What is the Best Board Size?
Phil Kenkel
Bill Fitzwater Cooperative Chair
As editor of the Journal of Cooperatives I get to see a lot of good (and some not so good) research. A forthcoming article deals with the optimal size of the board of directors. Research on publicly traded corporations has consistently shown that smaller boards (eight or less) are associated with higher performing firms. While we constantly remind ourselves that cooperatives are a unique business form, we often assume that best management practices for corporations must transfer to cooperatives.
The research study examined financial information and board characteristics from a national sample of agricultural cooperatives, including regional cooperatives. Board size ranged from 5 to 33 with an average of 9.75 members. In addition to the 33 member board, 4 cooperatives had board with 18 or more members. The results indicated that a larger board size had a positive or indeterminate impact on almost every financial ratio. Larger board size had a statistically significant impact on overall efficiency (total asset turnover) and inventory efficiency (inventory turnover). The only exception was liquidity. Cooperatives with larger board had a slightly lower level of liquidity. The statistical model suggested that the optimal board size might be as large as 18 members, a level much higher than common wisdom.
It is always interesting to identify areas where results for cooperatives are different than other firms. The rationale behind the results is obviously open to speculation. Merger activity often increases board size, particularly in the transition period following the merger. Regional cooperatives and cooperatives covering large geographic area would also be expected to have larger boards. The treatment of associate or “junior” board members was also not clear in the study. Antidotal evidence supports the conclusion that an associate member structure ultimately leads to a more qualified and well functioning board.
Most managers and board chairs would conclude that a smaller board is more manageable and cohesive. These results withstanding, I would hesitate to recommend that any cooperative increase their board size if the present structure is effective. If you are considering an associate board member structure, this research seems to support that decision. A cooperative board has many functions. In addition to their role in planning and governance they also serve as a conduit to help assure that the diverse needs of the membership are understood by the management team. The positive impact of board size may simple represent the fact that members are more satisfied if they have personal contact with a board number.
What is the best size for the board of directors? The answer is the size that works for your cooperative. If you are blessed with a board larger than you like, you can take solace in this recent research that suggests that large boards can be effective.
8-13-2009