Thursday, June 25, 2009

SIZE COUNTS

Stephanie Strom, the New York Times' philanthropy reporter today quoted a study by the National Commission for Responsive Philanthropy the sum of which is that among a majority of foundations caught in the Madoff debacle those with smaller boards were more likely to lose money. Or put another way more of us are smarter than just a few of us.

In fact I read a study (which naturally I can't find right now) that concludes decisions made by a group may be more on target than decisions made by just one or a few people. (If you know the study I'm thinking of please let me know).

Board size and diversity matter for more than just making or losing money. The real challenge of governance is to strike a balance between the benefits conferred by a diverse board versus the risk of a board so large effective governance is impossible. Many charities develop big boards out of hope over caution - that the larger the board the more potential givers there are. This is almost never true in my experience. The results are first the gifts don't materialize and second a small executive committee winds up running the organization making for a two class board roster of greater and lesser beings. When that happens the diversity evaporates and the risk of dumbing down decision making is just as great as with the small board.

I haven't yet seen the NCRP study Strom quotes but I am more than familiar with a few of the foundations included in the study. The real problem is less size than cronyism. Small charity boards of every sort are more often stocked with intellectually arthritic founders, friends of the founders and family members or others who tend not to sass the alpha personality. In my view a board of five to seven people - provided they are truly independent - can govern effectively.

Size counts. But a willingness to break wind at the picnic counts for more.

2 comments:

mbancel said...

The study you are referring to, Hank, is "The Wisdom of Crowds: Why the Many Are Smarter Than the Few and How Collective Wisdom Shapes Business, Economies, Societies and Nations," a 2004 book by James Surowiecki.

Interesting to note that Madoff has been put away for 150 years at the age of 72, without a single letter submitted on his behalf to mitigate the severity of the sentence, according to Judge Chin according to the NY Times—not even from his sons, not even from his wife. Even convicted murderers get such letters. Could it be that the public shame connected with defrauding so many charities helped push Madoff into total friendlessness? —Marilyn Bancel

The Oram Group, Inc. (c) 2008 said...

With time off for good behavior the man is out in just 127 years!