Entrepreneurial Boards Report - Size of the Board

The average board represented in the survey hosts six members. This mirrors the NACD’s survey of entrepreneurial boards. The finding suggests that boards of small technology firms are substantially smaller than boards at most public corporations. For example, a 2006 study conducted by Spencer Stuart, a global executive search firm headquartered in Chicago, showed that the average S&P 500 firm has 10.7 members on its board. That same study shows a mere 15% of S&P 500 firms have eight or fewer board members.

To put these statistics into perspective, consider the practices of S&P 500 firms. Spencer Stuart found that 57% of S&P 500 companies pay a board meeting fee and 58% of S&P 500 companies pay a committee meeting fee (both down from 72% and 68%, respectively, in 2001). According to Spencer Stuart, the average meeting attendance fee paid by S&P 500 corporations was US$1,955 in 2005. Although it is possible that the lower prevalence of meeting fees in our sample firms is due to a greater adoption of “good governance guidelines,” we feel that the decreased emphasis on meeting fees likely reflects the fact that many small technology firms are cash constrained and have directors with significant equity stakes.

Drilling down into the survey results for small technology firms participating in our study shows a clear relationship between the size of a company and the size of its board. For example, the median number of directors at the smallest firms within our survey (i.e., firms with less than US$5 million in annual revenue) is five. The median number of directors at the largest firms within our sample (i.e., firms with greater than US$25 million in annual revenue) is seven. The size of boards varies considerably at companies of similar size, especially among firms with less than $25 million in annual revenue. (See Figure 9.)

Figure 9: Board Size by Company Size

Board Size by Company Size

Given that the public companies in our sample are significantly larger than the private companies, the public companies had much larger boards. However, when we compared public and private companies with the same revenue, we found that the median size of boards was virtually identical. Using this sub-sample of revenue-matched firms, we find that the median difference in board size is zero. In other words, holding revenue constant, half of private firms have boards that are at least as large as those of public companies, and half of private firms have boards that are at least as small as those of public companies. However, in cases where public boards are larger than private boards, public boards tend to be much larger than the private boards. And when private boards are larger than public boards, the discrepancy is generally smaller (by approximately one member).

Noteworthy is the significant difference in the number of empty board seats across public and private companies. Roughly 1 in 3 private companies have at least 1 empty board seat. By contrast, only one in six public companies have a vacant board seat. (See Figure 10.) This finding holds for both the revenue-matched and non-matched samples. Differences in company size or factors that are typically associated with size, such as the visibility of the corporation, do not make a significant impact on the number of empty board seats.

Figure 10: Proportion of Boards with Empty Seats

Proportion of Boards with Empty Seats