- Solidifying the relationship with the client
- Demonstrating loyalty to the client
- Getting to better know the client’s business
- First let me say managing the risk is a matter of effort and vigilance
There is a difference in roles between an attorney acting as an outside legal advisor to a corporation AND as an attorney director!
When the obligations or personal interests as director are materially adverse to those of the lawyer as corporate counsel, the lawyer may not continue to serve as corporate counsel without the informed consent of the corporate client.
One must explain to clients that there will be times you need to recluse yourself from voting or decision making. For instance, the lawyer- director should not participate in any decisions about choosing a course of action when the outcome could effect fees paid to the lawyer’s firm for services rendered to the corporation.
Perception to other Board members is often that the attorney is rendering legal opinion by his choice on matters. You must inform Board members that to render legal opinion you would need your firm to research matters properly, etc.
Be careful not to create a false perception by Board members that you are their personal attorneys all of a sudden.
You should also be aware that once sued as a director, the lawyer – director will be held to a higher standard of care than a non lawyer director.
BLAKELY v. LISAC
There is an increased risk of loss of the attorney/ client privilege. Every time an attorney concurrently serves as a director of a corporate client, the attorney client privilege is put in jeopardy. ATTORNEY NEEDS TO WARN CORPORATE CLIENT AND BOARD MEMBERS OF THIS! – Here I recommend if possible that you have another attorney from your firm present when legal advice is given. This could better protect the privilege.
Another risk is lack of insurance coverage. Professional Liability policies generally exclude coverage for claims arising out of activity as a director or officer of a corporation. Additionally, D&O policies generally exclude legal malpractice claims.
CNA’s policy under EXCLUSIONS F “to any claim based on or arising out of an Insured’s capacity as a former, existing or prospective officer, director, shareholder ……. Or any equivalent position.
SO be sure the Board has a D&O policy in place with Adequate limits!
I would also ask the corporate client to enter into a hold harmless agreement with respect to any claims of the corporation or a third party arising from your services as a board member.
Another piece of advice is to not use firm stationary for anything not connected to legal services!
If lawyers accept Board positions, the firm must enter the information into its conflicts database and withdraw from the Board if a conflict with the firm’s clients arise.
The ABA’s Formal Ethics Opinions 98-410 offers a very thorough consideration of these and recommendations for handling them.
Reporting requirements of 2002 Sarbanes-Oxley Act raise potential issues as well. Is the attorney-director who does not practice before the SEC subject to the reporting up requirements of the Section?
Is the Attorney’s firm required to report suspected violations of the type enumerated in the regulations if heard solely in his role as director?
Again let me say that when it comes to sitting on a client’s Board, managing the risk is matter of determination and diligence.