Why board composition matters for good governance and lasting value

What ensures a well-functioning board?

The board of directors sits at the centre of a company’s governance, accountability and long-term strategy. It ensures the strategic guidance of the company and the effective monitoring of management (Adams, Hermalin and Weisbach, 2010[1]). The board owes a duty of care to the company and its shareholders. This requires board members to act with due diligence, make informed decisions, properly oversee management and exercise independent judgment. They also must act in the best interest of the company, avoid conflicts of interest, and refrain from misusing corporate assets or confidential information (OECD, 2023[2]).

Relevant knowledge, competences and expertise of board members are all prerequisites (OECD, 2023[2]). The structure of the board – including the governance model, size of the board, the number of committees, the share of independent board members and whether the roles of CEO and chair are combined – also influence the board’s functioning (Guo and Masulis, 2015[3]). Board composition – director attributes related to demographic characteristics, gender, functional diversity, interlocks and owner representation – helps ensure that the board has the necessary experience, skills and expertise to deliver on its mandate. Therefore, the board’s structure, the professional skills and integrity of its members, and its composition are key drivers that enable a well-functioning board. The G20/OECD Principles of Corporate Governance recommend that disclosure should include information about the composition of the board and its members, and that boards should regularly carry out evaluations to assess whether they possess the right mix of background and competences (OECD, 2023[2]).

Key roles of the board of directors are enhanced and strengthened by a well-functioning board:

• Decision making: The board supports better judgement on complex issues such as risk management, capital allocation and the resilience of the corporation.

• Accountability and governance: The board oversees management, sets company strategy and protects its long-term interests.

• Oversight: The board, with the support of audit, risk and remuneration committees, strengthens oversight of financial reporting, internal controls and risk-taking.

• Protection of minority shareholders: The board safeguards the interests of minority shareholders as well as creditors, employees and other stakeholders when making business decisions in the interest of the company’s long-term success and performance, and in the interest of its shareholders.

This policy brief examines how policy frameworks are implemented in practice, drawing on firm-level data from listed companies. It uses insights from the OECD Corporate Governance Factbook (2025[4]) (“Factbook”) on policy frameworks on board structure and composition, and a small sample of director-company level information for a group of selected countries. While the Factbook contains information on how countries implement the G20/OECD Principles of Corporate Governance (“the Principles”), it does not incorporate data on how listed companies implement the corporate governance framework in practice. This brief, based on an illustrative sample, identifies areas where more granular information on corporate board structure and composition practices could provide greater insight into how policy measures are implemented, particularly in jurisdictions that rely on soft law recommendations or more flexible regulatory frameworks. The sample includes data at the director level for 8 399 companies listed at the end of 2025 in Australia, Brazil, France, Germany and India. Jurisdictions were selected to ensure a balanced mix of market development levels and regions.

Understanding board structure choices in corporate governance frameworks

National governance frameworks across the globe contain provisions to help shape board structure with the aim of improving board functioning. In the 2025 Factbook, all 52 jurisdictions covered include in their regulatory frameworks requirements or guidelines on board structure, including on independence, board level committees, risk management and internal controls (OECD, 2025[4]).

The different board governance models have different characteristics. A one-tier board is composed of executive and non-executive directors and has the advantage of bringing together the views of both to the board. This also allows faster decision making, better information flow between management and the board, and a more flexible governance structure. The two-tier board model separates management and oversight into two distinct bodies. In theory, a clear division of management and oversight may lead to better supervision of management (Rose, 2007[5]). However, this model can affect the speed and co-ordination of board decisions (Bezemer et al., 2012[6]). Some corporate law systems provide additional governance variants. For instance, Italy, Japan and Portugal have hybrid systems offering multiple options, and companies may also have an additional statutory body mainly for audit purposes (OECD, 2025[4]).

Out of the 52 jurisdictions analysed in the Factbook, 24 have chosen the one-tier model, 7 have opted for the two-tier model and 18 allow both structures. Moreover, three offer hybrid systems. In France, where companies can choose between one-tier and two-tier board structures, only 12% of companies have a two-tier board and the dominant model across industries is the one-tier board. Financial companies show a greater preference for two-tier boards, with 30% of companies opting for such a model (Figure 1).

Further analysis could provide insights into companies’ choices. Access to company-level data for the 18 jurisdictions that permit both systems would help identify which corporate governance model is more prevalent. It would also allow for analysis of which types of firms adopt each model and whether this choice is associated with specific industry and firm characteristics.

