Guide to Serving on a Company’s Board of Directors

Guide to Serving on a Company’s Board of Directors

Independent management consultants with executive experience and backgrounds from top-tier consulting firms such as McKinsey, Bain, and BCG often look to board of director seats as an extension to their career.

Corporate boards of directors fall into two categories:

  • Public board of directors: boards of publicly-held corporations in which the directors are in charge of protecting and representing the interests of the stakeholders. These are by far the most regulated boards.
  • Private board of directors: boards of privately-held companies or private equity companies. They don’t have the same legal liabilities and risks as a public board.

Serving on a board of either a private or public company can offer a high-impact way to leverage your expertise and skills.

This resource will guide you through the various considerations for potential board service, as well as the process of obtaining a seat on a board and what the experience is like.

Contents

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Considerations for joining a board of directors

In the past, for-profit companies recruited members for their boards of directors almost exclusively from their own current or retired C-suite executives. Today, many companies are making board membership more accessible and recruiting from a wider range of candidates outside their own organization, and corporate boards now typically include a mix of inside and outside members

If you are thinking about seeking a seat on a corporate board, consider the following benefits and considerations.

Benefits

  • Learning and professional development. Professional interaction with executives of different backgrounds and perspectives from you allows you to gain even more knowledge and wisdom from them.
  • Gain new experience. Board service offers a deeper understanding of corporate strategy — particularly in a new or adjacent field, which brings new insights. The opportunity to view how another company operates at its highest levels — from a first-hand, inside view — is invaluable. Some board members have likened it to renewing their M.B.A.
  • Increase your network. Access new, valuable connections from whom you can learn, develop relationships, and increase your professional reach.
  • Professional distinction. A seat on a corporate board of directors is a prestigious position, particularly in Fortune 500 and publicly-held companies. Board service also offers the opportunity to bring your experience to the table in front of a new audience.
  • Compensation. A seat on a corporate board of directors is a paid role that can offer attractive packages (see that section in more detail below).

Considerations

  • Time commitment. Joining a board typically requires a substantial investment of time — 20 to 40 days per year on average. Traveling to and from meetings, as well as preparation, committee work, research and reviews, preparing presentations, and the like also factor into the time obligation.
  • Potential liability. Board members take on a fiduciary duty to the company (and its shareholders, if it’s publicly held). This can result in exposure to legal liability — see more on that below.
  • Potential conflict of interest. Should you have a future opportunity to work with a company that is a competitor, supplier, or partner to the board company, you may find yourself disqualified due to conflict of interest.

Distinctions between private and public boards

Both private and public corporate board service come with a great deal of responsibility. Directors of both types of boards will be expected to review data and reports, attend meetings, serve on committees, and take on other duties. The experiences of serving on each of these types of boards is similar, with a few key differences:

  • Public disclosure. The biggest difference between these two types of board service is in information disclosure. Public companies face a large number of requirements in relation to financial reporting, transparency, and more.
  • Size of company. Private companies may range in size from a $2 million a year business to those with revenue over a billion. They often start (or remain) as family-owned companies, and the board may be solely or primarily made up of insiders. Public companies tend to be larger, often with subsidiaries.
  • Ownership. In a private company, the CEO, owners, and/or investors of the company are likely to be the major shareholders. Public companies have a different type of ownership in which they are typically beholden to thousands of shareholders.
  • Director roles. Public board directors must be more risk-averse in their decisions than some of the smaller and more nimble private companies.

In either case, the board of directors is responsible for the company’s operations to not only shareholders but also to the employees, customers, suppliers, creditors, government, and other stakeholders.

Qualifications for corporate board service

Companies are highly selective in choosing board members. For-profit companies have an obligation to their shareholders, therefore they seek board members with financial expertise, executive experience, and prior board experience. Qualifications for serving on the board are typically outlined in the organization’s bylaws and vary from one organization to the next.

Companies do not typically seek out a new director based on general descriptions, but rather have openings for seats that require a specific skillset, industry experience, or geographical requirements. Soft/people skills and diversity are also considerations.

Industry

Boards often seek new members with specific executive experience in a certain industry. This may or may not be the industry that the company actually does business in.

For example, an oil and gas company may seek a new board member with sustainability expertise; or a retail corporation may seek a board member with experience in the supply chain industry.

Function

A board may look for a new director with a specific skill-set, such as:

  • Financial or legal expertise
  • Experience in a certain industry
  • Information technology
  • Strategic development
  • International politics
  • Government and regulatory

Location/geography

A corporate board may have a need for a director located in a specific place, or with expertise in a specific geographic market.

For example, an e-commerce company may need someone with executive experience and expertise in governmental trade regulations in China.

Soft skills

In addition, since the role of the board is to work towards decisions through a collaborative process, there are some soft skills that are sought after in members:

  • Communication
  • Integrity
  • Collaboration
  • Balanced judgement
  • Data-driven decision making
  • Emotional intelligence

Diversity

Increased diversity in professional experience, age, gender, and ethnicity brings a wider range of backgrounds and perspectives to a board. In a 2018 study, the Boston Consulting Group found board diversity is tied to stronger corporate performance.

This is increasing the opportunities for executives outside an organization to serve on its board.

How corporate boards describe the importance of the following skills, competencies, or attributes:

Screen Shot 2023-03-13 at 1.27.00 PM
Data from PwC

Duties, responsibilities, and liabilities

Duties

Boards have three primary fiduciary and legal duties:

  • Duty of care: The obligation to care about their company’s health and to act in good faith, on an informed basis, for the best interest of the company.
  • Duty of loyalty: The obligation to be loyal to the company and not themselves or their own best interests.
  • Duty of candor: Directors are duty-bound to make full disclosures of pertinent information to other directors, management, and shareholders.

