The effects of axial boundary conductivity on the formation and stability of a magnetized free Stewartson-Shercliff layer (SSL) in a short Taylor-Couette device are reported. As the axial field increases with insulating endcaps, hydrodynamic Kelvin-Helmholtz-type instabilities set in at the SSLs of the conducting fluid, resulting in a much reduced flow shear. With conducting endcaps, SSLs respond to an axial field weaker by the square root of the conductivity ratio of endcaps to fluid. Flow shear continuously builds up as the axial field increases despite the local violation of the Rayleigh criterion, leading to a large number of hydrodynamically unstable modes. Numerical simulations of both the mean flow and the instabilities are in agreement with the experimental results.