Recent research reveals that companies with fewer board members outperform larger boards, largely because fewer directors facilitates deeper debates, more nimble decision-making, and greater accountability. For example, there are only eight members of Apple’s board, and Apple is doing great. Recent research reveals that among companies with a market capitalization of at least $10 billion, smaller boards produced substantially higher shareholder returns between 2011 and 2014. Nine person boards performed much better for example than 14 to 15 member boards. As a result of recent research, many companies are reducing their number of board members. Another benefit of fewer board members is that CEOs are more often reprimanded or dismissed if needed. Dr. David Yermack, a finance professor at New York University’s business school, reports that smaller boards are generally more decisive, more cohesive and hands-on, and have more informal meetings and fewer committees. Netflix is an example firm with a small board, only seven members, who debate extensively before approving important management moves. Netflix is doing great. In contrast, Eli Lilly & Co. has 14 board members who find it “too big to encourage the kinds of discussions you want, because drilling down on different issues simply takes too long; members feel constrained asking a second or third question.” Bank of America has 15 directors. In summary, companies should seek to reduce their board of directors to fewer than ten persons, whenever possible – and strategy students should examine this issue in their assigned case companies.

Source: Based on Joann Lublin, “Are Smaller Boards Better for Investors?” Wall Street Journal, August 27, 2014.