Optimal Board Size and University Governance

Abstract

We argue that there is an optimal size for University boards of trustees. This is due to the confluence of two opposing factors. First, university boards face decreasing marginal benefits to expanding their size. Second, because of the classic “free-rider problem”, they also have increasing marginal costs. These two traits together imply that there is an optimal number of trustees in a University’s board. We look at a large sample of US universities from 2014-2022 to examine this hypothesis and find a well-defined optimal size for University boards: universities with between 50 and 60 board members (and only one or two internal or “non-independent” members) exhibit the healthiest financial performance.