Attorneys who sidestep the pitfalls can help nonprofit groups
Attorneys can profit in many ways from service on the boards of nonprofit organizations.
“It’s prestigious to serve on certain boards. It will look good on your résumé” said Professor Karin Werner, director of the Milwaukee-based Marquette Legal Initiative for Nonprofit Corporations. “You can make new friendships and connections that can be helpful in your career.
“There are a lot of jaded attorneys out there. But this is one way to use their skills and position to do some good.”
It’s also a good way for attorneys to continue their educations outside of their regular practice areas, said Melissa Scholz, of Scholz Nonprofit Law LLC, Madison. Working with nonprofit organizations exposes attorneys to risk assessment, employment-related topics and basic contracts.
“You’ll get a very practical perspective on what the real issues are, as opposed to the theoretical,” Scholz said. “I describe it sometimes as ‘doing triage.’ Most organizations don’t have the luxury of lawyering every issue the way we might want to or the way we were taught in law school. It’s just not practical for them.”
Preparing to serve
But attorneys should do their due diligence before agreeing to serve.
Find out whether there has been a large turnover of staff members or directors, and inquire about business practices, in particular how the finances are managed, Scholz said. Try to get a sense for how well everyone gets along and how well the organization collaborates with other groups.
Johanna Allex, a Madison lawyer with Christenson and Allex LLC who has 14 years of experience on the boards of nonprofit groups, said it’s important to ask about the organizational documents, and in particular IRS Form 990.
It’s available online and reveals where a group’s money comes from and how it’s spent, including salaries, Werner said. It sometimes raises red flags, such as when there are loans outstanding at the end of the year or if the compensation seems lavish.
In addition, Allex said, attorneys should ask how often the board meets and make sure the organization’s mission resonates with the attorney.
“The founders of a nonprofit,” she said, “tend to be very committed to the mission of the organization.”
Another consideration is whether the nonprofit group has directors’ and officers’ liability insurance.
But even if the group does not have the insurance, Werner said, Wisconsin and the federal Volunteer Protection Act offer protection from personal liability.
“So I’m not necessarily a believer in D and O insurance,” she said, “although it can be a great extra comfort to some people.”
Allex said attorneys also should ask whether the board has a policy and procedures regarding conflicts of interest. If not, she said, drafting those might be the attorney’s first task, followed quickly by boning up tax, corporate and other business entities’ law.
Once the position has been accepted, Allex said to bone up on tax, and corporate and other business entities’ law. She highly recommends treatises by attorney Bruce Hopkins. Classes and CLEs on tax-exempt organizations are occasionally offered; M-LINC hosts them from time to time, Werner noted. In addition, groups such as the Nonprofit Center of Milwaukee and BoardStar offer board training.
In Madison, the university’s Center for Nonprofits, the Center for Change and United Way of Dane County offer board training, while the Alliance for Justice offers training with an emphasis on lobbying and advocacy, Scholz said.
Manage the risk
Organizations that recruit attorneys to serve on boards do so for a legal perspective that can sometimes fall under the umbrella of legal advice, Allex said. It’s important for attorneys to make a distinction between serving as directors with fiduciary duties and serving as people who can provide legal services, with the attendant ethical obligations.
If attorneys opt for the latter, a best practice is to give malpractice insurers notice and simply open up a file as a new client, to ensure coverage.
While this isn’t a commonplace scenario because nonprofit groups generally avoid litigation, Scholz said attorney-client privilege can be inadvertently waived if there is confusion regarding whether an attorney/board member is providing legal services or serving as a director.
The avoidance of conflicts of interest is a central concern. For example, if the board is discussing dealings with another entity that is an attorney’s current or past client, the attorney needs to be careful.
Allex said she reads meeting agendas carefully in advance to look for those kinds of situations, and she’ll recuse herself for that portion of the meeting.
Werner said the gray-area conflicts are the most frequent, when an attorney is trying to help rather than obtain any personal benefit but inadvertently creates the appearance of a conflict. For example, the nonprofit group might want to lease space from a commercial property owned by the attorney, who’s offering discounted rent.
The board can take advantage of that, but the attorney shouldn’t participate in the vote.
Some attorneys shy away from board service because they’re wary of the potential traps.
However, there’s a dearth of case law involving attorneys who have been found personally liable through board service, Werner said.
When using good judgment, attorneys can be great resources for boards, Scholz said.
“Go forth and serve,” she said. “Just know the boundaries.”