The firm's motto is: "Still working. Still committed. Still here to make a difference."
After several years of serving on non-profit boards here in Maryland, my tenure has ended and I can now look back as an attorney board member and, hopefully, provide some guidance to other lawyers who may be considering or beginning service on non-profit boards.
Though it is a very important community activity, service on non-profit boards is not without risk for all boardmembers --- including lawyer boardmembers.
1. Directors and Officers (D&O) Liability Coverage
Do not become a member of a non-profit board of any type without sufficient Directors and Officers (D&O) liability coverage. Be very aware of the organization board's (i) amounts and (ii) limits of coverage, and (iii) types of acts (errors and omissions) coverage.
2. Lawyer's Professional Liability Coverage
For lawyer-directors (lawyer-boardmembers), professional malpractice insurance coverage is always a background issue. Several issues in this regard are important.
- Will the professional liability coverage cover legal services provided to a non-profit organization on a pro bono basis?
- Are there any limitations in the coverage if the lawyer is also a director of the board?
Are there any "conflicts of interest" issues that may arise with the lawyer's membership on the board?
The lawyer's firm's database should process the lawyer's involvement as a director or boardmember in order to identify and analyze the current existence of and the potential for conflict issues. A lawyer's service on a non-profit board of directors might preclude the lawyer or the lawyer's law firm from being a legal opponent (adverse) to the organization.
[see, Berry v. Saline Memorial Hospital, 907 S.W. 2d736 (Arkansas 1995)]
4. Considerations for Lawyers Prior to Board Membership
Prior to agreeing to serve as a member, director or officer on the board of a nonprofit organization, I recommend the lawyer should:
- Review the expectations of the organization for the lawyer/director concerning legal representation. For example, does another law firm provide legal representation for the non-profit?
- Understand what (if any) type of legal services the non-profit will expect of the lawyer/director or his/her law firms.
- Determine whether the non-profit will expect the lawyer/director to provide it with regular legal services and, if so, if there is a likelihood that conflicts will arise. By the way, to the extent the lawyer will be regularly providing legal services and conflicts of interest are likely to arise, the lawyer should seriously consider not serving on the board.
- Review the organization's governance documents and applicable state nonprofit law. What do the articles, bylaws, and applicable state nonprofit statute provide with regard to liability, immunity, indemnification, and conflicts of interest?
Directors of nonprofit organizations generally have two main fiduciary duties: (i) the duty of care and (ii) duty of loyalty. The duty of care requires the director to act with the care a person in a like position would reasonably believe to be appropriate under similar circumstances. The duty of loyalty requires the director to act in good faith and in a manner that the director reasonably believes to be in the best interests of the organization. The duty of loyalty also covers conflict of interest situations.
The Model Nonprofit Corporation Act (3d ed.), Revised Model Nonprofit Corporation Act, and many states' nonprofit statutes provide a process for handling conflict of interest situations, which generally requires, at a minimum, the disclosure of a potential conflict and the nonparticipation of the conflicted director in the action taken by the organization with regard to the conflict situation.
In terms of the ethical obligations imposed on lawyers in their representation of clients, Rule 1.7 of the American Bar Association Model Rules of Professional Conduct (Model Rules) provides that a lawyer may not represent a client if such representation involves a concurrent conflict of interest. Some key concepts with this particular rule are the duty of loyalty a lawyer has to the client and the need for the lawyer to be able to exercise independent judgment.
[americanbar.org/businesslaw/ "Lawyers' Service on Nonprofit Boards", Willard L. Boyd III, ABA, Vol. 18, No. 2 (Nov./Dec. 200); www.boardsource.org/KnowledgeCenter/NonprofitBoards; www.cof.org/files/Documents/ Governing Boards/ Ocober 2006]
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