Avoid common mistakes when serving on outside boards

Beyond the practice of law, many attorneys look for ways to engage with the business community as well as the community-at-large. In particular, given their experience and judgment, attorneys may be well-suited to serve on the boards of directors of outside organizations. Such a role can help attorneys raise their profiles and develop business or, with respect to charitable organizations, attorneys can make a difference in their communities.

However, while there is nothing inherently improper about an attorney's service on the board of an outside organization, it can create unintended issues for the attorney, the attorney's law firm, and/or the outside organization. Below are some problems that can arise without sufficient advance planning before agreeing to serve on an outside board.

Potential Risks

One recurring issue when attorneys serve on outside boards is the difficulty in maintaining a distinction between an attorney's service as a board member and the attorney's occupation outside the board room. Indeed, there is generally risk inherent in an attorney's inclination to provide legal advice to the organization when the attorney's role is that of board member (and not legal counsel). This can be especially difficult when the board is considering matters that have a legal component for which the attorney's opinion might naturally carry more weight as compared to other non-attorneys on the board.

Accordingly, it can be problematic where the board is seen as relying upon the advice of the attorney board member because it may create the impression that an attorney-client relationship exists between the attorney and the board. Among other risks, this could cause other board members to 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.

In addition, if the organization acts on the attorney's advice and problems arise, the organization may look to blame the attorney. Worse yet, the attorney may find that she has no insurance coverage available for a claim made against her by the organization. Indeed, depending on the scope of the coverage obtained by the organization, a 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. No attorney wants to be left facing personal liability where adequate insurance is not in place to protect the attorney.

Regardless of whether there is an attorney-client relationship between the attorney and the organization, an attorney's service on a board can also give rise to risks for the attorney and the attorney's law firm. While conflict of interest issues may traditionally involve conflicts between multiple clients, Rule 1.7 of the California Rules of Professional Conduct provides that "[a] lawyer shall not, without informed written consent ... represent a client if there is a significant risk the lawyer's representation of the client will be materially limited by the lawyer's responsibilities to or relationships with...a third person, or by the lawyer's own interests." Thus, even if the organization is not a client of the attorney, the attorney's service on the board of the organization may create conflicts with clients of the attorney's firm to the extent that the interests of those clients conflict with the organization's interests.

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.

Tips for Limiting Risk

Although the risks may be serious, with some advance planning law firms and attorneys can protect themselves while enjoying the benefits of the attorney's service on outside boards. What works best for each law firm likely depends on the firm's client base, goals, and risks. For example, law firms can consider enacting a written policy governing service on outside boards. This policy can vary depending on whether the entity is for-profit or non-profit, or where the organization is a client of the firm. However, regardless of the type of entity, firms may wish to include the attorney's relationship with the organization in the firm's conflicts clearance database to avoid any potential conflicts with current or future clients.

In addition, the law firm may wish to require firm approval before agreeing to any board service, and the firm may choose to retain 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 reevaluate the relationship in the event that circumstances change.

Next, confirming the scope of the relationship with the organization up front can help avoid any ambiguity that could lead to negative consequences later. For example, 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 client privilege.

Accordingly, in the event that legal issues arise, the attorney can 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 to remind the attorney that the law firm's professional liability insurance generally will not cover claims arising out of the attorney's service on the board. Instead, the attorney can confirm that the organization has adequate directors and officers insurance and appropriate indemnification provisions for board members.

Finally, the law firm might consider restrictions on the use of the firm's name or logo in the organization's marketing, public relations, or external literature. While it may be acceptable to identify the board member's association with the law firm under certain circumstances, requiring advance approval for the use of the firm's name or logo can avoid any false impressions that the law firm endorses the viewpoints of the organization.

By being aware of the associated risks and by taking proactive measures to limit those risks, service on outside boards can be a rewarding experience for attorneys without having to worry about the potential downsides.