The Federation of Law Societies of Canada’s Model Code of Professional Conduct encourages lawyers to act as directors of not-for-profit and charitable organizations.

The reason is simple: Lawyers have insights that often make them attractive to not-for-profit boards and 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 Model Code 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. Although provincial law societies have modified portions of the Model Code to reflect regional differences in ethical standards, the code was drafted as a national guide for Canadian lawyers and remains the starting point for our discussion.

One lawyer, many hats

A lawyer can serve a not-for-profit in two ways: as a member of its board of directors and representing it through the board. Either way, the lawyer must not be involved in any outside interest in a way that makes it difficult 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, the lawyer should issue their usual engagement letter, 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.

That said, there is no prohibition against employees of the not-for-profit retaining the organization’s lawyer on personal matters.

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 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.

A lawyer must not allow involvement in a not-for-profit to impair their independent judgement on behalf of a client.

Competence

A lawyer must perform all legal services undertaken for not-for-profits to the standard of a competent lawyer.

This is more than just a hypothetical problem. 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 should resist the 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 advice becomes compromised. This may happen if:

• A not-for-profit seeks 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 acquired in the course of their professional relationship. They must not divulge confidential information unless the organization authorizes the lawyer to do so, expressly or implicitly.

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 parties consent and they reasonably believe they are able to represent them without a material adverse effect on their representation or loyalty to 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.
• 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. As the Model Code explains, “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, the Model Code cautions that 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 affected.

Eyes on the ball

A lawyer must never lose sight of his 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 the 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.

Len Polsky is the Manager, Practice Review of the Law Society of Alberta. He gratefully acknowledges the contributions to this article made by Dan Ebner of Prather Ebner LLP in Chicago.