Size of the board and number of committees. The optimal board size reflects a trade-off between, on the one hand, potentially improved strategic guidance, monitoring and the ability to navigate regulatory, innovation, financial and geopolitical developments, and, on the other, the higher costs and complexity of maintaining and managing a larger board. A larger board with an appropriate mix of skills, experience and independent judgment may be in a better position to address the complexity of its responsibilities.

For example, a large board can help to ensure that its members are not stretched too thin in serving on multiple board committees. This can be a concern particularly for the board’s independent members, who often are required to serve on audit, remuneration, nomination or other committees. While larger boards may help to improve strategic guidance and make the organisation better prepared to face new challenges, they also require greater resources and may also increase the complexity of board deliberations and decision making (Coles, Daniel and Naveen, 2008[7]; Ahrens et al., 2026[8]).

Figure 1. Company choice of one-tier vs two-tier boards in France (2025)

Source: LSEG.

The Principles do not specify the optimal board size and number of committees (OECD, 2023[2]), and support flexibility and proportionality (to reflect differences in company size, ownership structure, complexity and stage of development) in applying the corporate governance framework. The Factbook shows that nearly all jurisdictions recommend a minimum board size, most often set at three members, while only 25% set a maximum cap (OECD, 2025[4]).

In the sample, the size of the board varies significantly in practice within and across countries (Figure 2). The average board size ranges from five directors in Australia to eight in France. The maximum number of directors on boards shows greater variation, from 12 in Australia to 22 in France and Germany. As expected, larger companies – owing to their complexity – have larger boards (across all indicators) than smaller firms. On average, France and Germany show the largest difference in board size (five directors) between large and small companies.

The traditional board committees - audit, nomination and remuneration - are required by law or listing rules or recommended by corporate governance codes in most jurisdictions. In the Factbook, 45 jurisdictions require and 7 recommend that boards establish an audit committee. Other committees, such as the nomination and remuneration committees, are required or recommended in at least 44 jurisdictions (OECD, 2025[4]).

Figure 2. Size of the board in 2025

Note: Companies with less than 3 board members are excluded. Large (small) companies are those with a market capitalisation above (below) the median level for their country.

Source: LSEG.

The traditional board committees - audit, nomination and remuneration - are required by law or listing rules or recommended by corporate governance codes in most jurisdictions. In the Factbook, 45 jurisdictions require and 7 recommend that boards establish an audit committee. Other committees, such as the nomination and remuneration committees, are required or recommended in at least 44 jurisdictions (OECD, 2025[4]).

As corporate needs have evolved, additional standing committees have emerged to support the board on matters such as risk management, sustainability, ethics, corporate social responsibility, environmental issues, as well as technology and innovation. Beyond the traditional committees, practices differ considerably depending on a company’s size, ownership structure, sector and stage of development (Kolev et al., 2019[9]). Local regulatory and institutional contexts can also shape committee requirements.

In the sample reviewed for this brief, all countries except Brazil require the establishment of an audit committee, while only India requires nomination and remuneration committees. Corporate practices indicate that in all these countries, companies have established at least one committee, and on average, no fewer than three committees (Figure 3). The maximum number of committees at the company level can go up to ten in India. Large companies established on average one or two more committees than small companies. In light of this initial analysis showing that it is common practice for large companies to have more than three committees, further analysis could explore what types of committees beyond audit, nomination and remuneration are most common, and the implications this may have for board size and involvement of independent members to ensure that these committees can function effectively.

Figure 3. Number of committees in 2025

Note: Large (small) companies are those with a market capitalisation above (below) the median level for their country.

Source: LSEG.

Independent directors help ensure that boards can exercise objective judgement, protect investors and oversee management effectively (Weisbach, 1988[10]). Independent directors are better positioned to challenge management decisions, oversee strategy and monitor performance without conflicts of interest, reducing the risk of excessive risk-taking or weak internal controls. In companies with controlling shareholders, independent directors help safeguard the interests of minority shareholders by ensuring fair treatment and reviewing related party transactions, among others. In one-tier boards, an important aspect is to ensure independence from management of at least some board members. The Principles recommend that boards should assign a sufficient number of independent board members capable of exercising independent judgement. Board independence is increasingly required or recommended in regulatory frameworks (OECD, 2025[4]).

