Acting As A Director Of A Client Corporation

Once upon a time the invitation to sit as a director of a client meant prestige and guaranteed workflow for the lawyer and the firm, and legal expertise and credibility for the client. But times have changed. Today, the activity of a lawyer acting as director for a client poses significant risks and professional and ethical issues for the lawyer, the lawyer's firm and the client corporation.

The risks and issues:

• Impairment of independence of judgment
• Conflicts of interest
• Loss of solicitor/client privilege
• A higher standard of care applied
• Vicarious liability of lawyer's firm
• Inadequacy of indemnification /insurance

The prevailing trend is clear: Law firms and clients are increasingly reluctant to have a lawyer serve as a director of a client company.
Instead, alternatives should be considered.

The alternatives:

• Identify and evaluate the client's reason for sitting on the board
• Identify and evaluate your firm's position, including current and future conflicts
• Participate in board meetings as an advisor without holding office

If you choose to serve as director after considering the alternatives, be sure to adopt a risk management approach.

Tips on managing the risks:

• Treat the activity with care and seriousness
• Work with the client corporation and law firm to identify, understand and evaluate the real risks involved in having the lawyer serve on the client's board
• Do not act as counsel and have Board acknowledge in writing that you are sitting only as a director and not as a lawyer/counsel
• If do act as counsel from time to time, clarify and record whether particular input is as counsel or as director
• Refrain from participating in board discussions on issues where you as lawyer or your law firm have an interest (e.g., fees or work)
• Ensure E & O insurance is in place

Note: For a detailed discussion of these issues, see the Report of the Task Force on The Independent Lawyer, Litigation Section of the American Bar Association entitled: The Lawyer-Director: Implications For Independence. To order, email service@abanet.org or call 1-800-285-2221.