Four is Not Enough

 Last  week I got a call from a reporter from another part of the country asking for help.  The reporter, whose normal beat is science and medicine, was stuck looking at a 990.  And while she had gotten a lot of good information from the form, she wanted me to look at to see what I thought, see if she was on the right track, etc.  One of the first things that easily caught my attention was the list of board members.  It was easy as there were only four–and two were related (husband and wife, it was easy to discern).  The other two, the reporter informed me, were “disciples” of the husband.

Yesterday, a mystery colleague sent me a link about a study by the National Committee for Responsive Philanthropy that reveals an interesting finding from the Bernie Madoff debacle (Learning from Madoff: Lessons for Foundation Boards, June 2009.

According to this study, 71% of the foundations that invested with Madoff lost 30 to 100 percent of their assets.  As sad as that is, the interesting finding is this:  the median (that means the mid-point, so that half of the entities in the group are below the median, and half are above) size of the board was three, with a range of 0 to 7, and only 15 percent of the 105 foundations had boards of five or more!  So, saying this another way, 85 percent of the foundations that lost 30 to 100 percent of their assets because they chose to invest with Madoff had boards comprised of four—or fewer—individuals.  (According to a 2006 report from the Council on Foundations, the median size of the board of its members was 11.) 

Hmm?  Is there something here:  small boards lead to questionable behavior on the part of boards and organizations?  It certainly seems that way, and why a long-standing, best practice recommendation for board size generally falls in the 12 to 16 range.   But there is more than small board size that ties my two events together:  size and relationships.  While the study report observes that of the 16 foundations with five or more board members there is remarkable “homogeneity” in the board members—which they explain to mean same last names.  Just looking at the first 50 foundations on their list of 105, all but four had at least two board members who shared a common last name.  And often times it was more than two.  Like my reporter’s organization, there are relationships—spouses, siblings, cousins, aunts and uncles—on these boards, relationships that may preclude the ability to really challenge the suggestions and ideas of a fellow board member.  Relationships that may cause best judgment to defer to preservation of good family relations. 

One of the many lessons that nonprofit boards should learn from the Madoff disaster is that board size and composition do matter.  And it is not an either or.  There must be both the right number of people sitting around a board table with the right array of talent, skills, resources, connections, and personality dynamic to protect the best interests of the mission—and family relations and friendships be damned.