The wealth of knowledge and expertise attorneys have to offer makes them prized as nonprofit board members. After all, the law is complicated and lawyers are expensive. Having someone that can offer pro bono or discounted advice into even simple legal matters—for example, how to attain a zoning variance for the construction of a new headquarters—is of great value to nonprofits.
But for board member attorneys and nonprofits alike, such situations present a slew of complications, and it’s best to understand how they will be addressed before nonprofits avail themselves of this valuable resource, according to Michele Berger, an attorney at San Francisco–based NEO Law Group.
In presentations on this topic given in venues such as the Bar Association of San Francisco, Berger’s firm has laid out some of the most significant considerations for board members who are practicing attorneys and thinking of serving in a legal capacity for their organizations. They include:
- Role confusion. According to Berger, a board member attorney who offers an opinion on something during a board meeting has to establish whether he’s communicating as a board member or as a lawyer for the nonprofit. There are two main concerns here: The opinions offered as a board member may be received with unwarranted and unspoken deference if the rest of the board considers it legal advice, and your legal advice offered as a lawyer may be received without appropriate consideration if the rest of the board considers it the opinion of a board member.
- Loss of independence. According to the firm, the dual role of board member and attorney could potentially compromise the member’s independence of professional judgment. For example, her legal opinion or advice might be clouded if she is reviewing an action already taken where she participated in the vote or had a preferential viewpoint from a business perspective. Having a blanket policy to address this issue would be helpful, Berger said.
“For actions taken as a director, it is helpful to emphasize the duty of loyalty, and to make sure the nonprofit has a good conflict-of-interest policy to navigate situations. For actions taken as an attorney to the nonprofit, having a policy at the outset not to review actions as an attorney that the attorney director voted on as a director may help to avoid a loss of independence,” she told Nonprofit Business Advisor.
“The attorney director may also have to consider other actions where the attorney’s or her firm’s other clients would or might reasonably be expected to be impacted,” she said.
- Conflicts of interest. Another complication arises when the board member attorney’s firm, or one of its clients, gets in a dispute with the nonprofit. Which role does the member play, and which party does he represent? If he doesn’t provide zealous representation for the nonprofit—or withdraw from representing it—it could cause major legal issues.
“While a conflict of interest may be a concern for any director, particularly for one providing advice to a nonprofit that might impact her personal business, it’s likely a more tricky concern for attorneys because they generally owe a duty to represent their clients zealously within the bounds of the law,” Berger said. “Breaching such duty may result in disciplinary actions that other professions may not be subject to.”
- Loss of attorney-client privilege. When a board member also serves as an attorney for the nonprofit, communications might lose critical attorney-client privilege if they are not handled properly, the firm says.
“If serving both as a director and an attorney, the attorney director should identify, preferably in advance, whenever her communications are intended as legal advice,” said Berger. “Such communications, if made in a board meeting, should not be captured in the minutes, which may be accessible to nonfiduciaries of the corporation (e.g., members) and thereby lose their status as privileged communications.”
- Questions of competence. Board member attorneys should also examine whether they truly have the knowledge and competency to advise the organization, given their background and practice areas. They should be careful when asked to provide advice in areas in which they possess some knowledge but don’t have a deep enough understanding of the intricacies of nonprofit law.
“Attorney directors who do not practice nonprofit law should be careful when, for example, preparing executive compensation packages and negotiating sales or asset transfers and joint venture or partnership agreements, as there are many nuances in the law that a general corporate or tax lawyer may not be familiar with,” she said.
- Insurance. There’s also the question of which party’s insurance will cover acts or omissions of a board member attorney, NEO Law said. The nonprofit’s directors and officers insurance generally covers certain acts or omissions of the individual acting in the capacity of a board member, but not in the capacity of an attorney. Meanwhile, the member’s professional malpractice insurance would cover him when acting in his capacity as a lawyer, but not in his capacity as a board member. If there’s confusion about which role the individual was in during the activity in question, there’s a chance that neither party’s insurance would provide coverage.
“It’s likely that either one or the other would apply if the attorney director was covered by both types of insurance. However, if there is a question of in what capacity the attorney director acted, each insurance company might deny coverage stating that the claim should be covered by the other,” Berger said. “For example, if the attorney director negligently assured the board that unlawful compensation to a contractor would be fine, but did not specify whether her opinion was provided as legal advice, it may be unclear which insurance should cover a claim related to that action.”