There are both legal and practical considerations to take into account in determining the optimal size of the board of directors. The legal parameters under the Canada Not-for-profit Corporations Act will be set out first, followed by some practical considerations for choosing the ideal board size within the permitted legal limits.
The legal rules applicable to board size start with the CNCA but must also take into account the corporation's articles.
1. Mandatory Rules under the CNCA
The rules under the CNCA may be summarized as follows:
Minimum Number of Directors: A soliciting corporation (which includes most registered charities incorporated or continued under the CNCA) must have a minimum of three directors, at least two of whom are neither officers nor employees of the corporation. If the board of a soliciting corporation appoints one director to be the chairperson, another to be treasurer, another to be secretary and another to be vice-president, it will need to have a minimum of six directors. Each of the chairperson, treasurer, secretary and vice-president are defined as officers under the CNCA. The board must have at least two directors who do not hold offices within the corporation. These are inflexible rules under the CNCA.
A non-soliciting corporation may have as few as one director (who may also be an officer or employee). A director-less corporation is not permitted.
Maximum Number of Directors: There is no maximum number of directors that a corporation (soliciting or non-soliciting) may have under the CNCA. At some point a board becomes unwieldy, but the CNCA leaves this to the judgment of the members.
2. Rules under the Articles
The articles may set out further parameters relating to board size:
Fixed v. Floating Number of Directors: Subject to the mandatory rules in the CNCA on the minimum board size (described above), the articles of the corporation must first choose whether to have fixed number of directors or a minimum and maximum range (often referred to as a "floating number of directors").
To choose a fixed number, the articles must set out the same number (say, 5) as both the minimum and maximum number of directors.
If the articles set out a minimum of, say, three directors and a maximum of 15, the corporation has a floating board. If the corporation has a floating board, the members may, from time to time, by ordinary resolution (i.e., a resolution passed by 51% of the votes cast by members) fix the number of directors to be elected at an annual meeting within the authorized range or, alternatively, authorize the directors to fix the number within the range.
Authority to Add Directors Between Annual Meetings: To provide the corporation with additional flexibility, the articles may also include a special provision authorizing the board to appoint additional directors between annual meetings of members. For example, the board may come across a donor whose interest warrants an offer of a board seat. Or the corporation may want to expand geographically or absorb another organization (where being able to add some directors without convening a special meeting of members could be handy). However, even if this power is expressly included in the articles, the board cannot use it to appoint more than one-third the number of directors elected at the previous annual meeting of members.
To illustrate the interplay of these rules, suppose that a corporation has a floating board with a maximum of 15 directors, allows its board to add additional directors between annual meetings and elected 13 directors at its last annual meeting. In these circumstances, the board would appear to have the right to appoint up to 4 additional directors. However, this would exceed the maximum number of directors allowed under the articles. Thus, on these facts, the board could only appoint two additional directors without an amendment to the articles to increase the maximum number.
Within the legal parameters described above, a corporation and its members should consider the following general guidelines:
- What kinds of decisions are likely to come to the board? Develop a skills matrix. A skills matrix takes a holistic view of the needs of the board and compares that with the skill-set currently represented on the board. For example, would board decisions benefit from directors who had legal, accounting, finance, human resources, government relations, fund-raising or other expertise? The board as a whole needs to have the combination of skill sets that allow it to optimize its decision making.
- Avoid creating or perpetuating a board that is so large and unwieldy that convening board meetings becomes cumbersome. If the board regularly has trouble making quorum, that is a sign that the board is too large and some of its members are no longer active participants (particularly in light of the option of participating by telephone). An overly large board results in diffusion of responsibility and a less vigorous board.
- If a large board is unavoidable, consider appointing a smaller, more nimble executive committee of the board. Under the CNCA, the board can delegate most of its decision-making authority to an executive committee. Some non-delegable matters include submitting matters to a meeting of members, filling vacancies on the board, approving annual financial statements, amending by-laws and establishing annual membership contributions/dues.
- At the other extreme, avoid creating a board that is so small that directors are over-worked and susceptible to burn out or early resignation, compounding the difficulties for the directors that remain.
- Survey the range of board sizes for organizations comparable to yours by scale of operation and nature of activity. How does the size of your board look in comparison to others?