Quandaries & Quagmires: Serving on a nonprofit board in a nonlegal capacity

Under Rule 6.1, Minnesota Rules of Professional Conduct, lawyers should aspire to provide at least 50 hours of pro bono legal services per year. Eligible service includes work for charitable organizations addressing the needs of the disadvantaged. Serving on the board of a nonprofit organization can be a particularly fulfilling way for lawyers to achieve this annual goal since it allows them to connect with personal causes of interest while also providing the organization with critical access to business connections and financial support within local communities.

This important, meaningful work is not without risk, however, as ethics issues centered around role confusion, competency and conflicts of interest can arise. This article is not intended to discourage lawyers from serving on nonprofit boards but rather to increase their awareness of ethical responsibilities and how to minimize risk, which serves both the lawyer in their volunteer role and the overall experience for the nonprofit organization.

Role confusion and competency

Lawyers possess legal knowledge and skills that make them attractive candidates for nonprofit boards, which in turn can lead to role confusion. Lawyers need to manage expectations regarding their role responsibly. Most nonprofit organizations do not engage regular legal counsel. Lawyers serving on a nonprofit board often find themselves in the unenviable situation of navigating being asked to provide legal advice, which can lead to the inadvertent creation of an attorney-client relationship with the organization.

Consider this situation: When a lawyer gives a particular opinion to the executive committee of a nonprofit organization, is the lawyer communicating as a board member or as a lawyer serving the board? It can be hard to differentiate. Avoiding the slippery slope of turning into a lawyer who represents the nonprofit organization through its board is dependent on whether the recipient of the communication knows in which capacity the opinion is being offered. Lawyers need to consider that their words, even when offered in the role of a board member, may be perceived as legal advice. Other board members or employees of the nonprofit organization may not be able to distinguish this important nuance. Lawyers need to proactively manage expectations when they are serving in a nonlegal capacity on a nonprofit board. What can lawyers do to clarify their role?

First, lawyers need to have their roles straight in their own heads. The lawyer should ask: Am I serving as a member of a board or am I representing the nonprofit organization through the board? Lawyers should be aware of the general rule for determining the existence of an attorney-client relationship, even when one is not intended, and conduct themselves in accordance. Attorney-client relationships can be created by contract but also by tort theory. If a client objectively and reasonably believed that a lawyer was giving them legal advice, an attorney-client relationship is likely to be found. See generally, Togstad v. Vesely, Otto, Miller & Keefe, 291 N.W.2d 686, 693 n.4 (Minn. 1980) (citation omitted).

Creations of unintended attorney-client relationships sometimes result in attorney discipline consequences. See In re Severson, 860 N.W.2d 658 (Minn. 2015) (lawyer publicly disciplined for creating an attorney-client relationship with a client under a tort theory and misconduct involving a conflict of interest and improper business transaction with a client). Lawyers can create unintended attorney-client relationships both with a nonprofit organization as well as with individual board members who may also seek out guidance on their own legal situations.

Second, to prevent confusion, lawyers need to clarify their role to the nonprofit organization’s leadership and other board members as soon as they start serving then repeat as often as necessary. This can be achieved by sending the nonprofit organization a letter documenting their role and setting limitations on what the role entails, such as excluding the provision of legal advice for the organization or board members. A lawyer can also state clearly during a board meeting that any comments being offered are business advice and not intended as legal advice by a lawyer. If pushed for legal advice, a lawyer should recommend the board hire outside legal counsel and offer to make a referral to a low-cost legal provider, where feasible.

Third, competency is a significant concern that frequently overlaps with role confusion. Nonprofit organizations are often looking for free legal guidance. Lawyers serving on nonprofit boards, even when only serving in a board role, may be asked to opine about areas of law in which they do not possess sufficient knowledge. Lawyers should be particularly diligent about clarifying their role in these instances. Under Rule 1.1, MPRC, lawyers should temper their comments in areas where they do not have the requisite knowledge to competently opine. A lawyer who provides incompetent advice to an unintended client is a worst case scenario to avoid.

