CFOs who hold external board positions swear by the benefits, but the majority who don’t have good reasons for shying away.

Running finance at a large, publicly traded company is, of course, a big job with long hours and little downtime. So why would a CFO want to expend time and energy serving on the board of another company? Turns out there are many reasons—intellectual stimulation, skills building, and education in boardroom dynamics. But do those benefits outweigh the potential headaches and risks that directors face?

Among CFOs at the 673 companies included in this year’s editions of either the Fortune 500 or S&P 500, as of mid-August 250 of them (37%) were serving as directors of another company. That’s according to research by executive recruiter Crist Kolder Associates. A majority of those CFOs (143 of the 250) do their outside service for a public company. That’s generally more attractive than joining a private board but also more time-consuming, requiring about 200 hours per year, say CFOs who hold those roles.

Still, the number of finance chiefs serving on public boards hasn’t budged in the past decade—in 2007, 141 CFOs at Fortune 500 or S&P 500 companies were doing so. What has changed is the availability of such board seats. For many reasons, including industries consolidating and a relative paucity of IPOs, the number of U.S. public companies has dwindled since the late 1990s. Further, the number of seats per board has fallen, in part for cost-saving reasons, says Ellen Richstone, a retired CFO and CEO who chairs the audit committees of four public boards.

Added together, these trends—a steady level of public board memberships despite the declining availability of seats—mean that CFOs now comprise a greater percentage of the universe of corporate directors. But, given the heightened pressure on board members arising from shareholder activism, in one sense CFOs (and other corporate executives) are actually seeking out fewer board opportunities. It used to be common for individual executives to be on multiple boards, but now it’s rare, says Crist Kolder president Tom Kolder.

When he started in the recruiting business 20 years ago, Kolder says, he might have called about six potential candidates, and three or four of them would be intrigued enough to discuss the opportunity. His most recent board search was typical of how that scenario has changed: “We combed through no less than 100-plus profiles with the hope of getting that same [number of interested candidates],” he says.

Stimulation, Contribution, Betterment

That said, many CFOs are still extremely interested in board service. Why? It’s tempting to presume that money is a motivation. Board service at a large public company brings median total compensation of about $260,000 annually (see “Extra Earnings,” below).

But it’s unlikely that many big-company CFOs, already highly compensated for their day jobs, are motivated only by the prospect of monetary rewards. And if they are, they probably shouldn’t be. At the least, they should also have a passion for the experience, says Frank Gatti, who was on the board of a public company for seven years before retiring from his CFO post at Educational Testing Service (ETS) in 2011. “I think it does happen sometimes, but if you accept a board seat because of money or because you’re going to get stock or options, I really think that’s a mistake,” he says.

For Greg Beecher, finance chief at automation-equipment supplier Teradyne since 2001 and a board member at MKS Instruments, much of the allure is intellectual stimulation. “When you’re inside a company for many years, you can see how everything that happens is going to unfold before it unfolds,” he says. “Being on a board gives me a different environment to interact with other interesting people.”

A directorship also helps Beecher strengthen his “synthesis skills”—the ability to encapsulate the complexity of a business and translate it in a way that’s understandable to directors and others. It has also helped him as a CFO to see the value of reaching out to the more vocal directors prior to a board meeting, so that he “can fully respond to their concerns in an organized fashion rather be under the gun with the full board.”

Beecher is equally interested in making a contribution. After a long career working on M&A deals, divestitures, restructurings, and oversight of high-growth businesses, he says, he wants to use all that experience to help a management team communicate its vital goals to its board. Joseph Reitmeier, CFO of commercial heating and cooling company Lennox International, also sees the opportunity to contribute his experience as a primary motivation. As a board member at Watts Water Technologies, Reitmeier helped that company navigate relationships with third-party distributors and implement some aspects of Lennox’s three-tier distribution model.

But Reitmeier also views getting board experience now as greasing the skids for a longer-term goal. “I’m not ready to retire just yet,” he says. “Maybe in 10 or 15 years. But if I held a couple of board seats during retirement that would keep me active.”

Another appeal of board service is the opportunity for CFOs to learn how to communicate better with their own internal boards. “Understanding what goes on in a boardroom and why questions get asked allows you to better anticipate the needs, wants, and requirements of your [internal] board,” says Richstone.

Concrete Benefits

Not only can board membership allow CFOs to hone certain skills, it also can help them improve their employers’ businesses. For example, Reitmeier saw Watts using robotic process automation for high-volume but routine transaction processing, and now that’s something Lennox is looking into.

Heath Mitts, finance chief at TE Connectivity, a maker of connectors and sensors for harsh environments, learned valuable intelligence about doing business in China from hoists and riggings company Columbus-McKinnon, where he is a director. When Mitts was running finance for IDEX (another sensor company that he left to join TE last year), Columbus-McKinnon began a greenfield project to become a local supplier in China. IDEX had manufacturing operations there but had struggled to evolve into a primarily local supplier. “Seeing how they set that up was interesting and helpful,” Mitts says.