Responsibilities

Some of the key responsibilities of the directors include:

  • Strategic planning
  • Budget review
  • Analyzing company performance
  • Mergers and acquisitions
  • Share repurchase programs
  • Declaring dividends
  • Nominating future board members
  • Selecting the chief executive officer, president and other executives who run the company
  • Termination of executives
  • Setting compensation of senior executives
  • Conducting meetings with the president and CEO
  • Advising senior management team
  • Making operational decisions to maximize dividends to shareholders
  • Deciding whether to reinvest dividends

Boards are also organized around committees that serve specific functions, such as an audit committee or executive compensation committee.

Liabilities

Board positions can also take on certain liabilities. A corporate director is subject to liability when he fails to implement an information system or if while implementing this control, the director fails to oversee its operations.

Directors should implement compliance and monitoring programs within the business, and oversee the programs for possible law violations. In the event of a possible violation, directors should, in good faith, stop the wrongdoing from continuing.

There are three primary protections for corporate directors:

  • Exculpatory provisions: This provides that in the event of monetary losses or breaches in fiduciary duty, directors are not financially liable to stockholders.
  • Indemnification: These agreements ensure that directors are not considered personally liable for losses sustained by the company.
  • Directors and Officers (D&O) Insurance: This policy can indemnify a director if they do suffer financial losses as the result of legal action brought about because of their directorship.

Compensation

Financial compensation for board service varies greatly depending on the company and its size, and can range from the high five figures to well over seven figures (particularly in Fortune 500 companies). 

CAP9-292
Data provided by Harvard Law School Forum on Corporate Governance

According to the 2016 Spencer Stuart Board Index report, the average annual total compensation in the United States for S&P 500 directors, excluding the chairman’s compensation, was $280,389.

The median annual retainer offered by private companies is $30,000. Private board retainers are highly correlated with company size.

CAP9-293
Data provided by Harvard Law School Forum on Corporate Governance

In Europe, board positions tend to pay less and tend to be limited to cash retainers, while payment in the United States can be distributed across multiple areas in addition to the cash retainer.

According to the Private Company Board Compensation and Governance Survey conducted by the Harvard Law School Forum on Corporate Governance, board compensation is made up of:

  • Annual retainers (71%)
  • Travel reimbursements (53%)
  • Meeting fees (49%)

Other compensation includes:

  • Stock awards (full-value stock or options)
  • Committee pay

The survey states that the median in-person meeting fee is $2,500, and the median telephonic/virtual meeting fee is $1,000. The typical incremental retainer for a committee chair is $6,000 at median but is only provided by a minority of companies.

How to identify corporate board opportunities

When a corporate board has a director opening, it typically start the process by identifying skill gaps in its current composition and developing a job specification. The board will then begin searching for candidates that meet those needs. 

The following steps can identify director openings.

Select the type of board on which to serve

The particular duties of a board vary depending on the company. You want to select the type of board to serve that speaks to your individual career goals, talents or personal interests, such as the board of a nonprofit agency. Publicly traded companies generally have a much larger board of directors than private companies, meaning it may be easier to secure a position on the board of a public company.

Search for openings

You can find possible board openings through job websites, or sometimes directly on a company’s or organization’s career page. Some websites for director opening searching include:

Consider searching within an industry you have experience with and for which you have an affinity, as your knowledge and expertise can make you a more valuable and marketable candidate. You should also reach out to your network for possible leads.

How to position yourself for board service

Your strategy for finding a corporate board position should be similar to the strategy you’d use to land any other high-level position. To get a feel for what a company is looking for, read their annual proxy statement (for publicly traded firms) or research the backgrounds of existing board members using sites such as LinkedIn.

Prepare a customized board CV/resume

A custom resume for board service should highlight your relevant background, experience, and skills, and also outline why you’re a strong candidate for a director’s role. Tailor the resume to focus on specific skills, experiences, and traits that are sought after by specific boards. Demonstrate your ability to add value and showcase your ability to have high-level strategic conversations.

Promote yourself

Broadcast your interest in serving on a board and publicize your contributions and the value you have created at prior companies. Build your “board readiness story” by letting your friends, family, colleagues, and acquaintances know that you’re interested in serving on corporate boards, which types of boards you would be a great fit for, and why you’re interested in serving.

Raise your visibility through published articles and speaking at conferences. Promote yourself and your qualifications early and continue to build your brand throughout your career.

Nurture relationships

Executive leadership is a highly networked world. Many board members obtain their positions through their network of connections. Reach out to people who are already on the board of a company where you’d like to serve. Be aware of common backgrounds such as university, employers, clients, clubs, and even volunteer or philanthropic work. Network through LinkedIn and other social media and stay active, particularly with contacts you have identified as valuable. Your network should include mentors and sponsors who can help guide and facilitate your strategy into board service.

Consider where you’re needed

Just because your background and experience are in a specific industry or role doesn’t mean you should narrow your search to those industries or skillsets. Financial experts, for example, are often highly sought for in non-financial industries — the same goes for technology experts, legal experts, and other fields.

Join organizations

Bolster your qualifications by participating in professional associations. Nonprofit and civic boards can also be good places to gain experience that would be valued on a for-profit board, as well as make new connections. 

There are also professional organizations dedicated to board effectiveness:

Diversity is increasingly important for corporate boards — consider memberships you might belong to such as those for executive women or BIPOC leadership. Some potential organizations to consider might include: