Ethically speaking: Working with not-for-profit organizations

  • July 01, 2015
  • Len Polsky

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 there that may affect his clients and his 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 as a lawyer representing it through the board. Either way, he must not be involved in any outside interest in a way that makes it difficult to distinguish the capacity in which he is acting.

  • He should confirm his role with the not-for-profit in writing.
  • If he will be offering legal advice, he should issue his usual engagement letter, laying out the scope of his retainer.
  • If he will be acting as a board member, other directors will often lean on him for legal advice and he may stumble into a solicitor-client relationship if he isn’t careful. He should remind his co-directors periodically of this limited role. For example, he might provide an annual letter to the chair confirming that he cannot provide legal advice to the board. He can ask that meeting minutes confirm that his contribution on a topic reflects his business judgment and is not legal advice. He may suggest the board retain counsel and ensure that 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 satisfy himself 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 his 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 their 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 his experience are referred to outside counsel.

Independence

Any time a lawyer wears multiple hats, he should be particularly vigilant in case his ability to give independent advice becomes compromised. This may happen if:

  • A not-for-profit seeks his legal opinion about board decisions in which he participated.
  • The not-for-profit instructs him as counsel to pursue objectives that he opposed as a board member.
  • The board is considering whether to formally engage him or his 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 him to recuse himself from certain discussions or require him, and his 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. He must not divulge confidential information unless the organization authorizes him to do so, expressly or implicitly.

A lawyer should remind his co-directors that solicitor-client privilege may not apply if he is offering business, not legal, advice, and if he is 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 he reasonably believes he is able to represent them without a material adverse effect on his 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 his 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 he is doing so for altruistic or purely monetary reasons.

At the end of the day, the steps he must take are quite basic: be aware of his ethical obligations; exercise good judgment; and effectively communicate and document the decisions he makes and actions he takes when dealing with conflicts of interest.

Keeping these precautions in mind will protect not only the lawyer but also the not-for-profit and his other clients.

About the Author

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