All Factbook jurisdictions except Luxembourg and the Slovak Republic require or recommend a minimum number or ratio of independent directors. Of these, 21 jurisdictions require independence by law, regulation or listing requirements, and 9 set both a mandatory minimum requirement for independent board members and a more ambitious voluntary recommendation. The remaining 20 jurisdictions recommend board independence only in their corporate governance codes. Minimum requirements range from one independent board member to a majority of the board being independent. The most common requirement or recommendation – found in 17 jurisdictions – is to have between two and three independent board members (OECD, 2025[4]).

In practice, as many countries only recommend independence of the board, the level of board independence differs across companies and countries (Figure 4). In India, the average share of independent directors is 56%, and the average number of independent board members is four. German supervisory boards1 have on average two independent board members and their average share on the board is 22%. Criteria for determining independence are not factored into this analysis, but could be considered in further research.

Figure 4. Independence of the board in practice

Note: Panel A shows the average number of independent directors and their average share on the board.

Source: LSEG.

Granular information at the director level also provides insights into the actual tenure of independent directors. While the Principles do not recommend a maximum tenure for independent directors, they acknowledge its existence in many jurisdictions. Such limits have been justified based on the view that over an extended period, a board member may gradually become less independent than at the beginning of their tenure (OECD, 2023[2]). In 2025, 63% of jurisdictions set a maximum tenure for independent directors, up from 51% in 2014. Maximum tenure ranges from 3 to 12 years, with 12 years being the most common limit. Over half of the jurisdictions covered in the Factbook require or recommend that directors no longer be considered independent after the specified period, and around 10% require companies to provide an explanation if independence is maintained beyond that point. In the sample, independent director tenure is on average around 10 years, ranging between an average of 8 and 11 years (Figure 4).

Separation of the chairman and CEO roles may strengthen independence of the board from management. The Principles recognise that the separation of roles is regarded as a good practice that could help strike an appropriate balance of power, increase accountability and improve the board’s capacity for decision making independent of management. Most corporations in the sample split these roles (Figure 5). In most countries, less than 10% of publicly traded companies have a CEO who is also the chairman of the board. France stands out as an exception, with 47% of listed companies combining these two roles in a single individual. However, in France, among those companies that choose to combine the roles, a lead independent director2 is usually designated, as recommended in the national corporate governance code. In Germany, the few that combine the role of CEO and chairman are those with a one-tier board structure.

Figure 5. Separation of the roles of chairman and CEO

Source: LSEG.

Independence recommendations are sometimes linked to the ownership structure of the company. In theory, the presence of a strong controlling shareholder ensures close oversight over management, reducing the monitoring role required of independent directors (Desender et al., 2013[11]). In companies with dispersed ownership, the role of independent directors is to mitigate the classic manager-shareholder agency problem.

France, Germany, Israel, Italy and the United States have different independence requirements when companies have a strong controlling shareholder. For example, in France and Germany, the corporate governance codes recommend that a majority of the board be independent when companies do not have a controlling shareholder. However, if a French company has a controlling shareholder, the minimum threshold recommended is that only one-third of the board be independent; and in Germany the recommended threshold is that only one or two members of the supervisory board be independent (OECD, 2025[4]).

Figure 6 plots the ownership share of the largest shareholder against the ratio of independent directors. The figure reflects the regulations in France and Germany, where a negative relationship is observed between the ownership concentration levels and independence requirements. Brazil, despite not having a regulatory provision, also shows that companies with higher concentration have a lower ratio of independent directors.

Figure 6. Board independence versus ownership concentration

Note: The figure shows for each country the average share of independent directors for each decile of ownership share.

Source: LSEG.

Effective board composition improves decision making and enhances investor confidence

Effective board composition is central to improving decision making quality and supporting long-term value creation (Hillman and Dalziel, 2003[12]; Krause, Withers and Waller, 2025[13]). Effective boards comprise members who, individually and collectively, possess the knowledge, professional skills and integrity required to carry out their duties effectively and exercise sound and independent judgement. These characteristics are fundamental to effective board membership.

When assessing board composition, additional attributes of board members related to demographic characteristics, functional diversity, interlocks and owner representation can affect whether the board has an appropriate mix of skills and experience to strategically guide the company and that management’s decisions are aligned with the company’s long-term objectives, risk appetite and sustainable value creation.

