Motivations for joining a board: there is really only one good reason.

• Author: Martin, Roger L.
• Position: ENDNOTE

SELECTION BIAS is a big issue for boards. People choose to become directors -- they aren't forced to show up at the table -- and they must have some reason, some motivation, for doing so. Unfortunately, most reasons to join a board are problematic from a governance point of view. In fact, there is a set of five such plausible motivations to join a hoard, each of which is unhelpful to the shareholders and to the company. From most to least concerning, they are: personal or company favors; attractive compensation; personal prestige; social enjoyment; and personal growth.

Personal or Company Favors: One might join a board in order to attain favors for either one's company or for oneself. Though it might seem far-fetched, not too long ago it was common practice for a CEO to sit on the board of his company's biggest lender. The CEO would serve as director for his lead bank in part to ensure that his company wouldn't get cut off in a future credit crunch. More recently, as disclosure rules have made such arrangements less common, the practice has taken a more personal turn. Now, board membership can lead to consulting contracts or other nonmonetary benefits, such as prime seats to sporting or cultural events, for directors. While access to such small-time swag may not be a big piece of the motivation puzzle, it is an unalloyed negative for the company and its outside shareholders; directors motivated by personal or company considerations have incentive to trade votes in exchange for the desired favors, approving actions that enrich executives and other insiders at the expense of shareholders. Such directors are de facto bad for shareholders and bad for the company.

Attractive Compensation: Some directors join a board for the financial remuneration; that is, they view board membership as an attractive way to make money relative to other opportunities. However, if this is the motivation for joining a board, the director will be inclined to act in whatever way is necessary to maintain a place on the board, since removal on the grounds of noncooperation would eliminate the compensation.

Personal Prestige: Another potential motivation for joining a board is the status that accrues to a director of a publicly traded company. Indeed, directors are showered with positive attention. However, as with compensation, if this is the motivation, the director will be inclined to act in whatever way is necessary to maintain a place on the board, in this case...