For a highly accomplished executive, an invitation to join a public company’s board of directors may seem like a career milestone. However, first-time directors may be surprised to learn about the level of scrutiny they will likely face, much of which is unavoidable and may not be immediately apparent.  Knowing before accepting a nomination can help a new director feel like a seasoned pro.

Below are ten key items an executive should consider before joining a public company board.

  1. Your bio will likely differ from how you describe yourself, for example, on social media. A public company must disclose various biographic information about its directors (including director nominees) in filings with the SEC. The bio presented in these documents may depart from how you describe yourself on social media, usually to become more neutral and to conform to the style the company uses for other directors and officers.  Public companies do not want your business accomplishments and accolades – despite being some of the reasons they recruited you – to become a source of unnecessary diligence.
  2. Your compensation and the value of your equity holdings will be visible online. Companies must disclose annual compensation paid to directors, including retainers and equity awards, and the aggregate number of stock and option awards outstanding at fiscal year-end (even if awarded in prior years). This information will be publicly available on the SEC’s website.  
  3. Your equity in the company may be hard to liquidate. Public companies have policies that restrict when directors may buy or sell the companies’ securities to avoid insider trading and similar concerns. Many companies also require directors to hold a certain amount of company securities during their tenure. This can sometimes complicate the ability to sell equity in the company, even if the reasons for the sale seem perfectly reasonable (such as to pay taxes associated with receiving the award).
  4. Your trading of the company’s stock will be visible. US securities laws require directors to disclose transactions in the stock of the companies on whose boards they sit, within strict deadlines. Known as “Section 16 reporting,” these SEC rules render illegal any short-swing profits made by a company insider (like an officer, director, or major shareholder) from buying and selling their company’s stock within a six-month period.  Short-swing trading carries the implication of an insider trading violation, and investors, and other market participants may closely track this information as a potential indicator of the company’s future performance.  These are strict liability rules, and failure to timely report stock transactions may lead to personal liability.    
  5. You may be limited in speaking about the company. Regulation FD of the Securities Exchange Act of 1934 prohibits a public company from selectively disclosing material nonpublic information to securities market professionals and shareholders unless done through certain channels. Sometimes a director may be required to engage with investors, raising Regulation FD concerns.  
  6. You may need to quit the boards of other companies. Due to anti-trust considerations, a director may need to resign from, or be unable to join, another company as a board member or officer if that other company is deemed to compete with the director’s current company (under the Clayton Act).  Mandatory disclosure about the director’s other employment and directorships can make it relatively easy for the Federal Trade Commission or the Department of Justice to detect such situations.
  7. You may face personal attacks by shareholders. In a proxy contest, an activist or dissident shareholder may vote against a director nominee or propose an alternative slate of nominees.  When that occurs, it is common for the shareholder to publish negative information about the director’s background, experience, or personal relationships. 
  8. You could be subject to litigation.  Directors are subject to liability for any action taken as a director, or for any failure to take any action that results in a breach of fiduciary duties. Directors could also be sued for disclosure the company makes, among other things.  Even if a company indemnifies directors or provides for directors and officers insurance, you may still have to deal with the inconvenience and negative publicity that results from litigation.   
  9. The ability to work constructively with others will be important. A new director is encouraged to build relationships with the other directors to gain greater context and insights into board dynamics and issues impacting the company. To maintain a constructive board culture, directors are encouraged to keep disagreements from damaging their collaboration.
  10. Doing the job well can require significant time. Public company board service often requires a considerable amount of a director’s time – and a person considering board service is encouraged to consider whether they have the personal capacity to adequately prepare for and perform the role.  Shareholders and other stakeholders may be carefully monitoring the company with a view to holding leaders accountable for actual or perceived shortcomings.

For a more detailed discussion of these considerations see our article, From expert to director: How to navigate public company board service.