Diversity in age, background and professional expertise may impact the quality of deliberations and decision making (Kanadlı, Bankewitz and Zhang, 2018[14]). Transparent nomination processes help ensure that board members are selected on merit and contribute to the company’s long-term success. As stated in the Principles, it is regarded as good practice to conduct open and transparent search processes that draw from a broad range of backgrounds, helping to meet diversity objectives and address the company’s evolving risk profile (OECD, 2023[2]). The Principles also call on boards to regularly assess whether their composition reflects an appropriate balance of professional competences and backgrounds, which may include other relevant forms of diversity that may impact diversity of thought. In almost three-quarters of Factbook jurisdictions, board candidates must meet specific qualifications (OECD, 2025[4]).

Qualifications in the non-financial sector are less strict than in regulated industries such as banks. Most jurisdictions do not have formal requirements with respect to age or professional background, though this may often be included in the company bylaws. The sample shows the average (median) age of board members is 58 (57) (Figure 7, Panel A) but with wide variation: India shows the greatest range in the age of board members, while Australia has the lowest. Average board tenure is around 9 years in Australia, Germany and India, but is higher in Brazil (15) and France (13) (Panel B). Traditionally, board members have been characterised by relatively homogeneous age profiles. However, the emergence of listed companies from non-traditional industries and the increasing need for diverse skills may be changing this pattern.

The Factbook currently includes information on the percentage of women on boards. However, the information is limited to reporting the aggregate share of women on boards at the country level, based on external data sources. For example, jurisdictions with quotas and targets have achieved comparable levels of women participation on boards, increasing from 26% in 2019 to 33% in 2025. While this provides a useful indicator, it does not capture firm-level variation or broader dimensions of board diversity (OECD, 2025[4]).

Countries such as France, Iceland, Norway, Italy and the Netherlands have introduced mandatory quotas for board composition. In France, for example, listed companies are required to ensure that at least 40% of board members are of each gender, while Germany has established a minimum requirement of 30% women on supervisory boards. Other countries, including Australia, New Zealand, Spain and the United Kingdom, have adopted voluntary targets to increase women’s participation on boards. Among the Factbook jurisdictions that have set voluntary targets (35%), the average share of women on boards of listed companies has reached or exceeded the target level in nearly all (OECD, 2025[4]).

The sample used in the analysis allows for a more granular examination. France records the highest share of women on boards, consistent with its mandatory quota framework, followed by Germany (Panel C). In India, the requirement to appoint at least one woman director is broadly reflected in practice, with the average number of women per board aligning with the legal minimum. In Australia, where voluntary targets apply, women represent on average 16% of board members.

Figure 7. Board diversity in practice

Note: P10 shows the 10^th percentile and P90 shows the 90^th percentile. WoB stands for “women on boards”.

Source: LSEG.

A review of practices across all aspects of board structure and composition using granular data would allow for more analysis of how corporate practices differ across all jurisdictions. This would allow to better understand the relationships that may exist across different elements of board structure and composition, for example between age, gender, tenure and independence, as well as multiple-directorships and education background.

What policymakers and other stakeholders could consider

• Support informed policy discussions by leveraging the OECD Corporate Governance Factbook. The Factbook is a rich source of policy approaches on how jurisdictions implement the G20/OECD Principles of Corporate Governance. All 52 jurisdictions include requirements or guidelines on board structure and composition in their regulatory frameworks.

• Strengthen disclosure requirements. Regulators could continue promoting disclosure on board structure and composition, including on professional experience and expertise, competences, age and other demographic characteristics. Better disclosure allows investors to assess the diversity of skills and backgrounds on the board and whether it is fit for purpose, reinforcing confidence and comparability.

• Encourage robust nomination and evaluation processes. Promote independent nomination committees, transparent director screening and selection criteria as well as regular board evaluations. Board evaluations are particularly useful to assess whether the board possesses the right mix of background and competences. This helps prevent entrenchment and renews boards as company needs as well as circumstances evolve.

• Promote annual reporting on the implementation of board composition guidelines. Reporting can include statistics on annual disclosures related to diversity, independence, skills mix and nomination practices, to enhance transparency and enable shareholders and other stakeholders to assess the board composition.

• Facilitate better-informed policy design through improved information on how corporations implement regulatory frameworks. Disaggregated data could shed light on how companies structure their boards – covering aspects such as board size, the number of committees, the share and tenure of independent directors, and other aspects of board composition, as shown for a sample of countries. In addition, data on director skills and backgrounds could inform the extent to which boards possess the competences needed to oversee complex and evolving business models, as well as emerging risks such as digital transformation, sustainability and geopolitical uncertainty.

