The legal responsibilities and risks of membership on a Board of Directors can be substantial. Make sure you understand your objectives before embracing these responsibilities by accepting a Board position.

Many directors accept board membership as a professional endeavor. These individuals are typically experienced directors familiar with board work, as well as the responsibilities and legal risks. They carry the appropriate insurance, are advised by independent counsel, have operational guidelines and receive compensation.

Directors that serve on a more informal basis are typically less informed, not advised by separate counsel and perform their services gratuitously. These individuals may be shareholders of the corporation, business affiliates or merely friends or advisers to corporate management. Boards populated by such participants are typically less disciplined, subject to conflict of interest allegations as well as attack for breach of fiduciary responsibilities by disgruntled minority shareholders.

If you agree to serve on a board marked by informality, be sure you understand your objectives. If you are new to board work and are looking for opportunities to build credentials, the risk may be worth taking. At the same time, boards that operate informally provide only limited value in building experience. Likewise, if your objective is to influence the corporation and its management for personal reasons, a conflict of interest may be looming.

The best way to mitigate these risks is to influence the board towards greater operational discipline. Solicit outside representation on the board, formalize operational reports, document resolutions and adhere to committee schedules. These formalities will work to the advantage of all board members and serve the interests of your shareholders.