Market economies are fuelled by self-interest. We tend to be squeamish about saying so, but it is the unspoken engine behind capitalism. Adam Smith observed that it is not from the benevolence of the butcher, brewer or baker that we expect dinner, but from their regard for their own interest. Somehow, the butcher still gets invited to dinner.
Venture investors make frightening bets on start-ups hoping for spectacular exits. Founders work 16-hour days chasing an audacious dream – preferably, one accompanied by a large valuation. CEOs endure endless meetings, investor calls and quarterly earnings scrutiny for obvious reasons. And all of us have knocked ourselves out pursuing some bigger goal. But let’s not pretend monetary reward was never somewhere in the room.
Now, consider the role of an independent board member. The financial rewards are modest relative to the responsibility. Workloads may be manageable most of the year unless trouble arrives. Board members carry fiduciary responsibilities, must protect confidential information, cannot trade on insider knowledge and may eventually find themselves personally involved in litigation. So, why take the job?
Ask the directors and you will hear: giving back, helping a company grow, sharing experience, contributing to society, supporting the next generation of leaders. All admirable. But there is one question you are unlikely to hear at the board nomination stage: ‘What’s in it for me?’
Accountants do not conduct audits because they have an emotional attachment to balance sheets. Lawyers do not review contracts because they find clauses spiritually uplifting. So, why should board members pretend they are entirely above self-interest?
There is nothing inherently wrong with acknowledging the personal benefits of board service. In fact, candidates probably should think about them before accepting a board role. For starters, there is the money. Board fees and equity can provide a useful income stream and, over time, a meaningful addition to retirement wealth. For senior executives, entrepreneurs and professionals moving into the later stages of their careers, board service can become an important part of the financial portfolio.
Then there is something perhaps even more valuable: the network. A boardroom puts you around experienced entrepreneurs, investors, executives, regulators, advisers and fellow directors. Done properly, it can become the ultimate professional networking club – except that, instead of exchanging business cards over cocktails, everyone is arguing about strategy, succession and why the CFO has suddenly changed the numbers.
There is also the education. A board seat teaches things no business school can fully replicate. You see how strategy actually gets challenged. You observe how CEOs respond under pressure. You learn how capital allocation decisions are made and how difficult trade-offs are handled when the PowerPoint version of reality meets reality itself.
Perhaps most valuable of all, you get to observe CEO performance from the other side of the table. After spending years being evaluated by boards, executives suddenly discover what it feels like to evaluate one. It can be an illuminating – and humbling – experience.
Board service can also enhance professional credibility. Being appointed to a respected board is a signal that others trust your judgement, experience and integrity. A strong portfolio of directorships can strengthen personal reputation, create new opportunities and sometimes lead to further board appointments.
There is, however, an important distinction. Self-interest should explain why someone accepts a board role. It should never determine how they perform it.
Once appointed, the director’s fiduciary duty is to the company and its shareholders, not to personal financial interests, friendships, reputation or the next attractive directorship. Independence means precisely that personal incentives must not compromise objective judgement. That is why boards should perhaps be more honest about the bargain.
Companies expect directors to bring expertise, judgement, networks, time and accountability. Directors, quite reasonably, expect compensation, intellectual stimulation, influence, reputation and learning in return. That is capitalism.
The boardroom becomes healthier when everyone understands the exchange clearly. Companies should know what they are buying when they appoint a director. Directors should know what they are getting into. And both should understand that the real currency is trust and not the board fee.
So, when considering your next board opportunity, go ahead and ask the forbidden question: ‘What’s in it for me?’ You don’t need to say it aloud. If you do ask it privately, we promise not to tell.