Board diversity and board size

Some new recommendations from the Cranfield experts in this area include the idea that companies should increase the size of their boards to at least 11 and appoint women to those seats.

No-one seems to have noticed the effect of the gradual reduction in recent years of the average size of corporate boards. Grant Thornton's 2013 corporate governance report states that:

"The composition of the average FTSE 350 board remains largely static, comprising one chairman,

three executive directors and 5.6 non-executive directors."

In 2011 they noted: 

"The average FTSE 350 board now has 5.3 NEDs, excluding chairmen, and three executive directors. This continues the trend of an increasing non-executive presence around the boardroom table: as recently as 2006, the FTSE 350 had more executives (4.6) than non-executives (4.4)."

The accepted wisdom is that a higher proportion of NEDs improves boards (research evidence on this remains far from conclusive). The reduction of the number of executive directors has led to the establishment of executive boards.

Tesco, for example, has a Board with 2 executives, the CEO and the CFO, and 10 NEDs including the chair. The Executive Committee includes the CEO and CFO with a further 14 executive directors and the company secretary.

Tesco's 2013 report has a diagram and an explanation of the role of the board and its committees which to me clearly emphasises that the CEO is the link between the board and the executive committee.

Two points arise:

1. Doesn't this structure look a bit like a two-tier board? At the time of the Cadbury Code, critics saw the establishment of the audit committee as a drastic backdoor move, undermining the concept of the unitary board and making UK plc boards look suspiciously like the continental European two-tier model. I have never understood why this should be seen as a Bad Thing.

2. Isn't the CEO in this structure ceded considerably more power if he is the main link between the NEDs and the execs? It's not clear from the Tesco report if they ever all get together but surely NEDs need to have some interaction with the full range of executives to learn about what goes on in the organisation?

The driving force behind the establishment of the UK corporate governance architecture was the apparent need to curb executive power. Could this have gone too far?

If the Cranfield recommendation is that boards should increase to 11 members specifically by appointing women from the executive ranks in their companies, that might make sense. But increasing board size with more NEDs seems much less practical to me.