Inside the boardroom: The party is over!

May 6, 2013, 12:49 PM UTC

It’s 5:45 A.M., cold, and dark. You are standing in a hotel lobby in a northern Midwestern city, about to be driven to the headquarters of the company on whose board of directors you serve. The board’s committee meetings — audit, compensation, others — began yesterday after lunch and ran all afternoon, and then the full board had dinner. Days earlier you’d received a few hundred pages of briefing materials, which you are expected to have read and thought about. This morning you’ll have breakfast at 6, and the board will convene at 6:30. You’ll work until lunchtime, eat, and head for the airport.

Welcome to the world of a Fortune 500 director. It ain’t what it used to be. The company described is real but doesn’t want its board’s routine disclosed for security reasons, which only begins to tell you how the director’s world has changed. No one used to care when or where the board met — or if it met at all. “Meetings, historically, long ago, were dog-and-pony shows,” says Charles Elson, a director of HealthSouth, a former director of Sunbeam, AutoZone, and other companies, and chief of the John L. Weinberg Center for Corporate Governance at the University of Delaware. Twenty years ago board service was the cushiest gig in corporate America. A morning of presentations by management followed by a long, liquid lunch, perhaps some cigars, and there you were. “It was a place for glory, for people who were already recognized,” says a longtime board consultant.

Deloitte CEO Joe Echevarria, who in his 30 years of tending to client companies’ audits has sat in far more board meetings than most directors, estimates that members’ time commitment has increased tenfold since then. “Today’s directors have to understand a broader book of business issues — risk, regulatory, compliance, strategic oversight, crisis management,” he says, adding, “It’s a tough but important place to be for sure.” It isn’t just the hours. Job security is lower as activist investors like Daniel Loeb and Carl Icahn campaign against some companies’ directors. Risks to personal reputation are greater as investors and media increasingly blame directors — rightly — for debacles like those at J.C. Penney and Hewlett-Packard. The legendary perks, like lifetime first-class travel for airline directors and new cars twice a year for General Motors directors, are mostly gone. Sarbanes-Oxley and Dodd-Frank mandate in detail what boards must do. “Sarbox is a meat grinder,” says a director of an energy company. “We spend a lot of time checking the boxes. If anything, it gives us more cover than before. But it’s definitely less fun.”

Bottom line: “I pity them,” says Nell Minow, who has helped revolutionize directors’ lives as co-founder of the pioneering proxy advisory firm Institutional Shareholder Services and a co-founder of the corporate-risk research firm GMI Ratings. “I’m in the business of making them work hard, but many of them are living a nightmare.”

And yet plenty of highly qualified people are lining up for the gig. “Finding them is not a problem,” says John Wood, vice chairman of executive search firm Heidrick & Struggles. He says the CFO of a Fortune 25 company is looking for a board seat, as is the recently retired CEO of a large financial institution — and he’s “having a hard time because he doesn’t have international experience.” Despite the demands, “it’s still the ultimate great job,” says Donna Dabney, director of the Conference Board’s Governance Center and previously Alcoa’s corporate-governance counsel. “There’s a huge amount of prestige in being involved in the inner circle of a major company. You work on a part-time basis and get paid pretty well.”

Yes, you do — much, much better than in the old days. The average nonemployee director of a Standard & Poor’s 500 company makes $242,385 a year, says headhunting firm Spencer Stuart’s analysis of 2012 company filings, and some make a great deal more (see table at the top). When the firm conducted its first such study 24 years ago, the figure was $36,667. The increase far outpaces inflation and about matches the rise in stock prices. A headhunter observes, “The workload has increased, but not as much as pay has.”

No one has solid data on the time required, but Heidrick & Struggles’ Wood figures that for a major U.S. industrial company, it’s “six meetings a year, one of which is overseas, and you’re probably on a committee that meets separately, so call it 20-plus days annually — about 10% of your professional time. If you’re on the audit committee, especially as the chairman, it’s significantly more.”

