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Is it a conflict for director to do legal work for nonprofit?

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Is it a conflict for director to do legal work for nonprofit?

I am an attorney and serve on several nonprofit boards. Is there any conflict if those nonprofits hire me to do legal work for the organization?

Yes.  There is always a conflict when a director provides goods or services to an organization for which the person also serves as a director.  That does not mean that it is illegal or insurmountable, but both sides need to recognize that a conflict exists.  Perhaps the most direct and obvious conflict where the lawyer is hired to represent the organization is the potential excess benefit if the compensation is not reasonable.  The director/lawyer is by definition a “disqualified person.”  (See Ready Reference Page: “Charities Must Avoid Excess Benefit Transactions”

There are a lot of other potential conflicts that can easily be overlooked.  The organized bar has struggled with this issue for years, but has generally come down on the side of permitting the representation.  My own sense is that a lawyer representing the organization should assume all of the downsides of an attorney-client relationship, without assuming the privileges of attorney-client relationship.  (See Ready Reference Page: “The Lawyer on the Board: Playing a Dual Role”

My concern, however, arises less from the clear attorney-client relationship established in the traditional sense with a clear scope of representation.  My concern arises when the “lawyer on the board” does not realize that an attorney-client relationship exists or tries to disclaim it.  Nonprofits frequently have a board slot for a lawyer who will provide free legal assistance and they look at that lawyer as a primary legal advisor, even where there is an independent paid attorney on retainer.  Since the attorney-client relationship arises in the mind of the putative client, it may not be possible for the lawyer on the board to disclaim the relationship.  Lawyers are generally unable to keep their mouths shut when a legal issue comes up, and they would probably violate their director’s fiduciary duty to the organization if they did.  Our advice to lawyers serving on the board is to assume that there is an attorney-client relationship and treat the relationship as they would for any other client matter.

Tuesday, January 2, 2018

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