Note: This article is a recap of Lesley Rosenthal’s presentation at Proskauer’s 17th Annual Trick or Treat Tax Exempt Seminar, November 29, 2012
Attorneys can reap enormous rewards by serving on nonprofit boards. Lawyers derive tremendous personal satisfaction in governing an organization that is meaningful to them. They can do the public good by participating in a charity that feeds the poor, heals the sick, enlightens through culture and education, or preserves the environment.
Nonprofit board service is prestigious, and invaluable for professional networking. It is also a great remedy for the ennui that sometimes sets in when lawyers work inside big law firms, corporate departments or government agencies, and a cure for the isolation of solo or small-firm practice. A lawyer who serves as a nonprofit trustee is likely to quickly become a trusted and valued member of the team, whose individual contributions markedly enhance a worthwhile enterprise.
Board service may lead to (or in some locales even qualify as) pro bono work. Suitable pro bono opportunities are sometimes hard to find, particularly for corporate or transactional lawyers. Most important is the opportunity to serve the public interest in a meaningful way, to bring professional skills to bear in a collegial context that is different from an otherwise adversarial professional realm.
Why Nonprofit Boards Want Attorneys
For their part, organizations wish to recruit lawyers to their boards for a variety of reasons: legal expertise and perspectives, stature, good judgment, negotiating skills, and of course financial contributions. The fiduciary duty of care requires that board members attend meetings and pay attention to the governance of the organization, overseeing management in fulfillment of mission. In addition, most nonprofit board memberships come with a (stated or tacit) expectation that each member will donate or solicit funds on behalf of the organization. Some organizations have a stated amount, others simply ask that each board member give an amount that is meaningful to him or her.
In addition to governing and personal giving, board members may be expected to serve in an external relations role, advocating for the organization and introducing it to new sources of funding such as private philanthropists, donor advised funds, government funders, corporations and foundations.
Apt Roles for Lawyers on Boards
By their training and professional expertise, lawyers may be particularly suited to fulfill certain roles on boards, for example:
- Legal Committee
- Governance committee
- Audit committee
- Public affairs/government relations committee
- Corporate secretary role
- Ad hoc committee to review and update by-laws
- Development (fundraising) committee
- Grants committee (for grantmaking organizations)
In many nonprofits, particularly those with larger boards, much of the work of the board is carried out through committees, whose activities and recommendations are memorialized in minutes and regularly reported out to the board for discussion, refinement and ratification. Attorneys may be particularly well-suited for the minute-taking role as well as for keeping track of the organization’s adherence to its policies and by-laws.
Some Cautionary Notes
Lawyers joining nonprofit boards would do well to observe some cautions. Many nonprofits, particularly smaller or less-sophisticated organizations, may erroneously believe that having a lawyer on the board is the same thing as having a lawyer. They may not recognize that the establishment of an attorney-client relationship is a formal matter, with an engagement letter (legally required in some states) and stated professional understandings as to scope of the representation, fees/fee waivers, and expenses. For their part, the lawyers may not be in a position to deliver legal services to the client for any number of reasons: core competency, time and availability, conflict of interest, lack of malpractice insurance, lack of bar admission in that state, or otherwise.
When attorneys do agree to represent the organization as well as serve on its board, they should be mindful of the following risks:
- Document the inception, scope and terms of the attorney/client relationship. Some states’ professional responsibility rules require a written engagement letter setting forth these matters.
- Avoid private inurement – nonprofit resources being used improperly to enrich the attorney or the law firm. The actuality or appearance of a prohibited private inurement relationship between the organization and the attorney can avoided by providing services pro bono. If the engagement is on a fee-bearing basis, the attorney should be sure to follow the organization’s conflict-of-interest policies and, once the relationship is cleared by independent directors, the attorney should be sure to follow requirements for ongoing disclosure of fees.
- Privilege waiver can occur if the attorney/director fails to flag when she is taking off her director hat in the board room and commencing the rendering of legal advice as counsel. See, e.g., Deutsch v. Cogan, 580 A.2d 100 (Del. Ch. 1990) (holding that lawyer’s communications with other board members or management were while she was wearing her “director hat” and not her “lawyer hat,” and that the communications are discoverable in litigation); see generally Model Rule of Professional Conduct 1.6.
- Conflicts of interest can arise, for example, if the lawyer is asked to give a legal opinion on board actions in which the lawyer participated. Another example: if the organization is party to a litigation, the lawyer may be unable to try the case on behalf of the client, especially where he may be a witness.
- Gaps in liability coverage: Some legal malpractice insurance underwriters will not cover either the lawyer or her firm if one of its lawyers serves on the board of the client; other policies will provide coverage only where the lawyer was acting as a lawyer but not as a director. This can lead to disputes between the D&O carrier and the malpractice carrier about whether the lawyer was acting as a lawyer or as a director, and ultimately can lead to a lack of adequate coverage altogether.
- Higher standard/greater liability: will a director who is also a lawyer be held to a higher standard in what they know or should know about company matters? This question has been litigated and answered in the affirmative in a number of states in the for-profit context. Query whether courts would apply a heightened standard to a lawyer acting as a director of a charity.
The opportunities and pleasures of serving on a nonprofit board are manifold. Lawyers should embrace the chance to lead, learn and grow. At the same time they should be mindful of the potential pitfalls of undertaking a dual role, and take appropriate steps to mitigate the risks.
To locate board member opportunities in New York City visit BoardServeNYC.
Lesley Rosenthal is Vice President, General Counsel and Secretary, Lincoln Center for the Performing Arts and author of the bestselling Good Counsel: Meeting the Legal Needs of Nonprofits (John Wiley & Sons 2012)