In many ways, attorneys are well-suited to serve on the boards of directors of outside organizations. Attorneys are relied upon for their judgment in complex situations and are often well-connected in the business community, both of which are attractive qualities for all types of organizations.
It is no surprise that attorneys are commonly asked by organizations to serve on their board of directors. However, while there are many benefits for attorneys in serving on boards, and there is nothing inherently unethical about an attorney serving on a board, there are also a number of potential risks. Accordingly, before agreeing to serve on an outside board, it is helpful to first consider how some of the risks can be mitigated.
Acting as a board member can be a somewhat unusual position for attorneys, as in other situations, they are typically retained to act as their client’s legal adviser. Board members, however, are expected to make business decisions and will typically retain outside counsel to the extent legal advice is needed. Nonetheless, attorneys on boards may feel the urge to act like an attorney or even feel inclined to advise the organization regarding the legal implications of a particular course of action under consideration. Likewise, in the event that the organization is faced with a legal issue, the other members of the board may solicit and rely upon the attorney’s opinion as to the legality of the organization’s actions.
Thus, attorneys may find that the line between providing legal services to an organization and acting as a board member can get blurred. This confusion can create risks, for both the attorney and the organization. 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 are not the attorney’s clients.
There can also be questions relating to insurance coverage for any claims relating to the attorney’s actions as a board member. If a claim is asserted, the organization’s directors and officers liability insurance carrier may argue that coverage is unavailable 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. The worst case scenario in this situation is that the attorney is left without coverage from either insurer.
Another potential issue is unexpected conflicts of interest. Sometimes, it can be easy for attorneys and law firms to inadvertently overlook service on outside boards in evaluating potential conflicts. However, Rule 3-310 of the California Rules of Professional Conduct may be implicated for those matters where, for example, “the member has or had a legal, business, financial, professional, or personal relationship with another person or entity the member knows or reasonably should know would be affected substantially by resolution of the matter.”
This disclosure requirement may apply to the relationships created when an attorney agrees to serve on the board of an organization. Thus, representing a client with an adverse interest to the outside organization could create conflict issues that need to be addressed.
Finally, when an attorney serves on the board of an organization, the attorney’s law firm may be viewed as supporting or having an association with the organization. As a result, any negative publicity or controversy involving the organization may implicate the law firm in the eyes of the public.
Ways to Limit the Risks
Although these risks can be serious, they typically should not preclude an attorney from serving as a board member and can be mitigated in a number of ways. Because service on outside boards by attorneys is so common, law firms may wish to enact policies aimed at limiting the risks. Although these policies may need to be adjusted depending on the circumstances (such as whether the entity is for-profit or nonprofit), they can generally ensure that attorneys give the potential issues their due consideration.
One policy to consider is requiring the attorney to obtain firm approval before agreeing to any board service, while also retaining the right to revoke approval at any time. 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.
Next, to avoid the risks that arise from the potential ambiguity regarding the attorney’s role as a board member, the firm could consider asking attorneys to confirm the following with the organization, as applicable: (1) the attorney will act solely in a business capacity; (2) no attorney-client relationship exists between the law firm and the organization; and (3) no communications with the attorney will be protected by the attorney-client client privilege.
Even with this confirmation, it is also helpful to remind the attorney to advise other board members that the attorney is acting solely in a business capacity and recommend that the organization retain outside counsel, where practicable.
The potential insurance issues can also be considered in advance. The serving attorney can confirm that the organization has adequate directors and officers insurance and appropriate indemnification provisions for board members.
Finally, while it typically may be acceptable to identify the attorney’s association with the law firm on the organization website and in other public relations materials, law firms can consider where to draw the line with respect to the use of their name or logo. The goal is to avoid any use that may create the false impression that the law firm endorses the viewpoints of the organization.
With these risks considered ahead of time, attorneys can more confidently serve as board members while worrying less about the potential downfalls.
Shari L. Klevens is a partner at Dentons U.S. and serves on the firm’s U.S. board of directors. She represents and advises lawyers and insurers on complex claims, is co-chair of Dentons’ global insurance sector team, and is co-author of “California Legal Malpractice Law” (2014). Alanna Clair is a partner at Dentons U.S. and focuses on professional liability defense. Klevens and Clair are co-authors of “The Lawyer’s Handbook: Ethics Compliance and Claim Avoidance.”