Today’s directors cannot complain about their hourly rate. Yet even there, life isn’t what it was. In the good old days a director could serve on, and get paid by, many boards — it was “total heaven, like having a permanent hot bath,” as British politician and author Robert Boothby once described his own multiboard experience. Washington super-lawyer Vernon Jordan served on 11 boards in the ’90s, former Citigroup chief Walter Wriston on 10, and the all-time champion, former Defense Secretary Frank Carlucci, was on 14 at one time. But now about half of America’s largest companies have formal “over-boarding” policies that in most cases permit directors to hold just three other directorships at for-profit organizations.

How did board service morph from an agreeable pastime into a high-pressure, high-stakes, highly paid job? The transformation began in the ’80s as mutual funds, pension funds, and other institutions became the largest holders of shares in U.S. companies, with a legal fiduciary duty to vote their shares in the best interests of their investors. Turbocharging the effect was the rise of proxy advisory firms recommending how those powerful institutions should vote. The concept, as Minow once put it, was that “corporate directors can be rated like bonds, from triple-A to junk.” These firms researched and publicized the lavish perks, lax oversight, and lap-dog directors at many companies. Today virtually all big institutional shareholders subscribe to these services and largely follow their voting advice. Mention to Minow that director perks are now mostly gone, and she pauses, smiles, and says, “You’re welcome.”

The collapse of Enron and WorldCom sparked Sarbanes-Oxley; the New York Stock Exchange and Nasdaq created more governance rules as listing requirements. Then the financial crisis begat hundreds of new rules via Dodd-Frank. Again the director’s world was transformed.

Today that world is largely a world of worry. Having seen boards blamed for most of what’s gone wrong in business over the past 20 years, the modern director’s first instinct is to watch out for danger. Is a London whale trading to a multibillion-dollar loss? Is a pharmaceutical plant turning out defective pills? How would you know? “Directors’ No. 1 worry is whether they’re getting the straight story from the CEO,” says retired Fidelity Investments executive Robert Pozen, a director of Medtronic and Nielsen and former director of other companies. Another director agrees: “Your information comes from management, and you’re a little bit at their mercy.”

Sometimes they starve you. A director of a Midwestern industrial firm says, “It amazes me how on our board, including the audit committee, we’re spoon-fed a set of financial metrics that really don’t give us a picture of what’s going on in the company.” Sometimes they bury you. Yale business professor Jeffrey Sonnenfeld, a longtime director currently on the board of homebuilder Lennar, notes, “CEOs are managing boards, bank boards especially, by giving them a data dump overload. What you can pile onto your directors is limitless.”

From nasty business surprises spring all manner of personal hells for directors. The one that spooks them worst is liability. Ten former Enron directors together paid $13 million out of their own pockets to help settle a class-action suit, and 10 former WorldCom directors paid $18 million. In truth, there’s little danger. Such cases are extraordinarily rare. In all the disasters of the financial crisis, no directors, not even those of Lehman Brothers, Bear Stearns, or Countrywide, have had to pay personally.

But even if a blowup doesn’t require you to write a check, “you still wake up at night, still have to go through the depositions,” says Elson. Rationally or not, many directors remain terrified of liability. “I was at a meeting of lead directors, and cybersecurity came up,” recalls a board headhunter. “About half of them wanted to know what question they needed to ask so they could not be held liable if there were a breach. I couldn’t believe it — it’s an important issue, and they were just worried about protecting themselves.”

Even wise directors who know their financial risk is tiny still worry that a corporate debacle will damage their reputation. That worry is more plausible — the media identify directors more than before — yet may still loom larger than it really is. Among former Enron directors, for example, Norman P. Blake Jr., then also a director of Owens Corning, is still a director there and now chairman of the audit committee; Frank Savage remained a director of Lockheed Martin for several years after the Enron scandal and is now also a director of Bloomberg LP. Nobody wants to be part of a disaster, but the world will probably get over it before you do.

A director’s most realistic worry about the unexpected is that it will suddenly devour his or her time. In 2011, for example, NYSE Euronext announced plans to merge with Deutsche Börse, prompting Nasdaq OMX Group to launch a surprise takeover bid for NYSE. While the median S&P 500 board met eight times that year, NYSE’s board met 26 times and Nasdaq’s 25, reports Spencer Stuart. Such unforeseeable, open-ended time sinks are becoming more common. Citigroup’s board met 22 times in 2011, Bank of America’s 18 times, J.C. Penney’s 15 times. Most directors have other business commitments (many are full-time corporate executives), and that is what they dread.

