Quality Thesis

Let’s talk about the board of directors. That mystical assembly of wise minds, supposed to steer the corporate ship through calm waters and turbulent storms alike. If you analyse a potential investment, you’ve probably asked yourself: How many board members is too many? Too few? And who should I even invite to the table? Well, you’re not alone. This question has haunted CEOs, founders, and investors for decades. So let’s dig into what the research says about optimal board size and composition, with a sprinkle of practical wisdom and just a dash of humor (because governance shouldn’t feel like punishment).

Size Matters. But Balance Matters More.

Let’s start with board size. It’s tempting to think, “More brains, better decisions!” But there’s a catch. Just like too many cooks spoil the broth, too many directors spoil the meeting.The evidence:According to a widely cited study by Yermack (1996), there’s a negative relationship between board size and firm performance. Larger boards often suffer from coordination problems, diluted responsibility, and sluggish decision-making. The sweet spot, he suggests, is around seven to nine members. That’s enough to provide a diversity of perspectives without turning every board meeting into a logistical nightmare.

Another study by Eisenberg, Sundgren, and Wells (1998), looking at smaller firms, found similar results: smaller boards correlate with better firm performance. In short: less is more—unless you’re hosting a dinner party, in which case more is more (and you’ll need extra wine).

The Goldilocks Principle of Board SizeHere’s a good rule of thumb:Fewer than 5 members? Risk of groupthink and overconcentration of power. More than 10 members? Get ready for calendar chaos and people silently checking emails during meetings.Around 7–9 members? Just right. Enough diversity, but still nimble.

The Importance of Board Composition

Board composition is just as important as size. And no, you shouldn’t just fill your board with college friends and golfing buddies (tempting as that might be). Here’s what research suggests you should be aiming for

Independence Is Key: Having independent directors—i.e., folks without ties to management—keeps things objective. Fama and Jensen (1983) argue that the board’s main function is to monitor management. And let’s be honest: that’s hard to do when half the board owes the CEO a favor.Empirical research backs this up. For example, Bhagat and Black (2002) found that firms with more independent boards tend to have stronger governance mechanisms. Independence helps to keep checks and balances in place, especially when strategic decisions are on the table.

Industry Expertise Helps (But Isn’t Everything) You want people who understand the business. A software firm with no tech-savvy board members? That’s like a band with no drummer—doomed to fall out of rhythm.But don’t overdo it. A board full of industry veterans might fall prey to groupthink. It helps to have a couple of “outsiders” who can ask dumb questions (which often turn out to be brilliant ones).

Diversity Is Not a Checkbox. It’s a Strategy.And we don’t just mean gender or ethnicity—although that’s part of it. Diversity of experience, age, culture, and thinking styles leads to better decision-making. According to a McKinsey report (2020), companies in the top quartile for gender and ethnic diversity were more likely to outperform on profitability. Plus, boards that reflect their customers and employees build credibility. It’s not just nice—it’s smart.

Special Roles to Consider

Certain board roles can add major value:

Audit Committee: A must-have in public companies, but useful elsewhere too. This is where financial scrutiny lives.

Compensation Committee: Helps prevent those “Why-is-our-CEO-making-more-than-God?” situations.

Nomination & Governance Committee: Keeps the board fresh and functioning. Having independent chairs for these committees strengthens oversight and signals seriousness to investors.

Founder? CEO? Stay or Step Back? If you’re the founder or CEO, you’ll probably want a seat at the table. Fair enough. But resist the urge to stack the board with loyalists. Smart founders know that healthy disagreement is not sabotage—it’s strategy. Besides, investors usually insist on board independence as the company matures. If you’re planning to raise capital, now’s the time to make peace with accountability.

Final Thoughts

Designing the right board is like composing a symphony: you want harmony, variety, and just enough tension to keep things interesting. There’s no one-size-fits-all answer, but if you follow the research, stay strategic, and avoid the urge to bloat the board, you’re off to a strong start. And remember: if your board meetings start feeling like episodes of Survivor, it’s time to revisit both size and composition.