A great way for lawyers to serve in their communities is through board membership. Working with a non-profit or corporation can be rewarding. Besides running a due diligence check, lawyers need to prepare before joining a board. Here are the top five questions you need to ask before making a decision.
1. Why am I being asked to join the board?
It’s not unusual for a lawyer to be invited to join a board. Lawyers have the decision-making and critical thinking skills needed for board management. To avoid any confusion, be clear about your role.
“Understand why you’re being asked to join and assess the fit,” says Stan Magidson, president and CEO of the Institute of Corporate Directors. “Will the role you’re to play add value? Does it fit with your skills and abilities? When you join a non-profit, are you joining the board with an interest in fundraising or for a legal background? Look at the fit and see what you want to give.”
If the fit is not right, the work can become frustrating or time-consuming. Michelle Bullas experienced early in her career the pitfalls of joining a board without the right information.
“After I had been elected to my first board I sat on, I attended a function that combined boards of the past with the current board,” says Bullas, a solo practitioner in Calgary and chair of the Board of Directors for the Legal Education Action Fund. “One of the board members took me aside and said pointedly that this wasn’t a board for women who were just looking to pad resumes but they wanted to have their board members write cheques. Instant panic set in. I didn’t have any money and being relatively new to the city, I didn’t know anyone who would contribute. I had wondered what I had gotten myself into.”
Talk to the chair of the board and discuss what your role will be and set out clear guidelines on what you’re able to do.
2. What’s the financial and risk profile of the organization?
While most of these questions will be answered through the due diligence process, lawyers should keep an eye on financials. A thorough financial analysis will reveal any major issues of the organization.
“Read over the annual reports, financial statements, minutes of prior meetings,” says Bullas. “What is the financial position of the organization? Is this a startup, grassroots organization where you aren’t sure if you can make payroll at the end of the month or a charity that has a long history of steady funding? Who are their major funding sources? How stable are those funding sources? How much is government and how much is private donation?”
You shouldn’t necessarily turn down the position if a company is going through a liquidity crunch or turnover at the senior management level. “Be aware of the risk and oversight processes on the board,” says Magidson. “It can be a highly tense situation and you could potentially be involved in a crisis. The possible activity may be seen as challenging but worth it for some lawyers.”
Make sure to check the indemnification agreements for adequate D&O insurance coverage. For non-profit organizations, keep a close eye on the budgeting process.
“Not-for-profit organizations should consider putting in place a budget committee,” says Thierry Dorval, a partner at Norton Rose in Montreal and chair of the governance and directors’ liability team. “It helps to manage expectations. Always keep an eye on the budget. It links vision to reality.”
3. What’s the time commitment?
Serving on a board can be time-consuming. For young lawyers establishing their practice, non-profit organizations provide great avenues to get experience working with boards but since most non-profits operate on volunteer boards, it can be demanding.
“Put aside enough time in your schedule,” says Dorval. “In my experience, serving on a board always takes more time than anticipated. You have to be serious about it. With your practice, it might be difficult to sit on more than two or three boards.”
4. How will I be paid?
Don’t keep your focus only on remuneration. Lawyers on corporate boards should have payment sent to them directly as opposed to their law firms. This will help keep a clear distinction that the lawyer is serving on a board as an adviser and not as formal legal counsel.
“Many firms have a policy on directorship fees,” says Dorval. “Ideally, directors should keep those fees and not remit them to their law firm. This helps in showing that a director is not acting as a lawyer on the board. Obviously, you must walk the talk and not provide legal advice.”
The division between being a board member and a legal adviser came under scrutiny in the dispute between Charles Allen and Aspen Group Resources Corp., where Allen served as a board member and worked as a partner for WeirFoulds LLP, Aspen’s legal counsel. A 2012 ONSC decision dismissed Allen’s motion for summary judgement.
“The problem is whether the law firm is the service provider or if another firm is the provider,” says Magidson. “For independence purposes, the same legal service provider may not be the best. Lawyers and firms are good at thinking through these issues. It reinforces the need for thoughtfulness. Larger firms generally have processes in place to consider and, if appropriate, give their lawyers approval to join boards.”
5. Does the board have a crisis management plan?
Social media is quickly changing the way organizations manage their image. Negative stories about brands easily go viral through Twitter, Facebook and YouTube. Boards need to be equipped to deal with these issues with policies set out to protect the organization’s reputation.
“It is good to have contingency plans, a few pages on who does what and when,” says Dorval. “If there’s a crisis on a Saturday afternoon and the corporation waits until Monday morning to react, it might be difficult to catch up when social media are involved.”
Julie Sobowale is a writer and a regular contributor to CBA publications.