(FORTUNE Magazine) – WANTED: OUTSIDE DIRECTORS. To start immediately. Audit experience a plus. Candidates should be prepared to spend at least 200 hours per year on board business and act as watchdog on behalf of the SEC. Willingness to report management misconduct a must. Average compensation: $57,000/year. Potential personal liability: unlimited. Preferred: women, minorities, and anyone not a personal friend of the CEO.

Imagine that want ad, and you have a clue to the game of musical chairs now going on inside boardrooms all across America. Turnover has reached record highs, with 50% of outside directors quitting at FORTUNE 1,000 companies. The reasons aren't hard to figure out. Since Sarbanes-Oxley and other antifraud laws and regulations have taken effect, serving on a board is a far more time-consuming proposition than ever before--and a far riskier one. Witness the 12 former WorldCom directors who agreed to pony up $25 million of their own cash to settle shareholder claims. The role of outside director has undergone a big change, "from trusted advisor and confidant to compliance officer," says Darryl Rains, co-chair of the securities litigation practice at Morrison & Foerster in San Francisco. "You now are expected to be a cop on the beat and report any suspected misconduct by management. A lot of people just aren't comfortable with that."

Indeed, Simon Francis, a partner at executive-search firm Christian & Timbers, attributes a lot of empty board seats to conflicts of interest, perceived or real. "For example, it's now viewed as bad form for the chairman of the audit committee to also sit on the executive-compensation committee, or vice versa," he says. "You can't be both gamekeeper and poacher." Further shrinking the pool of outside-director candidates are restrictions on how many outside boards a CEO may join. In 2001, according to an exhaustive study of corporate boards' composition by executive-search giant Korn/Ferry International, just 23% of U.S. companies had such limits. Now more than half (51%) restrict CEOs to no more than two outside directorships.

Risks aside, of course, board membership is still a terrific training ground for top management and an invaluable networking tool. So if you've ever hankered to serve on a board but aren't (yet) a chief executive, now may be your chance. Companies are looking at C-level executives and division heads, says Korn/Ferry vice chairman Joseph Griesedieck, who has recruited hundreds of outside directors. "If you're a senior manager with a reputation as an expert in something, you're a good candidate," he says.

Other headhunters agree. Of the four new directors Christian & Timbers recently found for Timberland, the maker of outdoor gear based in New Hampshire, only one, Terdema Ussery, is a CEO, and he's an unconventional one: He runs the Dallas Mavericks basketball team. The three others are the CFO of 7-Eleven and two division presidents from Microsoft and Starbucks. "Lots of companies are encouraging their executives below the CEO level to go sit on other companies' boards," notes Christian & Timbers managing partner Kerry Moynihan. "It's a way to broaden their own talent pool and train people for succession to the top job. It also lets senior managers learn the ins and outs of Sarbanes-Oxley on someone else's nickel. So directors on the whole are skewing younger and more diverse than in the past." Indeed, the Korn/Ferry study shows that 82% of FORTUNE 1,000 boards now include at least one woman, up from 63% ten years ago, and 76% of big-company boards now boast at least one member of an ethnic minority, a big jump from 44% in 1994.

Let's say you think you could handle the job. How can you minimize your exposure to liability if the company turns out to be the next WorldCom? The most important step is to check out the directors-and-officers insurance policy offered by the company. "There are all sorts of variations. Some policies, for instance, won't pay out in the event of a bankruptcy if executives plead guilty to crimes," says attorney Rains. "Get someone knowledgeable, like an insurance broker who understands the claims issues involved, to look at your coverage. And make sure you have supplemental coverage, known as Side A, designed to shield outside directors." Beyond that, look closely at the company's books. "Make sure you understand the accounting issues and know what judgments are being made," Rains advises. He adds, rather ominously, "Of course, due diligence isn't a panacea." The WorldCom directors probably thought they did their homework too. Gulp.

One bright spot in all the boardroom turmoil: Because it's a tougher job than it used to be, pay is going up. Korn/Ferry's study says it now averages $57,000, a 32% leap from 2002 (the year Sarbanes-Oxley was enacted), and in very large companies it can reach $100,000. Perhaps not surprisingly, the post of audit-committee chairperson now pays an extra $7,745, on average. That's hardly a windfall, but it's 82% higher than before Eliot Spitzer came along. ■

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