Board terms end, directors resign or move out of state, and sometimes they retire, move on to other things or simply pass away. Many circumstances can cause vacant board seats, and business must go on for the board members who are left. While too many vacant board seats are unsettling for those who remain, it might be a good time to re-evaluate the needs of the organization. Why not take advantage of the opportunity to recruit new board members with the needed skillsets to achieve the board’s goals?
Dealing with one or more board director vacancies is also a prime time to evaluate the number of board directors that the organization needs. Having too many board directors may create situations where too many opinions cause elongated board discussions unnecessarily. Having too few board directors may not meet the standards for a quorum.
Dealing with Low Numbers of Board Directors
At a minimum, boards need at least three directors. It’s possible for two people to make joint decisions, but boards need the third person to break any tie votes.
Another important issue to consider is what the bylaws say about board vacancies. Typically, whichever membership appointed or elected the officer takes the responsibility for filling the vacancy. Under the bylaws, the responsibility may fall to an executive committee, another committee or the entire board. The board must give proper notice to the directors when arranging to elect or appoint new directors.
Boards for Entrepreneurs and Start-ups
New corporations may find it difficult to attract founding board members. Board candidates may not feel invested until the corporation gets on its feet or worry that there isn’t enough work to do to make serving on the board worth their time.
It’s not uncommon for new corporations to set up an advisory board in place of a board of directors. A corporation may choose to invite various community professionals to guide and advise them in their areas of specialty. The only real difference is that advisory board members don’t have any formal roles or liabilities. Once an advisory board has been formed, it may continue to serve after a board of director election takes place.
Conducting Board Business with Vacant Director Seats
There’s no need to lock the boardroom doors when the board directorship numbers are low. Business continues, albeit a bit out of the ordinary. Unless the bylaws dictate otherwise, the board may continue with a board of three.
Depending on how much business the board needs to conduct, boards may pare down the board meeting schedule to quarterly meetings to focus on board recruiting.
Some organizations may allow the spouse of a board director to serve on the board, either temporarily or permanently, when board seats are vacant. It’s not the ideal situation, but it often works nicely in a pinch for non-profit organizations.
If the retirement of a board member leaves an even number of seats, voting may be tied. In this case, as long as the bylaws permit, the board may take back the issue for discussion, clarify it and vote again.
When board seats are vacant, it’s a fitting time to assess the number of board directors to see whether more directors are needed. Rather than recruiting a new board member, it may be more appropriate to propose an amendment to the bylaws changing the range to a smaller number of required directors. The board may also considerate it appropriate to change other board director requirements to open up a broader range of board director candidates.
What Size Is Right for a Board of Directors?
According to BoardSource, a consulting firm for non-profit organizations, the average non-profit board has 16 directors, which is down slightly from previous years. BoardSource suggests that non-profit boards identify their core workers and appoint them as board directors. Everyone else can serve as advisors.
According to Standard & Poor’s, the average number of board directors for publicly traded corporations is about 11.
Enlisting Guidance from Outside Experts on a Temporary Basis
Low numbers on the board will likely mean that the board lacks the expertise that it needs to make some decisions. These circumstances call for seeking outside help from professionals in the industry to fill the gaps. The best-case scenario is that professionals who serve as paid consultants may become viable candidates for board recruits. Establishing relationships with experts may also lead to a new relationship for them as a donor or an investor.
As board director numbers dwindle, boards may also want to re-evaluate their committee work and reduce the number of their committees. Boards may also be able to enlist the help of volunteers, especially in the non-profit realm.
Stepping Up Recruitment Efforts
Effective nominating committees typically build a cadre of potential board candidates, so that they have a ready list in the event of a board vacancy. In the absence of a list of potential candidates, boards have multiple sources for seeking board candidates. Headhunters are sometimes good sources for board candidates when the budget allows for them. Existing board members or affiliates may offer recommendations. Social media sites like LinkedIn may also offer up some qualified candidates.
If board candidates are not forthcoming, board directors may need to take an objective look at the reason board candidates are lacking. Word may have gotten around causing people to wonder if existing board members have a tendency to dominate discussions or are intimidating.
A Final Note About Managing with a Skeleton Board
Most any board can run on a skeleton crew when it really needs to, although it’s better to fill an adequate number of seats as soon as practicable to keep board business running without too many hiccups. The quality of the remaining board members matters more than the quantity of members.
All boards, including non-profit boards, are facing increasing expectations from new laws and regulatory rules. Boards of all types and sizes would do well to be aware that the public, the press and politicians may also have their eyes on the inner workings of their boards.
Today’s financial industry is extremely complex and quickly evolving. Bare-bones boards can get by for short periods, as necessary. However, sitting board directors remain liable in times of trouble regardless of the challenges in filling board vacancies. The litigiousness within the securities industry should be a viable concern for boards that not only lack numbers, but the appropriate level of expertise that they need to function at a high level. In today’s world, there’s too much at stake to gloss over board responsibility.