Recipe for Logjam: Start With Too Many Cooks
from
November/December 2002
by Charlie Deitch
Directors pretty much agree that the best governance comes from a leaner, meaner, more focused group whose members are concerned with serving the board, not just serving on it. But some still argue on behalf of those star-studded boards that practically spill out of the room, clogging the arteries of corporate action. Certainly big panels can be effective, and the success of the18-member board at Procter & Gamble and the 14-member board at Coca-Cola are prestigious examples. But for most companies, the case for “Less is more” grows stronger every day.
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Among the advantages of a small board is more director input: On large boards, good directors and good ideas can get lost, shuffled aside by more outgoing members. “Smaller boards are more likely to foster a level of interaction and productivity that might be lost on a larger, more impersonal board,” Nasdaq advises in Going Public, its guide for companies considering public offerings. Lloyd Hill, chairman and CEO of the restaurant chain Applebee’s, agrees. “With a smaller board,” hesays, “you can get your arms around the different personalities and build a team more easily. A small board forces the existing team to work at its greatest potential, because each voice, each experience, is crucial.”
John Gerdelman, president and CEO of Metromedia Fiber Network, says that the small boards he serves on—Sycamore Networks’ (five members), McData’s (eight), and APAC Customer Services’ (six)—are the best. He recently left the 14-member board of Genuity because he found dealing with somany people unwieldy. “On larger boards, you don’t know one another,” he says, “and with that many people, you’re probably not ever going to.” Moreover, adds Gerdelman, time gets wasted in efforts to keep everyone on the same page. Attendance can be a problem with bigger boards, he says, so members spend a lot of time trying to catch up on what they’ve missed: “One of the hardest things to get past is a board member who is out of the loop.”
“The size of your board should depend on the business you’re in,” says Ronald Ramseyer, a director of Blair Corp., which retails fashion, apparel, and home products by direct mail. “Public companies have to bring in varied outside voices and expertise, and that’s going to make your board bigger.”
One danger of a big board, says Howard Picking, a director of AmeriServe Financial, is that a CEO or minority group of directors can more easily manipulate it. Large boards are looser and less apt to pay attention to details, he says, where as “smaller boards allow for better oversight by all members.” John Carver, author of several books on corporate governance, including Corporate Boards That Create Value and Reinventing Your Board , is among the many governance experts who concur. “When you have a large board,” says Carver, “the sheer size makes self-control far more difficult, thereby inviting someone to manipulate it.” But Glenn Tecker, a governance consultant who works mostly for nonprofit associations, believes a CEO can exert more powerover a small board: “There are fewer people to lie to.”
Tecker also favors bigger boards—made up almost exclusively of outsidedirectors—for perspective and depth of expertise. “Larger boards tend to focus on the key, high-level strategy,” he says. “Smaller boards canget bogged down micromanaging and forget the really important issues.”
“Yes, you do need a critical mass of people,” says Thomas Foster, a directoron the seven-member Bay View Capital board in San Mateo, California.“But at some point, people are added just because of who they are. Then it becomes public relations, not public service, and that’s not good corporate governance.”
If the recent scandals have taught corporate America just one thing, it’s that leaders must be scrutinized. The majority of directors interviewed for this article say that 10 carefully chosen people are more likelythan twice as many—some interested in nothing more than the prestige of board service—to keep a close eye on business.