With so many risks loaded onto board service, are more directors looking for a way out? Far from it. On a director’s long list of worries sits a big one they rarely talk about to outsiders: that they’ll lose their seat. That, too, is a greater risk than in the old days, when the risk was practically zero. Directors are elected by shareholders, but it’s a Soviet-style election. If 10 board seats are open, 10 candidates are on the ballot; shareholders can vote for a candidate or can check a box to withhold their vote, but as long as a candidate gets at least one vote, which he can cast for himself, he’s elected.

That’s still the procedure, but in recent years many boards, prodded by institutional investors, have adopted a policy requiring any director who gets a majority of “withhold” votes to resign. It happens, though not often. Last year Richard K. Davidson at Chesapeake Energy, Ricardo Salgado at NYSE Euronext, and Marc E. Kalton at oil and gas producer Isramco resigned under those circumstances, according to GMI Ratings. More recently, two Hewlett-Packard directors, McKesson CEO John Hammergren and former Wachovia CEO G. Kennedy Thompson, resigned, though not required to, after receiving only small majorities in their favor. Such outcomes were unthinkable a few years ago.

You can get kicked out of the clubhouse in other ways that are increasingly likely. Activist investors, the Einhorns, Ackmans, and Icahns of the world, frequently attack target companies by threatening to spend millions on proxy fights to get new directors elected in place of current ones. In recent weeks Carl Icahn has gone after offshore driller Transocean in just this way, telling CNBC, “This company needs new blood on the board, and we’re putting up a slate.” Sometimes the mere threat motivates the board to shape up, and the threat isn’t empty. In March, for example, a dissident candidate defeated an incumbent for a board seat at International Game Technology. Proxy fights used to be extremely rare, but no more.

As mergers and acquisitions heat up along with the stock market, and two companies’ boards become one, directors face still another threat. Devotion to fiduciary duty doesn’t always survive. Directors can be reluctant to consider recapitalization, going private, or merging. “Don’t you know — we might lose our board positions!” a CEO told Yale’s Sonnenfeld and colleagues, as they report in a recent Harvard Business Review article. Which raises a deep question for today’s directors: Why are you really doing this? Roger Martin, a director of Thomson Reuters and Research in Motion and dean of the University of Toronto’s Rotman School of Management, concludes that almost all directors are serving for unworthy reasons. Specifically: “It’s good money. Another reason is prestige. Or great camaraderie, or to learn a new industry, or to curry favor. In all those cases, what will directors do on the board?” Whatever it is, if it’s to further those reasons for serving, “it will almost always be bad for the shareholders,” Martin says. “We imagine people going on boards for ‘good reasons,’ but it should come as no surprise that there are so many governance failures.”

There’s just one valid reason to be a director (if you aren’t a major shareholder), Martin believes: “Public service. True altruism is the only good reason to serve.” Directors must look fearlessly into their hearts to see whether they pass the test.

It all adds up to a world defined by uncertain and potentially long hours, heavy regulation by vast new laws, intense scrutiny by proxy advisory firms and their clients, a risk of getting thrown off a board, nagging doubt (if you share Martin’s view) about whether you’re sufficiently saintly, and, in most cases, good pay. It’s a far different package from the low-stress, pampered-pasha experience of 15 or 20 years ago. And on the whole, “It’s incredibly satisfying,” says Betsy Atkins, a tech entrepreneur, who by her count has served on 27 public boards over the past 25 years and is now a director of Chico’s, Schneider Electric, and Polycom. Atkins and other women, it should be noted, remain scarce on corporate boards: Only 16.6% of Fortune 500 directorships are filled by women, up from 10.6% in 1997. “It’s far more rewarding now — real engagement, dealing with substantive issues of strategy and competitiveness.”

A position involving hard thinking and large responsibilities is perhaps even more appealing than saying “aye” a few times and having a nice lunch. The good old days were great. It may be that, for all the work and worry, the director’s world today is actually better.

This story is from the May 20, 2013 issue of Fortune.

Subscribe to Well Adjusted, our newsletter full of simple strategies to work smarter and live better, from the Fortune Well team. Sign up today.