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Law Practice Magazine

The Big Ideas Issue

Service to Nonprofits: Dealing with the Conflict-of-Interest Dilemma of Dual Service

Thomas C Grella


  • Lawyers frequently serve on nonprofit boards, which can lead to potential conflicts of interest, especially when they provide legal services to the same organizations.
  • To mitigate risks, firms should establish clear guidelines that separate the roles of board member and legal counsel, ensure proper disclosure and consult liability insurance policies to understand coverage limitations.
Service to Nonprofits: Dealing with the Conflict-of-Interest Dilemma of Dual Service

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For the many years I spent in management of my law firm, there was one obligation I feared more than anything els—Rule 5.1 of the Model Rules of Professional Conduct (RPC):

“A principal in a law firm, and a lawyer who individually or together with other lawyers possesses comparable managerial authority, shall make reasonable efforts to ensure that the firm or the organization has in effect measures giving reasonable assurance that all lawyers in the firm or the organization conform to the Rules of Professional Conduct.”

The scariest part of the rule, however, followed: “A lawyer shall be responsible for another lawyer's violation of the Rules of Professional Conduct if . . . ” (emphasis added)

Out of management, and supervising others, I thought I was finally relieved of the scariness of Rule 5.1, until those in management bestowed upon me the title “counsel to the firm,” and therefore keeper of the code and arbiter of all ethical dilemmas. As I took on this position, a part of me felt like Michael Corleone in Godfather III: “Just when I thought I was out, they pull me back in again.”

Lawyers in leadership (i.e., anyone who has authority over or manages other lawyers or staff) must know and understand Rule 5.1. It is not just limited to self-application, but to everyone working with, or for you. The responsibility is shared, whether you are a small firm or large firm lawyer. I was reminded of this responsibility recently when asked to help the firm with a difficult situation regarding a lawyer member of my firm and his service as chair of a local nonprofit board.

I started at my firm in 1988. From the day I arrived, to the present, firm leadership has always supported, encouraged and sometimes even pushed members to actively serve our local community. From time to time the service rendered is active nonprofit board participation. Nonprofits desire lawyers on their boards. I suppose lawyers would like to believe it is due to some acknowledgment by others that lawyers have special wisdom and insight, including superior logical reasoning in decision making. It might just be, however, that legal services are expensive and a lawyer serving on the board might be willing to provide legal services to the organization at a discounted rate.

Not only do our firm members serve as members of many local nonprofit boards, but in fact the firm is also legal counsel to many nonprofits. Occasionally, the two intersect and a lawyer member of the firm serves on the board of a nonprofit the firm represents. Lawyers volunteering their time to serve as members of local nonprofits are to be encouraged and commended, as are lawyers serving as counsel to local nonprofits (many times at reduced rates). However, lawyer service to a nonprofit as both board member and legal counsel, though not prohibited by the RPC, is fraught with danger, and should only be taken on carefully, with full consideration of potential pitfalls.

The Rules

RPC 1.7 is a rule that describes conflicts of interest––when they exist, and when consent to representation might be accomplished. Comment 35 describes application of RPC 1.7 to service by a lawyer on corporate boards, for profit and not-for-profit. Without suggesting prohibition from such service, the comment warns that lawyers need to carefully consider how to deal with conflicts of interest. The Comment was not guidance enough however, and the in-depth ABA Formal Opinion 98-410 was issued to help guide lawyers in how to deal with the sticky situation of making sure other board members understand the lawyers primary role of director, the dual role of lawyer if asked to perform legal services, the lawyers involvement in legal matters when also having helped make decisions related to the legal representation and the problem of a lawyer working on a legal matter where as director he or she has opposed, or will likely oppose, the action being considered.

In my research, I also found (and highly commend to you) an opinion of the D.C. Bar (Legal Ethics Committee Opinion 382). It is not only instructive, but practical when it comes to the various issues a lawyer serving as a nonprofit board member might face.

Liability Insurance

Though the RPC encourages public and community service, lawyers need to be aware what services are covered by their liability carrier, and what services run the risk of uninsured liability if the lawyer decides to mix legal service with nonprofit board service. Legal services and some ancillary acts are covered activities in typical liability policies. However, at least in the policy issued by the carrier used by many lawyers in the state of North Carolina (and I would imagine this is not unique), the following exclusion applies:

“any claim, or any theory of liability asserted in a suit, based in whole or in any part upon any Insured's act(s) or omission(s) occurring, in whole or in any part, while such Insured is, in any way, or to any extent, acting in his or her capacity as an owner, officer, manager, director, shareholder, member, partner, trustee, employee, or fiduciary (other than as covered by the provisions of INSURING AGREEMENT II. Coverage – Fiduciary) of a business enterprise, regardless of whether for-profit, or of a not-for-profit or charitable organization, or of a pension, welfare, profit-sharing, mutual or investment fund or trust.”

Lawyers who sit on nonprofit boards are routinely asked questions about legal matters that arise. I doubt that many are aware that they may not be covered if what they say leads to a claim. In many states there are statutes that protect the good faith conduct of nonprofit board members. Even so, I believe there are ways to retain the protection provided in typical liability policies, in addition to enjoying the protection of state statutes.

Practical Solution

After consideration of our recent experience regarding nonprofit board service by a lawyer member, and the possible rendering of legal advice related to such service, our firm established a set of guidelines to allow for the greatest involvement in our community, while also protecting both the client, and the firm as an organization. Our plan might not be the right plan for every firm, but I offer it as helpful information for consideration:

  1. The firm still encourages, as does the state bar, volunteer service on nonprofit boards, even those in nonprofits we represent.
  2. If taking on a board role for a nonprofit, it should be made clear to the board that you are not the lawyer for the board, though it is impossible to divorce your knowledge as a lawyer from your decision making as a board member. From the outset of service, it needs to be clear that your service, your decision making and any opinions you give while serving on the board are being made as a board member, and not as attorney for the board or the rendering of legal services, even if the firm represents the nonprofit.
  3. In most situations, the board may not seek outside counsel on relatively small legal issues. It is not practical to recuse oneself from comment as a board member that might otherwise be considered legal advice. For issues that do not need to be sent outside for research or opinion, the lawyer board member should make clear that in giving any comment that he or she acts solely as a board member, and not as legal counsel. Even though stated at the outset of board service, the member should use his or her discretion to determine if this needs to be restated based on context.
  4. If the association needs to seek outside legal advice or counsel, and the firm is to be employed, the member of the firm who sits on the board should not be the lawyer in the firm that undertakes the matter. The firm’s best practice will have all such legal work provided by lawyers other than the board member, with the lawyer board member receiving the firm’s legal advice, opinion or counsel in the same manner as the rest of the board.

There are no absolute solutions when it comes to this dilemma. Much will hinge on the rules adopted in your state, and the exclusions in your own liability policy. One thing you should not do, however, is to sit back and allow your lawyer members to ignore the possible consequences of mixing nonprofit board and legal service.