Being a director of a major company is a pretty good gig. You’re intimately involved with strategic, financial, risk, technology, and other significant issues that provide challenges requiring you to draw on your intellect, knowledge, and experience in providing direction to a chief executive and his or her senior management team. You’re interacting with other highly accomplished individuals, building alliances and friendships, and find that you’re held in high esteem in your business and social circles. Last but not least, you share in the associated financial rewards.

Indeed, one would think that anybody with the credentials and contacts to be invited to join a large public company board would jump at the chance. And many do—but not everyone.

Saying No

Why would anyone turn down a coveted board seat? For any number of reasons. Toward the top of such a list is time commitment, which has increased from something in the area of 125 hours per year to upwards of 250 or 275 on average. (Many directors of major company boards tell me they annually spend more than 300 hours per board.) This includes not only board and committee meetings, but also reading board materials, interim phone calls, field visits, keeping current on the company and its industry, and communicating with the company’s senior ranks and other directors.

If a major crisis arises, the time commitment increases dramatically. While the money isn’t bad, even on a computed hourly rate for a large company board, the types of individuals sought out for board service may have other board and business commitments leaving only limited amounts of available time, and typically already are quite comfortable financially where the additional funds won’t force a decision to spread themselves too thin.

In the case of sitting CEOs—who are generally the more desired directors—the company they’re running often won’t let them spend time sitting on other company boards, or will allow perhaps one board seat. So when a colleague or head hunter comes calling, the answer is “no.”

Other reasons might lead a qualified individual not to jump at the chance at a new board seat. One is liability. Accomplished executives who have accumulated wealth and a comfortable lifestyle won’t readily put that at risk where they believe the aforementioned rewards aren’t worth it. Even where the normal indemnification provisions are in place, the directors-and-officers insurance coverage might be inadequate. And savvy directors know that such insurance policies have many caveats and exemptions. With all due respect to the carriers, some directors say policies often have “more holes than Swiss cheese.”

Those who have had to turn to their D&O carrier to deal with a lawsuit may find that the negotiations then first begin as to what will be covered, and what won’t. And regardless of the majority of lawsuits against directors, there have been a number where board members ended up drawing on their own personal financial resources to settle a claim or satisfy a court order.

Some candidates have turned down board seats after meeting with the CEO, CFO, and general counsel, and current directors, and researching analysts’ reports and otherwise looking into the workings of the company, finding that they simply don’t feel comfortable with the idea of having fiduciary responsibility for that corporation. A principal reason often is that the candidate decides he or she simply would not feel comfortable “going to war” with the sitting directors.

With industry experience continuing to be a prime criterion for many new directors, along with executive accomplishment, boards are challenged to add the new skill sets desired to achieve the desired board composition while maintaining a manageable size.

Then there’s the current environment of activists lurking in the background, seemingly ready to pounce at the drop of a hat. Some candidates don’t relish the idea of having to deal with those types of situations. Additionally, if the company is in a regulated industry, potential directors may determine that the risks of an enforcement action are too great. In financial services, regulators are now meeting directly with board members, making probing inquiries into their activities, causing additional angst. And if you’re being designated for an audit or compensation committee assignment, the requirements go beyond typical state law; additional federal rules must be complied with.

Looking for a Board Seat

You say that, despite the drawbacks, the rewards are worth the risk and you still want the honor, challenges, and rewards of sitting on a corporate board. How can you go about achieving your goal?

Well, you’re best off if you’re already on a board of a comparably sized company. You have the experience and cache of already being a board member. You’ve passed through a major screening process, and likely have contacts and personal relationship with directors in a range of businesses. And since a prime source of board candidates is sitting directors, you’re in a pretty good position to be considered for another board seat.

But if you’re not already a sitting corporate director, what to do? One avenue some have used is taking a seat on a well-known not-for-profit organization’s board. There will likely be corporate directors in the board seats, and you’ll get to know them and gain experience as a director in that context.

You also can reach out to the major search firms, which often are called upon to help fill available board seats. Searches increasingly look beyond the traditional skill sets and attributes of some years ago. One reason is, as noted above, sitting CEOs are less likely to be allowed to take on other company board responsibility. So heads of major company business units or other senior executives are more likely to be on head-hunters’ radar screens. And now more than ever, more seats are becoming available, because as time commitments per board increase, directors are positioned to serve on fewer corporate boards.

A number of support systems have been established to help groom executives for board responsibilities. For women executives, for instance, there are a host of networking events, mentoring programs, and training and other programs to help position oneself for a director role.

The Matrix

For some years now governance committees, along with supporting search firms, have used a matrix to identify the knowledge base, experience, and skills needed to round out their companies’ boards. Current directors are listed vertically down the side, with the needs for the board as a whole in columns across the top. A check mark indicates which sitting directors satisfy such requirements. An unchecked box indicates what’s needed in a new director.

As the traditional needs expand, the reach for individuals who might not have been candidates in the past now increases. Executives with cyber-based skills are in demand, as are those with expertise in such areas as international business, mergers and acquisitions, and technology. And certainly the benefits of a diverse board have become well understood, where particular gender, race, and ethnic background in many instances are driving board searches.

Of course limits exist to the number of a particular company’s board seats, where it’s necessary to maintain a workable size to facilitate effective decision making and board performance. With industry experience continuing to be a prime criterion for many new directors, along with executive accomplishment, boards are challenged to add the new skill sets desired to achieve the desired board composition while maintaining a manageable size. One client of mine recently gained several needed skills in one individual, bringing on a highly accomplished female with excellent cyber-skills along with extensive leadership and industry experience. This mix of attributes and skill sets, however, often cannot be found in one individual.

Bottom Line

Despite some drawbacks and risks, serving on a public company board, especially of a larger company, usually is a satisfying and rewarding experience. Many individuals have worked diligently to burnish their reputations through excellence in their executive roles and have reached out to decision makers and otherwise enhanced personal relations with influencers—ultimately gaining a coveted board seat and participating at the highest corporate level to successfully enhance shareholder value.