Jessica Whelan outlines 3 things to know about being your client’s board member
BGD attorney Jessica Whelan and co-author James J. Bell recently outlined the three things to know about being your client’s board member in a column published for The Indiana Lawyer.
According to Whelan and Bell, there is nothing unethical about being your client’s board member; however, there are common ethical issues that may arise from time to time.
First, the attorney-client privilege of the corporation may be put in jeopardy. Generally speaking, the lawyer’s duty of confidentiality to a client under Professional Conduct Rule 1.6 and the board member’s fiduciary duty of confidentiality to the corporation are consistent. However, the obligations of lawyer and board member can separate when it comes to the attorney-client privilege.
In some cases, the lawyer can fall into both sides of the spectrum. The lawyer who is a board member will be inclined to offer business advice as well as legal advice. The difference between business and legal advice can become unclear and information that might be privileged could lose its privileged nature when the lawyer giving advice is also on the board. In addition, some courts have found that the attorney-client privilege is much narrower when the lawyer is also a board member. A lawyer board member should clearly separate legal advice from business advice and make clear when providing privileged legal advice.
Secondly, conflicts of interest may arise in the lawyer-board member’s dual relationship. It is important that a lawyer/board member be aware of the conflicts that may arise that limit the lawyer-board member’s ability to exercise independent judgment with respect to decisions as a board member.
To determine whether a conflict of interest has risen, the lawyer-board member must determine whether the representation of the business will be “materially limited” by the other responsibilities of the lawyer. The lawyer-board member must be aware of conflicts which may limit their ability to exercise independent judgment as a board member when voting on matters that will affect them as a lawyer on the law firm.
Finally, Whelan and Bell outline how the lawyer-board member should advise the client of the implications of the dual role as board member and counsel. They explain that it is important for a lawyer to alert business management and the rest of the board of the potential issues that could arise when serving as a lawyer-board member as they come up. This discussion should occur before the lawyer becomes a board member, or before a board member is engaged as the business’s lawyer. This conversation should include considerations of risk to the attorney client privilege and the potential for conflicts of interest. A successful conversation should assure the lawyer that the client is aware of the risks that could arise. It may also behoove the lawyer, business and clients to provide a summary of the conversation and risks in writing to the management and board.
“3 things to know about being your client’s board member” originally appeared in the May 18-21, 2016 edition of The Indiana Lawyer.