Imagine you are a corporate executive with a shiny reputation. The phone rings and it's a nice, medium-sized company on the line. The company wants your name to brighten up its board and will pay you a number of tens of thousands for getting it. You do not know anything good - or bad - about the CEO.

Three years ago, you probably would have said Yes to this call.

But you do not say Yes now. You hesitate. You ask: why should I? In the sober environment of late 2002, any number of safeguards are being imposed to ensure that companies avoid the failures and scandals of a Tyco, an Enron or a Global Crossing. As in the UK, where Derek Higgs, the investment banker, is leading a review of corporate governance, the aim is to improve the quality of such boards. The idea is also to ensure that companies will be clean enough for executives to want to be directors. There is talk of "widening the gene pool" to reduce Enronish cronyism.

Yet, in the US at least, the reforming changes could have the opposite of the desired effect. Upright talents are beginning to shun the very boards they are supposed to strengthen.

Two things make candidates elusive. The first is that the culture of reform contains an inherent contradiction. The number of people who meet a given set of requirements ("Company seeks female who formerly served as telecom CFO) is narrow. Everyone therefore recruits from the same tiny list: hardly a widening of the pool.

But there is another reason for director scarcity. The new tolerate-nothing mood is scaring off potential board members. The upside of becoming a director remains what it was in the 1990s: the warm, fuzzy feeling of community service, prestige, cash, a chance to learn something and perhaps fix a company's problem. But the downside has expanded mightily. Nowadays, outside directors sense that they are more likely to become a casualty of a future scandal than to prevent that scandal.

The trouble starts with Sarbanes-Oxley, the corporate governance legislation. The law requires that audit committees of publicly traded companies generally be made up of independent directors. One of these directors must be a "financial expert" with specific skills - again, limiting the candidate pool. What is more, the law places that same audit committee under a spotlight: it must both hire the company's accountants and stand responsible if they fail. Board members who are not on the audit committee will, as overseers, also face closer scrutiny.

All of this translates into the possibility of wicked legal trouble. Directors at Qwest, for example, recently learnt that the insurers wanted to rescind coverage for directors and officers. American Insurance Group this autumn announced a new form of liability insurance for independent directors. The product specifically extends protection to board members' personal assets, which are, the comforting presumption is, under greater threat.

Then there are the new rules emanating from the Securities and Exchange Commission and the exchanges themselves. Companies listed on the New York Stock Exchange, for example, must have a majority of independent directors, placing a premium on "independents". Add to this the new demands resulting from corporate self-regulation - General Electric recently announced that directors who are CEOs at their own companies may not serve on more than three boards. And so on.

But by far the strongest deterrent to board service is the very general "name in the newspaper" factor. These days, it is highly likely a company will come under scrutiny. The damage to reputations that that scrutiny causes will not necessarily go away even if the company is cleared - and even if the individuals who are damaged were not directly involved with the trouble. William Webster is a good example: the former Central Intelligence Agency and Federal Bureau of Investigation director was forced off the board of America's new accounting watchdog not because of his own behaviour but because he had served on the board of a company that went belly-up.

The result is a growing shortage. There is already a greater premium on placement services: Spencer Stuart, the executive search group, has increased its board search fees to $100,000 from $75,000 (£65,000 from £50,000) per position.

You can, of course, argue that the new environment should remove precisely those who should not be serving anyway: big cheeses who crave titles and cash but do not want the work they entail. In that sense, says James Citrin of Spencer Stuart, the change is not necessarily bad: "What used to feel like a club is rapidly becoming a profession."

Still, strong companies need strong boards, a group that includes iconoclasts, the occasional generalist and people who do not relish spending their middle years under the burning beam of an SEC egged on by new-era populists. Until board directorships become less threatening, this group will continue to ask: why should I?

© Copyright 2002 Financial Times