BOARD SIZE: Governance experts see smaller boards as more effective, but who's listening?

Author:Tahmincioglu, Eve
Position:ON THE TABLE FOR 2018

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 Useern, 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 stra tegic thinking, but over 13 they become too unwieldy to be effective," he explains.

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, Useern 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.

American Airlines Group 13 American International Group 13 Amgen 13 Arconic 13 AT&T 13 The Bank of New York Mellon Corporation 13 Becton, Dickison and Company 13 The Boeing Company 13 Carmax 13 Caterpillar 13 CBS Corporation 13 Charter Communications 13 Corning 13 CSX Corporation 13 The Dow Chemical Company 13 The Home Depot 13 Ecolab 13 Envision Healthcare...

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