Should I Serve as a Member of the Board of Directors of a Newly Public Company?

In recent years, there has been a significant increase in the number of companies conducting initial public offerings in the US, particularly in the technology and life sciences industries. Although most of these companies have boards of directors that are composed of members with some experiences serving on the board of directors of a public company, many of these companies have at least a few members of the board of directors that have little or no such experience.

Serving as a member of the board of directors of a public company can be rewarding for a variety of reasons, including the ability to maintain existing or develop new professional skills and networks. In addition, serving on the board of directors of a newly public company provides opportunities to participate in the overall strategic planning and oversight of an enterprise, oftentimes with companies that are at the forefront of new technologies or industries. Serving on a board of directors, however, also comes with a litany of responsibilities and risks, including a substantial time commitment, fiduciary duties to stockholders, a wide variety of other legal obligations, and potential liability exposure.

Before joining a board of directors, a potential director should first seek to determine if the company represents the right opportunity to achieve his or her goals without representing disproportionate risk. In addition, the prospective member should consider whether he or she meets the various requirements for membership, particularly as an independent member of the board of directors, under both stock exchange and Securities and Exchange Commission (SEC) rules. The prospective member should then consider the substantial time commitment, legal obligations, restrictions, and potential liabilities that come with serving on the board of directors of a public company.

This text originally served as the introduction to the New York Stock Exchange Corporate Governance Guide.