• The need to preserve flexibility and proportionality in corporate governance regulation. An important takeaway from observed practices is that, for certain governance measures, smaller companies adopt different board structures than larger firms. Further analysis in this area could help identify where a one-size-fits-all approach may not be appropriate and where regulatory flexibility is warranted to reflect differences in company size, ownership structure, complexity and stage of development. This would support governance frameworks that remain robust while avoiding disproportionate compliance burdens for smaller issuers.

References

[1] Adams, R., B. Hermalin and M. Weisbach (2010), “The Role of Boards of Directors in Corporate Governance: A Conceptual Framework and Survey”, Journal of Economic Literature, Vol. 48, pp. 58-107, https://doi.org/DOI: 10.1257/jel.48.1.58.

[8] Ahrens, F. et al. (2026), “Board Size in Context: A Meta-Analysis on the Relationship Between Board Size and Firm Performance”, Corporate Governance: An International Review, Vol. 34/2, pp. 290–309, https://doi.org/10.1111/corg.12664.

[6] Bezemer, P. et al. (2012), “The changing role of the supervisory board chairman: the case of the Netherlands (1997–2007)”, Journal of Management & Governance, Vol. 16, pp. 37–55, https://doi.org/10.1007/s10997-010-9128-3.

[7] Coles, J., N. Daniel and L. Naveen (2008), “Boards: Does one size fit all?”, Journal of Financial Economics, Vol. 87/2, pp. 329–356, https://doi.org/10.1016/j.jfineco.2006.08.008.

[11] Desender, K. et al. (2013), “When does ownership matter? Board characteristics and behavior”, Strategic Management Journal, Vol. 34/7, pp. 823–842, https://doi.org/10.1002/smj.2046.

[3] Guo, L. and R. Masulis (2015), “Board Structure and Monitoring: New Evidence from CEO Turnovers”, The Review of Financial Studies, Vol. 28/10, pp. 2770–2811, https://doi.org/10.1093/rfs/hhv038.

[12] Hillman, A. and T. Dalziel (2003), “Boards of Directors and Firm Performance: Integrating Agency and Resource Dependence Perspectives”, Academy of Management Review, https://doi.org/10.5465/amr.2003.10196729.

[14] Kanadlı, S., M. Bankewitz and P. Zhang (2018), “Job-related diversity: the comprehensiveness and speed of board decision-making processes—an upper echelons approach”, Journal of Management & Governance, Springer; Accademia Italiana di Economia Aziendale (AIDEA), Vol. 22(2)/June, pp. 427-456, https://doi.org/10.1007/s10997-017-9394-4.

[9] Kolev, K. et al. (2019), “Board Committees in Corporate Governance: A Cross-Disciplinary Review and Agenda for the Future”, Journal of Management Studies, pp. 1138–1193, https://doi.org/10.1111/joms.12444.

[13] Krause, R., M. Withers and M. Waller (2025), “Reducing Bias through Board Decision Making: An Information-Processing Model of Board Decision Synergy”, Academy of Management Review, Vol. 50/4, pp. 788-810, https://doi.org/10.5465/amr.2022.0271.

[4] OECD (2025), OECD Corporate Governance Factbook 2025, OECD Publishing, Paris, https://doi.org/10.1787/f4f43735-en.

[2] OECD (2023), G20/OECD Principles of Corporate Governance 2023, OECD Publishing, Paris, https://doi.org/10.1787/ed750b30-en.

[5] Rose, C. (2007), “The New Corporate Vehicle Societas Europaea (SE): consequences for European corporate governance”, Corporate Governance: An International Review, Vol. 15, pp. 112-121, https://doi.org/10.1111/j.1467-8683.2007.00548.x.

[10] Weisbach, M. (1988), “Outside directors and CEO turnover”, Journal of Financial Economics, Vol. 20, pp. 431–460, https://doi.org/10.1016/0304-405X(88)90053-0.

Notes

← 1.  All supervisory board members in Germany are non-executive directors, while German independence requirements establish additional criteria for independence from the company.

← 2.  A lead independent director is an independent board member designated to provide leadership and coordination among independent directors, particularly where the board chair is not independent or also serves as CEO.