Benefits and Pitfalls to Executive Service on Corporate Boards of Directors
Robert A. Adelson, Attorney
Many CEOs and other high-ranking executives are regularly asked to serve on boards of directors. Indeed, the industry knowledge, business acumen and day-to-day management experience that C-level executives have make them perfect candidates to serve on a board, whether it be an outside board or the board of directors of their own company.
Serving on a board of directors can be a very rewarding experience and is a great way for executives to advance their careers. However, it is important for executives to make sure they are fully informed before accepting a board position. They should take time to understand their rights and duties and the potential liabilities they might face and assure proper protections are in place to limit risk exposure. They should also be sure to negotiate a fair and competitive compensation package.
The benefits of board service
The benefits of board service cannot be understated. The compensation, stock and options can be quite lucrative. But the benefits to your career can be even more substantial. Serving on a board of directors gives executives a chance to network and learn from peers who work for other organizations. Executives who serve on outside boards will also benefit from seeing how other organizations manage their affairs. Further, board service can often be that crucial piece of experience, source of information (in your own company or in business generally), and source of contacts that allows executives to take the next step up the career ladder.
Board service is also a big responsibility. Board members are expected to make a significant time commitment, not just to attend meetings but also to review materials. Board members have a duty to the company they represent, and that means being fully prepared to make informed and well-reasoned decisions. Before taking a board position, executives need to ensure that they have the time to do the job right without taking too much attention away from their executive duties.
Board member responsibilities
Executives and board members have very different duties. While executives are tasked with managing a company’s day-to-day activities, board members are responsible for providing strategic direction and oversight of the company’s performance.
Board members have a fiduciary duty to the organization they represent. This duty can be broken down into three main parts. Board members have a “duty of care” to make fully-informed decisions, a “duty of loyalty” to act only in the interest of the organization and a “duty of candor” to provide shareholders with all information necessary to fairly and fully evaluate the company.
Boards that fail to uphold their fiduciary duties can be held liable in shareholder lawsuits. They can also face regulatory action by the Securities and Exchange Commission. Before taking a Board position, the executive should make sure the proper officer and director liability insurance is in place as well as charter or Bylaws provisions for indemnification of directors in the event of any suit. In most cases, where such coverages are in place, individual directors will not be held personally liable unless they are found to have participated in intentional or reckless misconduct.
Working with an experienced attorney
These are just a few of the many issues that executives will face when they join a board of directors. Because these issues are so complex, it is important to seek the advice and counsel of an experienced attorney if you are taking a position on a board of directors. The attorney can help ensure that you understand all of your rights and responsibilities and can help you avoid any conflicts of interest. In addition, the attorney can help you negotiate an appropriate compensation package.