Category: Starting a Business

(Much of this blog post was published in April of 2010. This post is republished now with additional information from guest blogger, Alan Hough, whose valuable comments are added later on below.)

A common question about Boards is “How many members should we have?” Usually that question spawns a range of answers.

For for-profits, some answers might be “The less members you have, the less the Board will be a pain for the CEO” or for publicly listed corporations, “It depends on requirements of Sarbanes Oxley.”

For nonprofits, “Get people with a passion for the mission” or “Get members who’ll raise money.”

These answers miss the point.

The number of members depends on the approach for staffing your Board. Board members should consider the different approaches and decide which one(s) they’ll use.

Functional Approach

In this approach, members are selected for the skills they bring to the Board to address current strategic priorities. For example, if the organization wants to add many products or programs, then get members who understand product development and marketing. So the number of Board members you have depends on the number of strategic priorities.

Diversification Approach

Members are selected to represent different racial, ethnic, gender or other groups. This is a popular approach on nonprofit Boards. The number of Board members depends on the number of diverse groups you want represented.

Representative (Stakeholder) Approach

Members are selected to represent different major stakeholder groups, for example, different groups of customers/clients, collaborators or geographic regions. The number of Board members depends on the number of different stakeholders you want represented.

Hybrid Approach

This approach combines one or more of the other approaches. For example, a Board might have 20-25 members because it uses a representative approach to include members from various stakeholder groups and also members who have strong contacts with investors or funders. However, that same Board might have an Executive Committee that is staffed with a functional approach — with members who bring skills to address current strategic priorities of the organization.

Group Dynamics Approach

Many organizational development consultants consider groups larger than 10-12 members to have another level of complexity not apparent in small groups. For example, the nature and needs of larger groups are often similar to those of entire ongoing organizations. They have their own various subcultures, distinct subsystems (or cliques), diversity of leadership styles and levels of communication. Thus, many people assert that the size of a Board should not be larger than 10-12 people.

“What Others Are Doing” Approach

Governance experts assert that Boards seem to be getting smaller, for example, Ward (2000) asserts that corporate (for-profit) Boards are getting smaller, from 10-12. Thus, Board members might consider this advice when determining the number of members to have on their Boards.

Passion Approach

This is a popular approach for nonprofit Boards — members are selected who have a passion for the mission. Unfortunately, it usually just results in passionate Board meetings.

Regulatory Approach

Some investors or funders might require certain Board members or skill sets on the Board. For example, public for-profit corporations must conform to rules of Sarbanes Oxley (SOX) legislation, especially regarding inclusion of independent Board members. (Some SOX regulations affect nonprofit corporations, too, and SOX is very likely to affect nonprofit corporations even more in the future.) Nonprofit associations might have bylaws governed by the membership, which dictates the number of members to have on the Board.

Additional Comments About Nonprofit Boards

(The following additional comments are added by guest blogger, Alan Hough.)

In relation to board monitoring (or at least the number of reports that a board receives) O’Regan and Oster (2002) found that there was a strong negative relationship between the number of reports received and board size (>30 directors) and also if the CEO nominated directors to the board.

In relation to board influence, when I last looked at this issue (2007) the results are quite mixed. There was a negative relationship between board size and board involvement in strategic decision-making found in one study (Judge and Zeithaml 1992), no significant relationship found in another (Ruigrok, Peck and Keller 2006), and a curvilinear (inverted-U) relationship found in a third study (Golden and Zajac 2001). Board size was a strong predictor of funding levels in U.S. human service nonprofits, although not of funding increases (Provan 1980). Directors of large boards of New York City nonprofits were more likely to give personally to their organisation, even after controlling for organisational size and subsector of operation, but were less likely to attend board meetings (O’Regan and Oster 2002). However, there was no relationship found between board size and director activity in another group of U.S. nonprofit organisations (Miller, Wiess and MacLead 1988). There was a negative relationship between board size and organisational reputation in Canadian nonprofits (Bradshaw, Murray and Wolpin 1992).

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So be careful when asserting that a Board must have a certain number of Board members. It depends.

There is a vast range of free, online resources about Boards in the Free Management Library in the topic
Boards.

What do you think?

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Carter McNamara, MBA, PhD – Authenticity Consulting, LLC – 800-971-2250
Read my weekly blogs: Boards, Consulting and OD, Nonprofits and Strategic Planning.

What makes the field of business ethics so interesting and so challenging is that as a term, and as a concept,“business ethics” means so many different things to so many different constituencies.

However, many of these constituencies often don’t communicate well together. The academic side of business ethics is often not seen as a resource for the practitioners. Within companies, business ethics is more often seen as a branch of compliance and legal than it is a partner of organizational behavior. Everyone wants everyone do “the right thing” yet we are often at a loss to define what exactly that right thing to do is.

Another dimension is that the perception of business ethics in the US is different than the assumptions of ethics in many other countries.

How do we make sense of all of these varied elements?

One place to start is by looking at the definitions of “business ethics.”

Ethics is often defined as “that branch of philosophy dealing with values relating to human conduct, with respect to the rightness and wrongness of certain actions and to the goodness and badness of the motives and ends of such actions.” (dictionary.com)

However, the origin of the word “ethics” comes from the Greek word, “ethos,” which we define as “the fundamental character or spirit of a culture; the underlying sentiment that informs the beliefs, customs, or practices of a group or society; dominant assumptions of a people or period.” (dictionary.com).

In the business context it isn’t always helpful to see “ethics” as synonymous with “morality” or “goodness.” Instead, business ethics is more instructive if we look at it as a means to an ends: “the values relating to human conduct.”

In today’s business world, we are interested in understanding why people do what they do. Why do people do good things and why do seemingly good people do bad things.

From my 15 years of experience in helping companies address ethics issues, I see ethics as a function of behavior. Borrowing from the social psychologists, I see ethical behavior as a function of both the person and their environment.

When we look at the person, we look at how does that individual define what is the “right thing” to do. There is not a universal definition and I am hoping to encourage a dialog as to what in fact is the right thing to do and is it objective or conditional upon the circumstances?

The second determinant of ethical behavior is the environment that influences and shapes our perceptions. We will be actively discussing how the environment shapes behavior.

Our goal is to help practitioners be better equipped to create the kinds of cultures they want and need inside their organizations. Where should an organization be focusing its resources and attention in its attempts to influence employee behavior? On the person by reminding them of their ethical and legal obligations, or on the environment which shapes behavior of “ethical” and “unethical” people alike.

I am encouraging the readers and guest writers in this blog to open the dialog and be active participants in this exciting process.

Many people have the impression that a Board of Directors is a group of very wise people who sit in a very special room and make very complex deliberations and decisions. Actually, most Board members are people just like us who are trying their best to understand what’s going on and what to do about it. However, recent history has shown that some Board members are not doing their fiduciary duties — they’re merely doing whatever the CEO tells them to do. The irony is that the law expects the CEO to work for the Board, not the other way around.

In this blog, we’ll discuss the role of a Board of a for-profit and nonprofit corporation. We’ll discuss Board members’ roles and responsibilities, how members are selected and trained, how they make decisions and how they are supposed to ensure their operations are always high-quality. We’ll discuss how the members and CEO can best work together. We’ll also review how members can accomplish strong governance of each of the most important functions in an organization.

There is an increasing number of laws and regulations about Boards and for a variety of reasons. Recent and very public scandals have resulted in massive layoffs and losses in investments, along with some executives going to prison. Also, there is public outrage at the sizes of CEO compensation. We don’t know all of these laws and regulations, so I’m hoping readers with that knowledge will chip in to enlighten the rest of us.

This list of topics gives more detail about the types of topics we’ll likely cover and their order. However, it’s not uncommon that the topics in a blog tend to follow the wishes of the readers — a blog should be about the readers at least as much as about the blogger’s opinions.

What topics would you like to read? What questions do you have about Boards?

I’m David Gebler and I’m the host of this blog. You can read more about me next to my picture in the sidebar. This blog will be about various aspects of business ethics, will focus especially on practical tips and tools, and will include posts from guest writers. You can learn more about this blog by clicking on the About link just under the header.

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