Attorneys are often asked to serve on corporate or non-profit boards. This can be a fulfilling way to give back to the community, but often there is an expectation that the attorney will provide pro bono legal advice. The dual role of board member and legal advisor creates risks unique to lawyers. Consider the following best practices to manage those risks.

EXERCISE DUE DILIGENCE BEFORE JOINING BOARD

At a minimum, an attorney should review:

• Articles of Incorporation
• Bylaws
• Board Policy Manual
• Meeting minutes from the board and significant committees for the preceding 12-18 months
• D&O, general liability, malpractice, and umbrella insurance policy coverage
• The entity’s website
• Recent news coverage and internet postings related to the entity. (e.g., internet search)

If available, it is also wise to review:

• Current financial audits
• Correspondence from tax, government and licensing agencies
• Strategic plan and performance metrics

For non-profit boards, the attorney should also review:

• IRS 1023 application and determination letter
• The three most current IRS 990 forms
• Current charitable solicitation licenses for all states in which the nonprofit operates

These documents should be compiled in board manuals accessible to all board members.

CLARIFY YOUR ROLE

Before agreeing to serve on a board, the attorney should determine if providing legal advice is expected. If the attorney will be asked to provide legal advice, there are several options: (1) The attorney can say no to sitting on the board and offer to serve as outside counsel on a pro bono basis instead. (2) The attorney can limit their participation to serving solely as a director and commit to never giving the entity any legal advice, other than perhaps identifying situations where legal advice should be obtained. (3) The attorney can attempt to “wear two hats” serving as both a board member and providing legal advice and legal services. This third option raises concerns under several Rules of Professional Conduct.

• Pursuant to Rule 1.1 Competence and Rule 1.3 Diligence, the attorney must have the requisite competence for the representation and be able to provide timely representation. Consider this carefully if serving on a board in an area of practice or of the service of a non-profit with which you are not familiar. Also understand the time commitment for board service.

• The application of Rule 1.6 Confidentiality of Information can also be challenging. If the attorney/director is working in a dual capacity, it must be clear whether the advice is given wearing the “attorney hat” or the “director hat.” The attorney/director may try to address the problem by specifically noting in board minutes that advice is strictly legal advice, but if non-privileged business advice is also part of the discussion the privilege is lost.

For a non-profit board, there can be confidentiality problems because outside donors may have certain rights to review the board minutes and/or non-attorney directors may disclose the communication for business reasons. It is important for the attorney/director to fully inform the client and the board of the potential risks relating to loss of privilege – ALWAYS in writing!

• Evaluate potential conflicts of interest under Rule 1.7 Conflict of Interest: Current Clients and other conflict rules, as applicable. Sending a conflict letter to the board explaining your role can address this.

Rule 1.8 Conflict of Interest: Current Clients Specific Rules may be implicated if your relationship would involve entering into a business transaction with the board client. Check if the board has a conflict of interest policy.

• Rule 1.13 Organization as Client gives ethical considerations for the attorney employed or retained by an organization. These duties can be complicated if the attorney is also a director.

• Rule 5.4 Professional Independence of a Lawyer provides that an attorney shall not permit a person who recommends, employs, or pays the lawyer to render legal service for another to direct or regulate the lawyer’s professional judgment in rendering such legal service. In light of this rule, consider how the attorney/director can maintain professional independence and responsibly voice objections while serving on the board of a client.

IDENTIFY INSURANCE ISSUES

When an OBLIC insured attorney provides legal work to a board, that legal work is covered under the definition of “professional services,” subject to the exclusion for any business enterprise if the percentage of ownership interest held in such business enterprise or entity, directly or indirectly, by any Insured and/or their spouse or collection of Insureds and/or their spouses exceeds, or exceeded, at any time, 10%.

When an OBLIC insured attorney serves only as a board member, the OBLIC policy excludes coverage for an insured as an officer, director, partner, member, owner, employee or in a fiduciary capacity, except in a few limited circumstances. The OBLIC policy will provide coverage if the attorney was appointed in a fiduciary capacity to such by a court of competent jurisdiction.

The OBLIC policy will also provide coverage if the attorney is engaged in volunteer services or activities for the Ohio State Bar Association, a general Ohio county or metropolitan bar association, or any non-profit organization that provides legal services on a pro-bono basis.

When an attorney serves in a dual capacity, whether there is coverage will depend on the activity that led to the claim. The attorney should always check with their underwriter to verify whether activities are covered and, before accepting a position on a board, determine whether the board will provide “D & O” – Director’s & Officers – coverage.

FOLLOW THESE STEPS FOR A REWARDING BOARD EXPERIENCE

• Before joining a board, determine if there is an expectation that you will provide legal advice on issues before the board and if there is not, memorialize that understanding at the outset.
• When called upon in board meetings to address legal issues, remind the board that you are contributing to the discussion as a board member only and not offering legal advice.
• Recommend retaining outside counsel when necessary.
• Request that your comments about your role and your recommendations to retain counsel be reflected in meeting minutes.

If there is an expectation that you will provide legal advice as issues arise, discuss whether it would be more appropriate for the board to retain you as counsel.

• Before accepting the representation, consider whether you can meet your ethical obligations outlined above.
• Identify conflicts, discuss them with the other board members and either decline the representation on that issue or get the board’s written informed consent to proceed.
• If the conflict impacts your duties as a board member, abstain from voting.
• If you are retained as counsel, document the representation with a fee agreement or engagement letter that clearly identifies the client and the scope of the representation.

If you decide to engage with the organization as both legal counsel and a member of the board, proceed with caution.

• Clearly distinguish when you are providing legal advice and when you are not.
• Consider documenting those discrete issues for which you are providing legal advice with separate engagement letters.
• Avoid giving “off-the-cuff” opinions when discussing issues with other board members.
• When a legal issue arises that is beyond your competence, advise the board that you cannot provide legal advice on the issue and recommend retaining outside counsel.
• Review the insurance coverage maintained by the organization to determine the coverage available should a claim arise.

If you have a legal ethics question related to service on a board or any other aspect of your practice, give us a call. We are here to help.

Gretchen Mote, Esq Director of Loss Prevention Ohio Bar Liability Insurance Co. Direct:  614-572-0620 Email: [email protected]

Monica Waller, Esq. Senior Loss Prevention Counsel Ohio Bar Liability Insurance Co. Direct:  614-859-2978 Email: [email protected]