Five Directors Is Enough For A Private Company Board

The packet was still in shrink wrap in front of three directors when the meeting opened. One of them worked a thumb under the plastic while the chief executive was already on his second slide.

I am Rosser Newton, and across more than 35 years in energy banking, private equity, and company leadership I have sat at board tables of nearly every size. That morning the table held nine seats. Two of them did the work, a third asked one good question near the end, and the remaining six were present in the way furniture is present.

Nobody in that room was lazy. Every one of them had run something. The table was simply built in a way that let most of them do nothing, and a table built that way will get exactly that result from good people, month after month, for years.

How Many Directors A Private Company Board Needs

My answer for a private company is five. Five is enough to carry the committee work, enough to survive a resignation without a scramble, and small enough that every person seated expects to be heard from before the meeting ends.

Public company practice pulls the other way, toward nine and eleven and thirteen, for reasons that are real in that world and mostly absent in this one. A public board answers to proxy advisers, exchange listing standards, and independence ratios it has to publish. A private company has none of that and has a small number of decisions in a year that genuinely require a vote.

The general responsibilities are not in dispute and are written down in plenty of places, including the plain definition of a board of directors. What almost nobody writes down is how many people it takes to discharge them at a company with $40 million of revenue, one bank, and two operating yards.

My own working composition at five is an owner or founder, a chair who has run a company one size larger, someone who can read a credit agreement without help, an operator with real field experience, and one seat that reflects whoever put outside capital in. That is a complete board. Adding a sixth and a seventh usually adds relationships rather than decisions.

What A Wide Table Does To Accountability

Accountability thins as a table widens. On a board of nine, a director who has not read the package can sit quietly for two hours and leave without anyone noticing, because there were always going to be enough voices to fill the time.

On a board of five that same silence is conspicuous by the twenty minute mark. The room runs out of other people to hear from. The mechanism ends there, and it is structural rather than a matter of character.

A small board leaves no seat for a passenger.

The effect shows up in the paper before it shows up in the conversation. I have written before about how a board package should be built backward from the decisions a board actually makes, and a wide table quietly pushes the other direction, since a document written for nine readers of nine different backgrounds turns into a presentation that explains rather than a working paper that asks.

Meeting time is the other casualty. Give nine directors a fair share of a three hour meeting and each one has twenty minutes, which is enough to make a comment and not enough to work a problem. Five people in the same three hours can actually take one hard question apart and put it back together.

Committee structure is the usual argument for adding seats, and in a private company it is weaker than it sounds. The audit work is real and continuous. The compensation work is mostly two serious conversations a year. Five directors can staff both without anyone sitting on a committee of one, provided the chair is willing to do committee work himself instead of recruiting a body to do it.

Quorum arithmetic is the small practical argument nobody raises until it bites. A board of five with three present can act, and a board of nine that has drifted to seven attending directors and two chronic absentees has a governance problem it has stopped naming out loud. A seat that is empty in practice is worse than a seat that was never created, because the empty one still shows up in the minutes.

What A Five Seat Board Costs An Owner

Concentration is the price, and it is a real one. One wrong director in five does far more damage than one wrong director in nine, and there is no crowd to absorb him or to outvote him on the day it matters. The selection work therefore has to be better than most owners are used to doing, which is part of why organizations such as the association that runs director education exist at all.

A small board is also easier for a determined owner to manage. Three votes decide everything, and an owner who is comfortable with two of the other four has quietly arranged a board that agrees with him. Nothing about the number five prevents that. It only makes the arrangement easier to see from outside, which is not the same as fixing it.

Here is where my own rule breaks. A board of five with a weak chair is worse than a board of nine with a strong one, because the small board depends entirely on somebody insisting that the uncomfortable item stay on the agenda. I have sat on the tight board that went quiet for the wrong reason, and quiet on a small board is much harder to notice from the inside than the shrink wrap I opened this piece with.

I have also argued for keeping a board small when my actual motive was avoidance. Twice I did not want the harder conversation with a founder about who else belonged in the room, and a principle about size made a convenient place to stand. Both companies were fine. The judgment was still bad, and I only saw it later, reading my own notes from those years.

The argument for a wider table wins honestly more often than my rule admits. A company operating across three basins with genuine safety exposure, a lender who wants an independent audit chair, and a family shareholder group that needs representation can need more hands than five. In that situation the right move is to add the seat and say plainly which of those three problems it answers.

Owners sometimes ask whether adding directors makes a board more independent. It does not by itself, and a summary of what boards are generally responsible for makes the point without meaning to, since every duty on the list belongs to the board as a body rather than to any headcount. Independence comes from who the people are and what they are willing to say in a room where the founder is sitting.

The number itself matters less than what an owner does with the seats he has. Five is where I start. Every seat past it should have to earn its place by naming the specific decision it improves, and an owner who cannot name that decision is adding a relationship to his cap table and calling it governance.

I sign my recommendations Rosser Newton, and I have never recommended a seat without being able to name the decision it was meant to improve. That is a low standard. It is also one that a surprising number of boards I have seen would fail on at least two chairs.

An empty chair costs a company nothing. A filled one that nobody can account for costs it a vote.