By Justin A. DeVault and Mark B. Weinberg
As previously mentioned in Part 1, it is becoming increasingly difficult to find members to serve on your nonprofit board. Where the nonprofit asks lawyers to serve on it’s board, the likely response will be “I’d love to, but I’m a lawyer.” In Part 1 of this article we discussed how conflicts of interest arise and can prevent a lawyer from serving as a director.
It is a difficult task for the lawyer to sit as a member of the board due to the many potential conflicts of interest that may arise. Whether the conflict stems from lawyers voting on activity adverse to the interests of their other clients or would materially restrict the ability of the lawyers to act as directors, lawyers must be attuned to these issues if they are to sit on your nonprofit board. In the lawyer’s eyes, sitting on your board may be just another thing to worry about. It gives the lawyer another set of duties to juggle: the interests of the board versus the interests of his other current or future clients. This second and final part of this article will provide some examples of real world conflicts of interest issues and then discuss the best practices to avoid conflicts of interest.
In order to demonstrate a conflict of interest issue, imagine you are a highly regarded government lawyer specializing in environmental protection and serve on the board of a nonprofit waterway preservation charity. In this scenario, you are well educated on every aspect of business the nonprofit deals in. The following potential conflicts could arise: (1) the nonprofit may oppose a regulation of the very government agency for which you work and the board must approve the position before a written letter of opposition is submitted to that agency; (2) if despite this opposition the agency not only adopts the regulation but sues the nonprofit for blocking access to a waterway in protest, violating some portions of the environmental statute interpreted by that regulation, naming each member of the board as a co-defendant; and (3) during the discovery phase of that litigation, minutes showing that the boycott was your idea surface. Given these potential developments you can see why it is so important to understand the courses of action that can be taken to avoid conflicts of interest.
First and foremost every charity should have a written conflict of interest policy that defines conflict of interest, identifies the individuals covered by the policy, requires disclosure of information that may help identify conflicts, and specifies procedures to be followed in managing conflicts of interest. But that is only a starting point. Secondly, because of the widespread misconceptions about lawyers, confidentiality and waiver of privilege, it would be wise to start every meeting of the board with the statement that “Bob is a lawyer; he’s just not our lawyer, so there is no confidentiality or privilege in discussions with him here.” The lawyer, in communications with charity staff, officers, and members who are not board members should make it clear that he is only speaking as a director and not as their lawyer or lawyer for the nonprofit.
To avoid conflicts, the board chair of the nonprofit organization should meet with all potential lawyer-directors and discuss the likelihood of their role as director interfering with their practice. Remember, lawyers must not assume any position that would prevent them from devoting their entire energies to their client’s interests. Therefore, it is essential for the organization and the lawyer-prospect to determine if there is any likelihood the lawyer’s loyalty and independent judgment could be jeopardized. If the organization and lawyer determine that a conflict of interest is likely to occur (as in the environmental dispute discussed above) they should agree the lawyer is not a good candidate for that reason. If, on the other hand, the lawyer being considered for the environmental NGO’s board practices only communications law, they could well decide the chance of conflicts arising is remote and would be covered by the general conflict of interest policy.
By attending to these issues in advance,the next time you ask a lawyer to serve on your board the response may well be “I’d love to serve on your board – and I’m a lawyer.”