Frank Gatti had an “ah-hah” moment of sorts as a director at educational technology company Blackboard, which he joined just before its IPO in 2004. Board members provided Blackboard’s young, inexperienced CEO with mentorship and knowledge in their areas of expertise and steered him to organizations that help young entrepreneurs develop into more mature and effective executives.

Those efforts underscored the need for a robust management succession plan: Who would take over in an emergency? Using a matrix approach that integrated succession planning with strategic and risk considerations, Blackboard’s directors implemented an annual assessment of succession not only for the CEO but for his direct reports and their direct reports as well. “When you lay out that type of matrix, you find out that you don’t always have names to put in every one of those cells,” Gatti says. “That means you have to think about whether to groom someone or bring someone in from the outside.”

Having helped polish the process at Blackboard, Gatti took the opportunity to mimic it at ETS—not only for the CEO and two levels of reports, but for all the teams that reported to Gatti, which included facilities, security, business continuity, disaster recovery, and two business units.

Caution Ahead

CFOs who are on outside boards are in the minority, though, for understandable reasons. First, in most cases the CEO must sign off on the extracurricular activity. That’s unlikely to happen when the finance chief hasn’t been in the role that long, or when the company is having problems. Some CEOs may simply oppose the idea.

Then there’s the time commitment. “It’s a balance, but it adds to your workload,” says Mitts. “A couple of years into it I’m more efficient, but there was a ramp-up period in the first year.” Even for experienced CFOs dedicated to being a good director, there’s still much to do. When Mitts is traveling for his own company (TE Connectivity), if he happens to be in an area near a Columbus-McKinnon site, he sometimes arranges a visit to see what that company’s teams are doing. “It’s not just about showing up for board meetings and voting yea or nay,” he says. “Don’t assume you’re just in a figurehead position.”

Indeed, directorship requires greater diligence, notes Beecher. “Ten to fifteen years ago, a powerful chairman could control everything,” he says. “Now you have to take shareholder activism seriously, and more time is spent on matters like cybersecurity, business continuity, financial risk, and financial statements.”

While shareholder activism is primarily a concern for large companies, the small-company equivalent is aggressive plaintiffs’ attorneys, says Glenn Muir, finance chief for medical equipment maker Hologic for 22 years until his 2014 retirement. He now chairs the audit committees of three public boards.

“With every IPO, [the stakeholders] want the stock price to go up,” Muir says. “Unfortunately, we live in a world today where if the price goes down, [the company is] likely to be hit with a class-action shareholder lawsuit.” Such litigation usually claims that the IPO prospectus contained insufficient disclosures or misleading statements. What’s especially disturbing to directors is that the lawsuits name as defendants not only the company and its investment banker, but often individual directors as well.

Multiple class-action suits have been filed in the past year against ReWalk, maker of a bionic walking assistance system and one of the companies for which Muir is a director. He and others recommend that CFOs planning to join a board think about the potential liability, find out the company’s indemnification policy for board members, and have an attorney review the directors’ and officers’ insurance policy.

But all of that may not be sufficient to fully protect directors in the event of litigation. “I think that over time [the prevalence of lawsuits is] going to affect the quality of the pool of available directors,” says Muir. “Those with the most experience and financial resources [already] shy away from boards to a certain extent.”

Potential litigation aside, directorship carries the potential for reputational risk. When deciding whether to join a board, “consider whether these are people you want to be associated with,” says Richstone. “When the going gets tough, will you want to be in the boat with them?”

Do’s & Don’ts

For someone who has fully evaluated the risks and still wants to be a director, how can that goal best be accomplished? First, a CFO needs to possess a broad perspective, a business acumen that extends beyond one’s functional area of expertise, an understanding of strategy and tactics, and an appreciation for the difference between management and directorship, says Kolder.

Richstone suggests “spending time where directors spend time”—attending meetings of director organizations, audit-committee programs offered by auditing firms, and director institutes that some law firms provide. CFOs should also form or maintain relationships with executive recruiters, even though only about 20% of board seats are filled by searches, according to Richstone and others. Beecher suggests that a CFO also enlist assistance from his CEO, who likely has more external contacts. “No one wants to bring an unknown onto a board,” he says. And, according to Richstone, don’t appear too eager. “It’s not like looking for a job,” she says. “If you’re too available, they won’t want you.”

CFO directors should also be wary of boards where activists, debtholders, or certain investors demanded and won seats. “It could be fairly dysfunctional if the board isn’t aligned to the shareholders it’s supposed to be representing,” Mitts says. Scheduling could be troublesome too, Mitts notes, if both the CFO’s company and the one whose board he or she sits on have the same fiscal year.

Once a board seat has been secured, the best advice is to treat it as seriously as a full-time job, proportional to the time spent on each. “If you don’t feel as passionate about the product or service of the board’s company as that of your own, it might not be the right board for you,” says Gatti. “You need to care.”