NIA | In The News | Help Wanted: Board Directors

NEW YORK - Despite shattering investors' confidence, the spate of corporate scandals that recently swept through the U.S. has had one positive consequence: companies have had to redefine the role of their corporate boards and the responsibilities of those who sit on them.

With the collapse of giants such as WorldCom or Enron, shareholders lost not only their investments, but their trust in star-studded corporate boards protecting their interests. Soon after light was shed on the multiple conflicts of interest haunting the workings of boards, corporate governance screws were tightened sharply: The Sarbanes-Oxley corporate governance reforms were passed in 2002 and the Securities and Exchange Commission approved new listing requirements for the New York Stock Exchange last month.

"Up until then, boards were considered parsley on the fish," says Charles Elson, a member of the Weinberg Center for Corporate Governance. "Now they are a credible counterweight to management."

Indeed, at the price of a serious power shift, boards have been transformed into far more responsible monitors of a company's procedures. The new rules, however, place such a liability burden on board directors that recruiting them has become almost an impossible task.

"The traditional pool of candidates has shrunk," says Julie Daum, practice leader for North American board services with search executive firm Spencer Stuart. "We have spent an awful lot of time this year looking for people to serve on boards in general and on financial committees in particular."

Traditionally, companies have looked for chief executives of firms larger than themselves to sit on their boards. But because the workload has increased about 50% for directors since Sarbanes-Oxley was passed, few sitting CEOs can find the time to accept new positions on top of their current ones.

Some directors are already clearly overworked: Consider Shirley Jackson, who sits on the boards of Medtronic (nyse: MDT - news - people ), AT&T (nyse: ATT - news - people ) and Fedex (nyse: FDX - news - people ) among others, or Vernon Jordan, who, on top of his day job at investment bank Lazard Freres, is on the boards of six companies including Sara Lee (nyse: SLE - news - people ), American Express (nyse: AXP - news - people ) and Xerox (nyse: XRX - news - people ) (see: Overworked Directors 2003).

Maybe surprisingly, "We haven't seen many instances of directors quitting boards," says Corporate Board Member President T.K. Kerstetter, "but executives are much more wary of taking on additional positions than they used to be."

A study by Korn/Ferry International released in October found that 23 % of directors of the top 1000 companies in the Americas turned down additional board roles in 2002, in comparison to just 13% the previous year.

Because the majority of executives join boards as much for the learning opportunities and prestige of the position as for the compensation, smaller firms have been the hardest hit by the recent recruiting problems.

Kerstetter says the smaller firms don't have that prestige factor when trying to recruit candidates. Additionally, they've seen their pool of candidates shrink as many companies have adopted guidelines limiting to one or two the number of boards their CEO can sit on.

With the requirement that a financial expert sit on the audit committee, CEOs have lost some of their allure, being replaced by current or former chief financial officers, academics or accountants. Ironically, while candidates with accounting skills have become the most desirable, the chairmanship of the audit committee is now the least wanted position on a board. Chairmen of audit committees tend to get paid more than other board members, but because the job's responsibilities are tremendous, practically no amount of compensation can make up for the risks entailed.

Overall, compensation is bound to augment further, says Spencer Stuart's Daum. So far, it has only risen about 15%, while the workload has surged, from longer meetings to more contacts in between meetings and more preparation. The other change in compensation is that a larger portion of it will move to restricted stock in an attempt to more closely align directors' interests with the general health of the company.

Board members are protected by directors and officers (D&O) insurance, but not completely. Shareholders still regularly file lawsuits against boards, but that may taper off. D&O insurance leader American International Group believes Sarbanes-Oxley will lower risks for directors and officers, but for the next two to three years, the situation is unlikely to improve.