Last updated Oct. 2024

Lawyers have insights that often make them attractive to charitable and not-for-profit boards of directors. There are positive benefits to lawyers, their firms and their communities from having them serve as directors.

But there are risks as well.

A board member who happens to be a lawyer can inadvertently slide into the role of legal advisor to the not-for-profit. And, if that lawyer is formally retained as counsel, conflict issues are not far behind.

While the Code of Conduct doesn’t directly apply to boards of directors, it does have an impact on a lawyer’s activities that may affect their clients and firm.

One lawyer, many hats

A lawyer can serve a not-for-profit in two ways: (i) as a member of its board of directors, or (ii) representing it as legal counsel, through the board. Either way, the lawyer must always be clear to distinguish the capacity in which they are acting:

• The lawyer should confirm their role with the not-for-profit in writing.
• If the lawyer will be offering legal advice, a comprehensive retainer agreement should be entered with the not-for-profit client, clearly laying out the scope of the retainer.
• If the lawyer will be acting as a board member, other directors will often lean on them for legal advice and may stumble into a solicitor-client relationship if they aren’t careful. The lawyer should remind their co-directors periodically of this limited role. For example, the lawyer might provide an annual letter to the chair confirming they are unable to provide legal advice to the board. The lawyer can ask that meeting minutes confirm that their contribution on a topic reflects their business judgment and is not legal advice. The lawyer may suggest the board retain counsel and ensure this is reflected in the minutes as well.

In either capacity, the lawyer should run a conflict check and obtain law firm approval before getting involved.

Who is the client?

When an individual consults a lawyer on behalf of a not-for-profit, the client is the organization, not the individual. The lawyer acts for the organization, not the instructing individual. In all cases, the lawyer should be satisfied that the person giving instruction has actual or ostensible authority to do so.

A cautionary tale

A lawyer can serve concurrently as a director and counsel for a not-for-profit, but multiple roles raise multiple concerns:

• The lawyer’s independent/objective judgment and fiduciary obligations in either role may be affected;
• The line between legal advice and business advice may become blurred;
• Solicitor-client privilege may be jeopardized.
• The lawyer may find themselves in a conflict of interest (discussed further below).

Acting in both roles must be approached with caution. A lawyer must continually satisfy themselves that they have taken steps to identify the capacity in which they are acting, both for themselves and other board members. However, such efforts may not eliminate the risk of the circumstances described above from arising.

Competence

As with all clients, a lawyer must perform all legal services undertaken for not-for-profits to the standard of a competent lawyer.

Organizations will often look to lawyers on the board for legal advice on issues that may be outside the lawyers’ expertise. A lawyer serving in any capacity must resist this pressure and insist that matters beyond their experience are referred to outside counsel.

Independence

Any time a lawyer wears multiple hats, they should be particularly vigilant in case the ability to give independent legal advice becomes compromised. This may happen if:

• A not-for-profit seeks a legal opinion about board decisions in which the lawyer participated.
• The not-for-profit instructs the lawyer as counsel to pursue objectives that the lawyer opposed as a board member.
• The board is considering whether to formally engage their firm.
• The lawyer represents the not-for-profit in litigation in which board members are also parties.

A lawyer serving as a director should explain to the board that conflict of interest considerations might require them to recuse themselves from certain discussions or require them, and their firm, to decline to represent the not-for-profit in some cases.

Confidentiality

A lawyer acting for a not-for-profit must hold in strict confidence all information concerning the business and affairs of a client acquired in the course of their professional relationship. They must not divulge confidential information unless:

1. the organization authorizes the lawyer to do so, expressly or implicitly;
2. required by law or a court to do so;
3. required to deliver the information to the Law Society; or
4. otherwise permitted under the relevant rule of their provincial Code of Conduct.

A lawyer should remind their co-directors that solicitor-client privilege may not apply if they are offering business, not legal, advice, and if they are acting solely as a director rather than as legal counsel.

Conflicts of interest

Lawyers have an ethical duty to avoid conflicts of interest.

A lawyer must not act for a not-for-profit when there is a conflict unless all affected clients consent and the lawyer reasonably believes they are able to represent the clients without a material and adverse effect on them.

Factors that might reveal a conflict of interest include:

• the immediacy of the legal interests;
• whether those interests are directly adverse;
• whether the issue is substantive or procedural;
• the temporal relationship between the matters;
• the significance of the issue to the clients’ immediate and long-term interests; and
• the clients’ reasonable expectations in retaining a lawyer in those matters.

A lawyer should consider whether a conflict exists not only at the outset but throughout the retainer. New circumstances or information may reveal an unanticipated problem.

Some cases will clearly fall within the scope of the bright line rule articulated by the Supreme Court of Canada: “the bright line rule prohibits a lawyer or law firm from representing one client whose legal interests are directly adverse to the immediate legal interests of another client even if the matters are unrelated unless the clients consent.”

Where that test doesn’t apply, a lawyer may still be prevented from acting if doing so would create a substantial risk that loyalty to or representation of a client would be materially and adversely affected by a lawyer’s own interests or by the lawyer’s duties to another client, a former client, or a third person.

Eyes on the ball

A lawyer must never lose sight of their ethical obligations when assisting a not-for-profit, regardless of whether they are doing so for altruistic or monetary reasons.

At the end of the day, the steps a lawyer must take are quite basic: be aware of ethical obligations; exercise good judgment; and effectively communicate and document the decisions made and actions taken when dealing with conflicts of interest.

Keeping these precautions in mind will protect not only the lawyer but also the not-for-profit and other clients.

The Law Society gratefully acknowledges the original contributions to this article made by Dan Ebner of Prather Ebner LLP in Chicago.