Conflicts of interest: Intake and screening suggestions for firms

When a lawyer’s role is limited to only acting as a board member, conflicts can still arise due to a lawyer’s responsibilities to other current clients, former clients, and even the lawyer’s personal interests. Under Rule 1.7(a)(2), MRPC, a conflict can develop if there is a “significant risk” that the lawyer’s ability to represent a client will be “materially limited” by the lawyer’s service on a nonprofit board. The lawyer’s service on a nonprofit board needs to be analyzed as a responsibility to a “third party” or even a “personal interest” of the lawyer that might materially limit the lawyer’s ability to zealously advocate for the client under Rule 1.7(a)(2). Likewise, adversity or even competition for resources between a client and the nonprofit organization can impact the lawyer’s ability to effectively serve on the board. Such situations are rife with dysfunction since the lawyer has both an ethical and personal financial interest in the client’s successful outcome.

Most law firms encourage their lawyers to become involved in nonprofit organizations as part of the firm’s commitment to establishing a community presence. Law firms, regardless of size, are encouraged to develop a specific intake process for nonprofit board service to track and prevent other lawyers from unwittingly representing a client in a matter adverse to any nonprofit organization on which another lawyer in the firm serves. A lawyer contemplating board service should run the nonprofit organization through the firm’s intake and conflict system just like any prospective client. The nonprofit organization should remain in the firm’s conflict system as a current conflict for the duration of the lawyer’s tenure on the board. After the lawyer’s tenure is completed, the conflict should remain in the system as a former client conflict in order to screen for any conflicts of interest that could arise due to the lawyer’s board service, such as possession of confidential information due to a fiduciary role on a board.

This intake process should also note the kind of work that a nonprofit organization does to vet and protect important business relationships with specific clients or business sectors. For example, if a lawyer serves on the board of a nonprofit organization that is visibly (in the media) involved in advocating for stricter environmental oversight of a specific client, the law firm should be aware of the situation to avoid any surprises. This situation may not present a direct conflict of interest but it does create a client relationship concern that the law firm may wish to address or prevent. Developing a community presence intake system helps the law firm manage risks to its reputation. Finally, after the lawyer’s board tenure is completed, the conflict should remain in the system as a former client conflict in order to screen for any conflicts of interest that could arise due to the lawyer’s board service, such as possession of confidential information due to a fiduciary role on a board.

Additionally, a law firm may need to report attorney board service to an insurance carrier, especially where the organization has a history as a firm client and the activity involves ownership or control of the entity. Attorneys should consult their insurers or brokers to understand these requirements.

Fiduciary obligations

By statute, nonprofit organizations must be directed by a board of individuals, who are responsible for oversight of the organization. Minn. Stat. § 317A.201. Such positions carry specific statutory fiduciary duties of care and loyalty. Lawyers serving on a nonprofit board need to review the fiduciary obligations contained within Minn. Stat. § 317A.251. These include a general working knowledge and responsibility for the accuracy of the nonprofit organization’s financial records and a duty of loyalty to avoid conflicts of interest and not subvert business opportunities for personal gain. The Minnesota Attorney General’s Office publishes a booklet called “Fiduciary Duties of Directors of Charitable Organizations: A Guide for Board Members,” which is a comprehensive discussion of these important statutory fiduciary obligations. This is a good starting place for any lawyer contemplating serving on the board of directors of a nonprofit organization.

Conclusion

Lawyers serving on nonprofit boards fulfill a critical need within local communities. There are opportunities for lawyers at all levels of experience. Lawyers new to the practice of law should not shy away from board service. All lawyers benefit from taking a moment to screen for conflicts of interest and to develop a strategy to prevent role confusion. This will ensure a meaningful and ethically responsible working relationship between the lawyer and the nonprofit board.

Cassie Hanson is a legal ethics lawyer with substantial experience in the field of ethics and professional responsibility.  As conflicts and ethics counsel at Fredrikson & Byron, P.A., Hanson is focused on legal ethics, conflict prevention and resolution, legal malpractice/loss prevention and trust account compliance.  Additionally, Hanson worked for 20 years as a senior litigator and adviser at the Office of Lawyers Professional Responsibility. She investigated and prosecuted high-level attorney discipline cases.  She is an experienced trial attorney and appellate advocate who regularly argued complex attorney discipline cases in front of the Minnesota Supreme Court.  She has advised various government agencies, law firms and other stakeholders on legal ethics and professional responsibility. Hanson is a frequent public speaker on ethics and lawyer well-being.