seem to have their feet stuck in mud, and that is what I want to discuss here.
In the intricate landscape of corporate governance, the size
of a board of directors plays a pivotal role in shaping the trajectory of an
organization. The composition, structure, and efficiency of a board can
significantly impact an organization's health, strategic direction, and ability
to fulfill its mission. The recent example of the Ford Motor Company, which as
of May 30, 2023, operates with a 13-member board, alongside the National Rifle
Association (NRA) with its expansive 76-member board, illustrates the spectrum
of board sizes in prominent organizations. Moreover, the average Fortune 500
company, with approximately 11 board members, highlights a trend towards
streamlined governance structures. This article explores the correlation
between board size and organizational success, advocating for a sleek and
innovative board as a catalyst for growth and efficiency.
The Impact of Board Size on Decision-Making
A board of directors is the cornerstone of an organization’s
governance, charged with providing strategic oversight, ensuring
accountability, and safeguarding stakeholder interests. The size of the board
is a critical factor that influences its functionality and effectiveness.
Smaller, more agile boards are often better equipped to make swift, decisive
actions, a trait essential in today’s fast-paced business environment.
Conversely, larger boards may struggle with bureaucratic inertia, leading to
slower decision-making processes and potential inefficiencies.
Case Study: Ford Motor Company
Ford Motor Company’s 13-member board exemplifies a balanced
approach to governance. This size allows for diverse expertise and perspectives
while maintaining a structure conducive to efficient decision-making. The board
can draw on the collective wisdom of its members without being bogged down by
excessive deliberation. This balance has enabled Ford to navigate the
complexities of the automotive industry, innovate with electric vehicle
technology, and adapt to shifting market demands with agility. Remember that
Ford is the only automobile manufacturer that did not take the bailout in 2009
that cost the American taxpayers nearly $12 billion.
Contrast: National Rifle Association
In stark contrast, the NRA’s 76-member board presents
challenges inherent to larger governance bodies. The sheer size of the board
can lead to difficulties in achieving consensus, prolonged decision-making
timelines, and potential dilution of individual accountability as we have seen
in recent times. While the NRA’s structure aims to represent a wide array of
interests within its membership, the operational efficiency and strategic
coherence may suffer, impacting the organization’s ability to respond swiftly
to external pressures and internal challenges.
Efficiency and Innovation in Board Structures
An efficient board is not merely a function of size but also
of its ability to foster innovation, adapt to change, and execute strategic
initiatives effectively. Smaller boards, such as those seen in many Fortune 500
companies, are often characterized by:
1. Enhanced Communication and Coordination: With fewer
members, communication channels are streamlined, allowing for more effective
coordination and quicker resolution of issues. This fosters a more cohesive and
unified strategic direction.
2. Focused Expertise: A smaller board can be composed of
individuals with highly specialized skills and knowledge relevant to the
organization’s core objectives. This concentration of expertise facilitates
more informed and effective decision-making.
3. Greater Accountability: With fewer members, it is easier
to track individual contributions and hold directors accountable for their
decisions and actions. This accountability is crucial for maintaining high
standards of governance and ethical behavior.
4. Agility in Response to Change: In a rapidly evolving
business landscape, the ability to pivot and adapt swiftly is paramount.
Smaller boards can respond more quickly to changes in the market, regulatory
environment, or technological advancements, ensuring that the organization
remains competitive and resilient. This agility is critical to the success of
an organization's mission. For example, the United States Marine Corps
emphasizes adaptability and quick response as core components of its
operational success, allowing it to effectively meet and overcome challenges in
dynamic and unpredictable environments.
The Case for Smaller Boards
The trend towards smaller, more agile boards is reflected in
the governance structures of many successful Fortune 500 companies. With an
average board size of around 11 members, these organizations leverage the
benefits of streamlined decision-making and focused expertise. Smaller boards
are better positioned to foster a culture of innovation and agility, critical
components for sustaining long-term growth and success.
Strategic Implications
Organizations should consider the following strategic
implications when evaluating their board structures:
1. Diversity and Inclusion: While smaller boards are more
efficient, it is essential to ensure that they remain diverse and inclusive. A
board that reflects a wide range of perspectives and experiences is better
equipped to address complex challenges and seize opportunities. I am NOT
suggesting a “DEI” style of diversity and inclusion. Diversity is having a
variety of perspectives and inclusion is affording the opportunity to serve
based upon a positive differing perspective.
2. Succession Planning: Effective boards must prioritize
succession planning to maintain continuity and stability. This involves
identifying and nurturing future leaders who can sustain the board’s strategic
vision and governance standards.
3. Continuous Improvement: Board effectiveness should be
regularly evaluated, with a focus on continuous improvement. This includes
assessing the board’s composition, performance, and alignment with the
organization’s evolving needs and objectives.
The size and structure of a board of directors are critical
determinants of an organization’s health and success. Smaller, more innovative
boards offer significant advantages in terms of efficiency, agility, and
strategic execution. By fostering effective communication, leveraging focused
expertise, and ensuring accountability, streamlined boards are better
positioned to navigate the complexities of today’s business environment and
drive sustained growth. As evidenced by the practices of leading companies such
as Ford Motor Company, a sleek and innovative board is not just a governance
preference but a strategic imperative for achieving organizational excellence.
Semper Gumby.
