Board sizes vary widely. A 1999 survey by the National Association of Corporate Directors (NACD) found that slightly less than half of corporate boards had seven to nine members, with the remaining boards scattered evenly on either side of that range.
Is there an optimal board size? One meta-analysis of studies of board size in particular found a statistically significant correlation between increased board size and improved financial performance. Dan R. Dalton, Number of Directors and Financial Performance: A Meta-Analysis, 42 Acad. Mgmt. J. 674, 676 (1999). Given the potential influence of confounding variables, however, it does not seem safe to draw firm conclusions from that survey. Other studies, moreover, are to the contrary. See, e.g., Sanjai Bhagat & Bernard Black, The Uncertain Relationship Between Board Composition and Firm Performance, 54 Bus. Law. 921, 941-42 (1999) (summarizing studies); Theodore Eisenberg et al., Larger Board Size and Decreasing Firm Value in Small Firms, 48 J. Fin. Econ. 35, 36 (1998) (finding a significant negative correlation between board size and firm profitability in small and medium Finnish firms).
Up to a certain point, large boards can have a number of benefits. Larger size may facilitate the board’s resource-gathering function, since a larger number of directors will usually translate into more interlocking relationships with other organizations that may be useful in providing resources such as customers, clients, credit, and supplies. Larger boards with diverse interlocks are also likely to include a greater number of specialists—such as investment bankers or attorneys—who bring special expertise to the table.
On the other hand, a number of considerations suggest that small boards may be preferable. Large boards tend to be contentious and fragmented, which would reduces their ability collectively to monitor and discipline senior management. In such cases, the senior managers can affirmatively take advantage of the board through “coalition building, selective channeling of information, and ‘dividing and conquering.’ ” Jeffrey A. Alexander et al., Leadership Instability in Hospitals: The Influence of Board-CEO Relations and Organizational Growth and Decline, 38 Admin. Sci. Q. 74, 79 (1993).
The social loafing phenomenon also suggests an upper limit on efficient group size. In a famous 1913 study which measured how hard subjects pulled a rope, members of two-person teams pulled to only ninety-three percent of their individual capacity, members of trios pulled to only eighty-five percent, and members of groups of eight pulled to only forty-nine percent. See David A. Kravitz & Barbara Martin, Ringelmann Rediscovered: The Original Article, 50 J. Personality & Soc. Psychol. 936, 938 (1986). This phenomenon is partially attributable to the difficulty of coordinating group effort as size increases. (Too many cooks spoil the soup.) Social loafing is also attributable, however, to the difficulty of motivating members of a group where identification and/or measurement of individual productivity are difficult—i.e., where the group functions as a production team. As group size grows, for example, the number of nonparticipants (loafers) likely increases. In addition, larger boards may inhibit the formation of the sorts of close-knit relationships by which groups constrain agency costs.
A Korn/Ferry survey of corporate directors found: "According to respondents, the optimal board size is two inside directors and eight outside." Sounds about right to me.
