Attorneys can be eager to serve on boards of directors of outside organizations and with good reason. After all, membership on a board can increase the attorney’s visibility, create connections that lead to new business and, in the case of nonprofit organizations, help the attorney give back to the community. For younger attorneys, service on a board can also provide invaluable “real-life” business experience. However, board service comes with some potential risks that, if not adequately addressed, can result in severe consequences for the attorney, the attorney’s firm, and/or the organization.
Although attorneys serving on boards generally are asked only to act as board members, it can be difficult sometimes for attorneys to resist acting like an attorney. For example, the attorney may want to express legal opinions regarding a particular course of action under consideration. Sometimes, the board itself muddies the lines by soliciting the attorney’s opinion as to the legality of the organization’s actions, notwithstanding the attorney’s nonlegal role.
As a result, it can often be ambiguous regarding whether the attorney is providing legal services to the organization in the context of an attorney-client relationship or whether the attorney is simply acting in her or his capacity as a board member. This confusion can lead to problems. For example, other board members may erroneously believe that communications with the attorney are protected by the attorney-client privilege, even though the organization and the board members may not be the attorney’s clients.
Another concern when the attorney’s role is not well-defined is the potential effect on the insurance coverage available to the attorney. Board members can face a wide variety of potential claims, and the risk for a claim can be heightened if the attorney board member is perceived as rendering legal advice to the organization regarding a course of action. In such circumstances, the organization’s directors and officers liability insurance carrier may argue that coverage is unavailable for any subsequent claim because the attorney was acting in her or his capacity as an attorney, while the attorney’s professional liability insurer may conversely argue that coverage is precluded due to the attorney’s role in the organization. As a result, the attorney could be caught in the middle of a coverage dispute.
Additionally, ambiguity regarding whether there is an attorney-client relationship between the attorney and the organization can give rise to an argument that the attorney’s service creates conflicts of interest for the attorney’s law firm.
In the event that the attorney is being retained to provide legal services to the board, the firm may have to examine whether such conduct is appropriate within the confines of its policies, procedures, and conflicts — and insurance coverage.
Despite these various risks, there are a number of steps that law firms can take to ensure that the attorney and the law firm are protected while enjoying the benefits of the attorney’s nonlegal service on outside boards.
For example, law firms may consider enacting a written policy governing service on outside boards. This policy can vary depending on whether the entity is for-profit or nonprofit, or where the organization is a client of the firm.
Many firms will also take stock of how many attorneys serve on outside boards. In fact, some applications for professional liability insurance will ask firms to confirm how many attorneys serve on outside boards. Firms can remind attorneys of the necessity of full and complete answers to any questions that relate to insurance coverage that may be purchased or obtained.
The law firm also may consider requiring that the attorney obtain firm approval before agreeing to any board service, reserving the right to revoke approval. This allows the firm to evaluate the pros and cons of the attorney’s service on the board and to re-evaluate the relationship in the event that circumstances change. Most firms will also record the attorney’s relationship with the organization in the firm’s conflicts clearance database to avoid any potential conflicts with current or future clients.
Next, the law firm may consider requiring that the attorney confirm the following with the organization, as applicable:
• The attorney will act solely in a business capacity;
• No attorney-client relationship exists between the law firm and the organization; and
• No communications with the attorney will be protected by the attorney-client privilege.
Confirming the scope of the relationship with the organization up front will help avoid any ambiguity that could lead to negative consequences later. Likewise, in the event that legal issues arise, the attorney may again remind other board members that the attorney is acting solely in a business capacity and recommend that the organization retain outside counsel, where practicable.
It may also be helpful for the law firm to remind the attorney that the law firm’s professional liability insurance may not cover claims arising out of the attorney’s service on the board. Instead, the attorney may choose to confirm that the organization has adequate directors and officers insurance and appropriate indemnification provisions for board members.
Finally, the law firm may consider prohibiting or requiring advance approval of the use of the firm’s name or logo in the organization’s marketing, public relations, or external literature. While it may be standard to identify the board member’s association with the law firm in, for example, a biography on the organization’s website, the firm may consider whether any other reference to the law firm could create the impression that the law firm endorses the viewpoints of the organization.
By following these suggested steps, a law firm can minimize the risk associated with an attorney’s service on outside boards.
Shari L. Klevens is a partner at Dentons US in Atlanta and Washington and serves on the firm’s U.S. board of directors. She represents and advises lawyers and insurers on complex claims and is co-chairwoman of Dentons’ global insurance sector team.
Alanna Clair is a senior managing associate at Dentons US in Washington and focuses on professional liability defense. Klevens and Clair are co-authors of “The Lawyer’s Handbook: Ethics Compliance and Claim Avoidance.”